Commerce Commission launches another broadside at loan sharks to enforce controls

Tuesday, 5 June 2018

Budget advisory services such as this one in Matamata are often ambulances at the bottom of the cliff. Pictured is Advisory Service Inc chairwoman Anne Motion.

The Commerce Commission has filed High Court proceedings against payday lender Ferratum in the wake of a successful prosecution against Budget Loans.

Some non-bank lenders charge eye-watering interest rates beginning at about 30 per cent a year.

Bank rates for personal loans are still relatively high between about 13 per cent to 18 per cent a year – but people who fall prey to loan sharks are generally unable to obtain bank loans.

Pam McKenzie, manager of Auckland Central Budget Consultants said people who take out higher interest rate loans often fail to read the documents they sign or find out what they are expected repay.

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'There are fees when they default, such as the cost of phone calls to chase people up, and they can end up with penalty repayments equating to several hundred per cent,' she said.

McKenzie said Ferratum was one of several companies to come to her attention and several budget services had complained to the Commerce Commission about loan sharks.

She said budget advisory services were usually the 'ambulance at the bottom of the cliff'.

The Commerce Commission is taking civil action against Ferratum under the Credit Contracts and Consumer Finance Act (CCCFA) over alleged breaches of the lender responsibility principles.

It is the first civil proceeding the Commission has filed alleging breaches of the lender responsibility principles, although it has initiated prosecutions and mediated settlements in several other cases.

The action follows the recent prosecution and $720,000 fine for Budget Loans.

The commission also wants to reopen some of Ferratum's loans on the grounds that they were induced by oppressive means and contained oppressive terms.

The commission alleges that between mid-2015 and the present, Ferratum failed to make reasonable enquiries about borrowers' requirements and objectives, failed to exercise reasonable care advertising loans, and failed to assist borrowers to reach informed decisions whether or not to enter into loans.

The commission also alleges that this conduct, together with interest rates in excess of 183 per cent, were oppressive.

In 2016 the commission conducted an industry wide investigation into a number of high cost short term lenders.

The investigation focused on compliance with the disclosure obligations and responsible lending principles imposed by the CCCFA.

Ferratum was one of the lenders contacted during that investigation. Ferratum managers could not be contacted. Companies Office records show that director Richard Yoon resigned late last year and the two current directors are James Logan and Saku Timonen.

The last profit report for the year ended 2014 showed revenue of $4.1 million and a profit of $1.2m.

The commission launched a lender website review which looked at the websites of 215 lenders to determine if they were likely to be complying with their responsibilities under the CCCFA.