A consumer finance company has agreed to repay $1.36 million to borrowers after the Commerce Commission found it charged unreasonable fees on its loan.
Real Finance Limited entered into a settlement with the Commerce Commission on Friday and agreed to compensate 515 borrowers who were overcharged.
It comes after the company admitted to entering into consumer credit contracts with borrowers between April 2013 and March 2020 that breached the Credit Contracts and Consumer Finance Act (CCCFA) because the fees charged exceeded reasonable costs incurred by the company.
Commission Chair Anna Rawlings said the law has been clear for many years that fees must be reasonable.
"When people borrow money to buy goods on credit, the credit and default fees they are charged are not intended to be used to cover general business expenses or to make a profit," Rawlings said.
"This case will help lenders to set fees in a way that is consistent with their obligations under credit law. It also shows that regularly reviewing your fees is not sufficient on its own. Lenders also need to act on the findings of any review."
Rawlings said Real Finance conducted annual fee reviews but didn't take action to stop the profits being generated by the fees it charged.
"If lenders find their fees are unreasonable, then the fees must be reduced. If borrowers are overcharged, the Commission's expectation is that a lender will provide a refund to affected borrowers."
The Commission used an expert from KPMG to calculate reasonable costs. The expert undertook a fee review and determined that the base establishment, administration and default fees charged by Real Finance included expenditure that did not closely relate to the matter for which the fees were charged. For the administration fee, this included general overheads such as a portion of advertising costs and staff expenses that were not closely connected with administering loans.
Real Finance has accepted that the establishment, administration, and default fees of around 4000 individual loan contracts exceeded reasonable costs and has agreed to pay a total of $1,360,010 to 515 individual borrowers who were overcharged.
The company will be contacting affected borrowers as part of the settlement and has agreed to set up a page on its website with information on the refunds owed to affected borrowers.