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An Auckland finance company has refunded $788,000 to unemployed borrowers in an out-of-court settlement with the Commerce Commission.
More than 1500 unemployed borrowers who bought cars mostly from Great Wall Motors in Otahuhu were required to insure their Club Finance car loans against the risk of redundancy despite being jobless.
The commission said a clause in the contract meant that even if the borrowers got a job after taking out the loan and were then made redundant they would not be eligible for any benefit.
Deborah Battell, director of fair trading at the commission, said the Credit Contracts and Consumer Finance Act explicitly stated that borrowers could not be required to take out unnecessary insurance.
"It is hard to think of anything more unnecessary than this kind of redundancy insurance for the unemployed.
"Club Finance and their agents should not have told their unemployed customers to take out this insurance when there was no possible way they could benefit from it.
"Many borrowers are not financially literate and do not understand what they are signing up to.
"That is why the act places strict obligations on lenders to ensure that fees, charges and insurance are reasonable and are clearly explained."
Ms Battell said that anyone borrowing money should make sure they took precautions.
"If you are borrowing money, for a car or anything else, do not sign up on the spot," she said.
"Take the contract away, and get someone who knows about finances to look at it with you."
In the settlement, Club Finance admitted breaching the act and has refunded the amount of unnecessary insurance purchased by its customers. About 1564 customers have received refunds averaging $504.
- NZPA
