The Commerce Commission of New Zealand Monday announced a settlement with a major debt collection agency over the fees and costs the company added to certain accounts that involved repossession.
The Commerce Commission says its settlement with Baycorp (NZ) Limited (Baycorp), under which debtors have been refunded or had account balances reduced by a total of $3.5 million (US$2.9 million), sends a strong message to the credit industry that participants must comply with their obligations under the Credit (Repossession) Act 1997 (CRA).
The Commission says Baycorp is likely to have contravened section 13(i) of the Fair Trading Act 1986 by claiming to have a right, on behalf of its clients, to add collection costs, some legal and court costs and interest, onto a debtor’s balance after security items have been repossessed and sold. In the Commission’s opinion, Baycorp had no legal right to do so because section 35 of the CRA prohibits a lender from recovering more than the debt balance outstanding after goods have been repossessed and sold.
Commerce Commission Chairman Dr Mark Berry says this settlement is not just about Baycorp but is a signal to all companies involved in lending, repossession and debt collection.
“Once sale of a repossessed item has occurred, the CRA prohibits a creditor from recovering more than the debt balance outstanding after deducting the net proceeds from the item’s sale,” said Dr Berry.
The Commission considers that the issue has arisen because of a lack of awareness by lenders and debt collectors as to how the CRA applies to them.
“We are becoming increasingly concerned about the lack of understanding by many companies operating in this industry about their obligations under the CRA. This settlement puts them on notice that there are potentially severe consequences if they get it wrong,” said Dr Berry.
Baycorp has changed its debt collection practices to ensure this does not happen in the future by putting procedures in place to ensure the relevant information is collected from its lender clients.
Baycorp cooperated fully with the Commission during this investigation and while it acknowledges the view of the Commission, it does not admit liability in relation to a breach of the Fair Trading Act.
Baycorp has agreed to reduce the outstanding debtor balances of 2,370 current accounts by $3,457,634 and pay $46,107 to debtors who paid back more than the balance owing.
The settlement agreement can be viewed on the Commerce Commission’s Enforcement Actions Register.