TSB ordered to pay $2.47m for overcharging credit and default fees

Tuesday, 27 August 2024

Taranaki-based TSB Bank has been ordered to pay $2.47 million for charging about $3.6m more than it should have for credit and default fees.

The penalty had been sought by the Commerce Commission, after a review by the bank found it had overcharged more than 42,000 credit contract customers between June 2015 and November 2021.

The bank had since refunded the overcharges — together with any additional interest they incurred, or a use-of-money component — totalling some $6m, Justice Pheroze Jagose said in a decision in the High Court at Auckland on Tuesday.

Responsible lending provisions of the Credit Contracts and Consumer Finance Act (CCCFA) had taken effect in mid-2015. Among other things, those provisions included a requirement that a consumer credit contract must not provide for a credit fee or a default fee that was unreasonable.

“If unreasonable is to be determined with regard to whether the fee reasonably compensates the creditor for costs incurred by it, according to reasonable standards of commercial practice,” the judge said.

Read this story in te reo Māori and English here. / Pānuitia tēnei i te reo Māori me te reo Pākehā ki konei.

TSB’s standard form consumer credit contracts had been set without reference to that requirement.

Rather, the fees were based on other commercial considerations, such as fees charged by other financial institutions, and TSB’s ability to generate income, and potentially profit, from the fees.

During 2021, TSB had carried out a review of its fees’ compliance with the Act, and concluded 14 of its 35 fees were non-compliant.

It ceased charging such fees in 2021, and put in place fees that complied with the law.

TSB reported the review findings to the commission in March 2022, and provided “comprehensive cooperation” to the commission’s investigation, the judge said.

“I consider the bank’s long-term charging of unreasonable credit and default fees to be of high gravity, for which the bank is moderately culpable,” he said.

The charging of unreasonable fees struck directly at the Act’s objective of establishing efficient, fair and transparent credit and default fees.

TSB led the third tier of retail banks, below major and larger banks, ranking seventh overall by total assets.

Wholly owned by charitable trust the Toi Foundation, which paid dividends that benefited the Taranaki community, TSB made a net profit after tax of $34m in the last financial year.

The 14 instances of non-compliance included the bank charging customers more than it should have across 12 credit and default fees. The other two instances were for charging fees the bank did not have a contractual right to charge.

The decision was a reminder to CCCFA lenders that they couldn’t charge fees that were more than the costs of the transaction, commission deputy chair Anne Callinan said.

“These restrictions on fees are in place to protect borrowers and make sure Kiwi customers can easily compare loan offers – lenders need to regularly review their fees to ensure they are reasonable and not just set and forget them.”