Commerce Commission v Real Finance Ltd

• Jurisdiction: New Zealand
• Judge: Grice J
• Judgment Date: 26 April 2022
• Neutral Citation: [2022] NZHC 823
• Docket Number: CIV-2019-485-0003-50
• Court: High Court

UNDER Parts 1, 2 and 4 of the Credit Contracts and Consumer Finance Act 2003

Between

Commerce Commission

Plaintiff

and

Real Finance Limited

Defendant

[2022] NZHC 823

Grice J

CIV-2019-485-0003-50

IN THE HIGH COURT OF NEW ZEALAND

WELLINGTON REGISTRY

I TE KŌTI MATUA O AOTEAROA

TE WHANGANUI-A-TARA ROHE

Commercial — declarations relating to penalties against the defendant regarding unreasonable credit fee or default fee — factors in granting declarations — Credit Contracts and Consumer Finance Act 2003

Appearances:

L C A Farmer and A D Luck for the Plaintiff

L D Sookahet for the Defendant

JUDGMENT OF Grice J

Introduction

1 Following an investigation, the Commerce Commission (the Commission) commenced proceedings against the defendant (Real Finance) alleging that various fees charged by Real Finance breached s 41 of the Credit Contracts and Consumer Finance Act 2003 (the CCCFA).

2 Real Finance has admitted the breaches. Following discussions, the parties have reached a settlement. Real Finance has indicated it consents to declarations referring to the breaches in the terms sought by the Commission.

3 The parties have also agreed on compensation which is being paid by Real Finance. This includes costs. Real Finance has also contacted and made compensation arrangements directly with the affected borrowers. Therefore, nothing other than the declarations is sought.

Background

4 Real Finance is a finance company. As part of its business, it provides loans to consumer borrowers in New Zealand. Its business is transacted through its physical branches in Wellington and Christchurch as well as online via its website or by telephone or email contact.

5 Credit was provided to a borrower under a contract between the borrower and Real Finance with the terms set out in separate agreements, which are credit contracts.

6 Between 1 April 2013 and 31 March 2020, the contracts provided for specified credit fees and, if applicable, default fees. These included an Establishment Fee, a monthly Administration Fee and a weekly Default Fee where applicable.

7 The fees payable under the individual contracts varied from standard loan classes from time to time based on the personal and financial circumstances of the borrower.

8 Real Finance was a creditor in respect of each contract. Each contract was a credit contract. In the case of borrowers who used or intended to use the credit wholly or predominantly for personal, domestic or household purposes, a “consumer credit contract” in terms of the CCCFA.

9 Section 41 of the CCCFA provides:

41 Unreasonable credit fee or default fee

A consumer credit contract must not provide for a credit fee or a default fee that is unreasonable.

10 Sections 42, 44 and 44A include further, specific guidance on the approach to be taken in determining whether establishment fees, non-establishment credit fees, and default fees (respectively) breach s 41.

11 The leading case on the application of these provisions is the Supreme Court's decision in Sportzone Motorcycles Ltd (in liq) v Commerce Commission. 1 In that case, the Court held that:

• (a) The wording of the provisions “indicates a transaction-specific approach to the setting of fees.” 2 That approach requires a creditor “to identify what steps were undertaken in relation to particular aspects of the provision of credit under a consumer credit contract and calculate the costs of taking those steps.” 3

• (b) Under a transaction-specific approach “the focus is on the costs incurred by the creditor in relation to the steps to which the fee relates”. 4 Other business costs (for instance general overheads, 5 the lender's cost of capital, 6 or the cost of training staff 7) are not transaction-specific and accordingly cannot be recovered through fees charged to borrowers. 8

• (c) A “helpful formulation in determining the reasonableness of a fee is to ask whether the cost is sufficiently close and relevant to the steps in the lending process to which the fee relates that it can reasonably be said it was incurred in relation to those steps.” 9

12 As counsel in their joint memorandum noted, s 41 essentially provides that the fees in question here to be charged by a creditor on a consumer credit contract must reflect the creditor's actual (or reasonably anticipated) costs of performing the relevant

activity. Other costs incurred will not be referable to particular credit transactions and will therefore have to be recovered in the interest rate. 10

13 The Commission alleged that each Fee referred to in this case was an unreasonable credit fee under the CCCFA.

Settlement

14 Real Finance admitted all the claims as pleaded in the second amended statement of claim, including the breaches of s 41 of the CCCFA. As a result of the settlement to which I have referred above the only matter that the court is required to consider is whether the declaration sought should be made.

Discussion

15 Declaratory relief is available in this Court for breaches of the CCCFA. 11 While a declaration will not be granted where the matter is moot or the relief...