UDC Finance to refund borrowers after charging unreasonable fees

UDC finance provides loans typically $10,000 or more for the purchase of motor vehicles. Photo / File

UDC Finance will refund borrowers after it was found to have charged unreasonable fees.

The finance company, which provided loans of typically $10,000 or more for the purchase of motor vehicles, reached a settlement deal with the Commerce Commission.

Between June 2015 and September 2016, UDC charged a $45 dishonour fee when a borrower failed to make a scheduled loan repayment. If the borrower remained in default seven days after the scheduled payment was missed, UDC then charged a late-payment fee. That late-payment fee varied between $45 and $73, from June 2015 to February 2021.

UDC did not oppose High Court declarations that it had contravened section 41 of the Credit Contracts and Consumer Finance Act by charging unreasonable dishonour fees and unreasonable late-payment fees.

In a statement on their website, UDC said: "On 22 March 2021, UDC Finance Limited entered into an agreement with the New Zealand Commerce Commission in relation to Dishonour Fees that it charged on loans entered into between 6 June 2015 and 4 September 2016, and in relation to Late Payment Fees that it charged to customers on loans entered into after 6 June 2015. As a result, some customers may be owed a refund for those fees."

UDC said it would be contacting affected customers directly.

UDC will compensate borrowers as follows:

• $37 for each borrower that was charged a $45 dishonour fee between June 6, 2015, and September 4, 2016.

For each borrower charged a late-payment fee between June 6, 2015, and February 2, 2021:

• A full refund of the late-payment fee for borrowers who remedied their arrears within seven days of being charged the fee, and;

• The difference between the late-payment fee paid and the amount payable had UDC charged $14 for every 14 days the borrower was in arrears (beginning at 14 days) for all remaining borrowers.

Anna Rawlings, Commerce Commission chair, said consumer credit law requires that credit fees should only cover costs that are closely related to the particular loan transaction.

"In this case, the dishonour fee and late payment fee exceeded UDC's reasonable costs. The late-payment fee covered costs that UDC had not yet incurred and that UDC might not incur at all if borrowers remedied their defaults promptly. UDC has accepted that its fees were unreasonable and has agreed to compensate borrowers for their loss."

UDC will also pay $50,000 towards the Commission's legal costs.

The Commission opened an investigation into UDC following a review of 36 lenders' fees in 2016.