KEY POINTS:
One of New Zealand's biggest money lenders to low-income borrowers is being taken to court next week in a test case over its charges for early repayment of loans.
The Commerce Commission alleges that Avanti Finance's fees for early repayment cover more than a "reasonable estimate of its
loss arising from a full prepayment", as allowed under the Credit Contracts and Consumer Finance Act.
It is the first test of this provision since the act came into force in 2005.
The manager of the commission's fair trading branch, Graham Gill, said regulations set out a formula for early repayment fees which compensated finance companies, including for any fall in interest rates since the money was borrowed.
But without commenting specifically on the Avanti case, he said several companies had taken the view that they could base the fee on the interest they lost while their money sat idle from the time a loan was repaid until it could be lent again.
"We have told the industry that they can't do that," he said.
"Some have taken it on board ... But some will be waiting for the matter to be tested in court."
Avanti Finance, owned by Auckland businessmen Glenn Hawkins and Steve Eltringham, gives personal loans and car finance, and advertises short-term finance for homeowners facing a mortgagee sale, stating, "Have defaults? No problem!"
Mr Hawkins said the company disputed the way Mr Gill had stated the legal issue.
"We have interpreted the act in a different view. Ours is a technical view of it so we have taken legal advice before we went into it," he said.
The Commerce Commission has won two convictions under the new law on different issues.
Senate Finance was fined $59,000 in November for faxing illegible contracts to clients who borrowed money to buy cars, and the partners of car finance business Dolbak Finance were fined $100,000 last year for not properly disclosing fees and charges.
Mr Gill said the commission was investigating 50 allegations of credit law breaches, including lack of disclosure, establishment fees, administration fees, default fees and insurance.
"Overall, the level of compliance is reasonably good, but there are still credit providers who haven't or are not providing the proper level of disclosure," he said.
"Our focus is on tackling credit providers where the market is the more vulnerable consumers. For example, we are investigating a number of Tongan finance companies in South Auckland and we also have other open investigations where consumers may be disadvantaged through language or understanding of the law."
* Commerce Commission: (0800) 943 600; contact@comcom.govt.nz