The Court of Appeal has dismissed an appeal by Motor Trade Finance and Sportzone Motorcyles over breaches of the Credit Contracts & Consumer Finance Act and the Fair Trading Act.
The Commerce Commission said the motorcycle and car finance businesses breached consumer protection law over fees charged in 39 loan contracts originated by Sportzone between May 2005 and July 2008. Sportzone had an agreement with MTF allowing the defunct motorcycle business to write credit contracts for buyers of motorcycles.
In September 2013 and then in October 2014 the High Court issued two judgments in favour of the commission that some fees in the lender's loan contracts were unreasonable, while rejecting other aspects of the commission's claims that MTF and Sportzone, which is in liquidation, failed to make proper disclosure of components of credit fees payable under the loan contracts. The Court of Appeal upheld the High Court judgments and dismissed MTF and Sportzone's appeal after a hearing in November, the regulator said in a statement.
Commissioner Anna Rawlings said the Court of Appeal has provided a clear statement on the approach lenders should take to the fees they charge.
"The Court's ruling provides easy to understand guidance for lenders, making it clear that credit fees should only cover costs that are closely related to the particular loan transaction," Rawlings said. "The Court of Appeal agreed with the Commission that the purpose of the CCCFA is to protect borrowers, especially vulnerable borrowers, by 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 earlier High Court decisions rejected the commission's claim that the labels used for establishment and account maintenance fees were misleading, deceptive and breached the Fair Trading Act. The regulator didn't challenge that ruling in the Court of Appeal.
MTF chief executive Glenn Todd said the Court of Appeal's decision was disappointing and he was considering whether to take any further steps. Todd said that the nature of MTF's business has changed substantially, as had the way it calculated fees and costs.
"MTF's view is this judgment will not assist borrowers to identify any unreasonable fees charged by competing lenders," Todd said in a statement on the NZX. " A borrower would not know whether a fee is unreasonable by simply looking at the dollar amount or any benchmark against commercial practice. The fees charged by MTF and Sportzone are similar to those charged by many finance companies and banks in the New Zealand market."
Last July, MTF rebuffed a takeover offer from Heartland New Zealand, in part because of the NZX-listed bank's request for information relating to MTF's dispute with the commission over the loans with Sportzone, for which Heartland wasn't prepared to enter into confidentiality agreements. At a special meeting in August shareholders rejected seven out of nine resolutions which sought more information about the Sportzone dispute and its appeal against the commission.
Last November, MTF reported a 25 percent drop in annual earnings to $6.1 million in the year ended Sept. 30, as a loss in the value of financial instruments offset gains in a growing loan book. Net interest income rose 11 percent to $45.4 million and the lender issued $415.5 million in new loans, up from $320.1 million a year earlier.
MTF has $40 million of perpetual preference shares listed on NZX's debt market, which were last quoted at 70 cents in the dollar.