Final call in MTF case
Lender credit fees precedent established after Supreme Court dismisses Motor Trade Finances Ltd (MTF) appeal.
Thursday, May 12th 2016, 11:13PM
by Miriam Bell
It took 10 years, but a final verdict has been reached in the long-running legal battle between MTF and the Commerce Commission.
The two parties have been battling it out over what can be charged for various fees under the Credit Contracts and Consumer Finance Act 2003.
Following a complaint about MTF and one of its shareholders, Sportzone Motorcycles, in 2006, the Commerce Commission launched an investigation into their lending practices.
Both companies were charged with charging unreasonable establishment fees, account maintenance fees, and arrears fees on 39 finance contracts, in breach of the CCCFA.
In 2013, a High Court ruling found the fees charged were unreasonable and in breach of the CCCFA.
Then, in 2014, the High Court released a further judgement clarifying the practices lenders should adopt when charging fees.
MTF appealed both decisions to the Court of Appeal, which also found in favour of the Commerce Commission, and then to the Supreme Court.
But now the Supreme Court has unanimously dismissed MTF’s final appeal, upholding the judgments laid down in the earlier Courts.
The Supreme Court found the CCCFA indicates a transaction-specific approach to the setting of fees.
“It is not permissible to take all operating costs (or virtually all) and allocate them to one fee or the other,” the ruling said.
“The consequence of this is that any costs incurred by a credit provider will not be referable to particular credit transactions and will therefore have to be recovered in the interest rate.”
Commerce Commission general counsel Mary-Anne Borrowdale said the Supreme Court had set down a definitive ruling on the approach lenders should take to the charging of fees.
"The Supreme Court has made clear that credit fees should only cover costs that are closely related to the particular loan transaction.
“It agreed with the Commission that the purpose of the CCCFA is to protect borrowers, ensuring transparency in the costs of borrowing.
“Fees should not be used to recover general business costs or to generate profits – that is what interest is for.”
The Commission is focused on consumer credit issues, like lenders charging excessive fees and not meeting their disclosure requirements, Borrowdale said.
“We are obviously pleased that the Supreme Court has backed our approach in this case and sent a clear message to all lenders, large and small, on what the law requires.”
MTF and Sportzone have been ordered to pay $25,000 plus reasonable disbursements toward the Commission’s costs.
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