The Commerce Commission alleges the lender breached high-cost lending rules by charging interest and fees which exceeded 100 percent of initial loan amounts. (file image) Photo: 123RF
Tighter rules for high-cost lenders and scrutiny from the Commerce Commission has led to lower interest rates, refunds, and court action.
The Commerce Commission has started high court proceedings against former high-cost lender Eagle MAN Group for alleged breaches of the Credit Contracts and Consumer Finance Act (CCCFA) between 2015 and 2022.
Commerce Commission credit general manager Louise Unger said it contended the lender breached high-cost lending rules by charging interest and fees which exceeded 100 percent of initial loan amounts, and making high-cost loans available to repeat borrowers.
"High-cost lenders charge at least 50 percent in interest, and so the nature of the loans are often to satisfy a short-term, urgent need for finance. Many borrowers who sign up may therefore be in a vulnerable position when making decisions to take out the loan," Unger said.
"Restrictions on high-cost lenders are in place to provide additional protections for those borrowers."
The commission was also alleging Eagle MAN did not provide key information to prospective borrowers on its standard contracts, which would have helped them to make informed decisions.
The case is the first taken under the act and the first time the watchdog has sought financial penalties.
Christchurch-based Eagle MAN now advertised loans with an interest rate of 49 percent, along with $250 application fees, $10 monthly account fees, and $3 direct debit fees.
The legal action followed a commission review of the high-cost lending sector after tougher rules were put in place in 2020.
"Since the rules were introduced, the high-cost lenders that we reviewed have either exited the lending market or reduced their interest to below 50 percent," Unger said.
"These changes have been encouraging to see, particularly as some lenders traditionally charged up to 800 percent in interest. The reduction of interest rates has led to a cheaper cost of finance for borrowers and prevents potential harm and financial detriment."
She said several lenders had been formally warned about their behaviour and $70,000 had been returned to borrowers.
Unger said borrowers needed to prepare and know what they were signing up to with such loans, and what to do if they had financial difficulty.
"Every borrower has rights when it comes to taking out a loan. It really pays to understand those rights, so if things don't go as planned, you know what to do and who to talk to for help."