Two Christchurch finance companies have been fined a total of $103,500 and ordered to pay more than $21,000 in statutory damages to borrowers, because some of their loan contracts included security interests taken over prohibited consumer goods, meaning that the companies could repossess them if the borrower did not make payments on the loan.
Alternate Finance Limited and Crester Credit Company Limited are third-tier lenders with the same sole director and lend predominantly to consumers in and around Christchurch.
Each company had earlier pleaded guilty to four representative charges under the Credit Contracts and Consumer Finance Act 2003 (CCCFA), for failing to ensure their credit contracts did not take security interests over prohibited consumer goods.
The Commission reviewed 68 sample Alternate Finance contracts, of which 56 showed security interests over prohibited items. Of 53 Crester Credit contracts reviewed, 43 showed security interests claimed over prohibited items. The items included:
“The CCCFA prohibits taking a security interest over essential consumer goods such as washing and cooking equipment, and lenders must ensure their contracts do not allow for that to happen. These goods are protected because they are generally worth more to consumers than they are to lenders as security for loans. The companies did not attempt to seize any of the prohibited household items but the case emphasises that lender contracts cannot suggest that seizure might happen,” said Commissioner Anna Rawlings.
In sentencing in the Christchurch District Court on 13 March, Judge Josephine Bouchier said there was “reasonably significant carelessness” and “the objectives of the [CCCFA] were undermined because the enactment was for the protection of vulnerable consumers.”
In addition to the fines, the Court ordered both companies to pay a total of $21,237.82 in statutory damages to 99 borrowers.
Section 83ZN of the CCCFA requires every creditor (lender) under a credit contract to ensure that the contract does not provide for a security interest over prohibited consumer goods. They are:
goods that are used or acquired for use primarily for personal, domestic or household purposes that are
beds and bedding, cooking equipment, medical equipment, portable heaters, washing machines and refrigerators
In October 2018, finance company Aotea Finance (West Auckland) Limited became the first company to be prosecuted for taking security over prohibited items such as beds and cooking equipment. It was fined nearly $49,000.
Purchase money security interest (PMSI)
The CCCFA prohibits taking security over essential items but does not prevent those consumer goods being subject to a purchase money security interest under the Personal Property Securities Act 1999. This means that where money borrowed was used to buy prohibited consumer goods, those goods will not be protected by the prohibition in Section 83ZN.
Repossession information for consumers
The Commission has published this information for consumers. It includes a link to episode five of our animated consumer information series It’s All Good. As Aunty tells the repossession agent as he attempts take a heater, “you can’t take essential items. Last time I checked, heating was pretty essential.”
Media are welcome to include a link to this episode in online stories, but please ensure it is attributed to the Commission.