Motor vehicle lender Auto Finance Direct Limited (AFD) has agreed to return approximately $460,000 in fees which, in the Commission’s view, were not reasonable and Pacific Loans Limited (Pacific Loans) will return more than $130,000 in fees that it accepts should not have been charged.

“Consumers will benefit because both these lenders have entered settlement agreements with the Commission, have changed their practices, and have agreed to remediate borrowers who were affected by their conduct,” said Commissioner Anna Rawlings.

Auto Finance Direct

AFD has accepted that between April 2015 and August 2018 it charged more than 7,200 fees which were likely to be unreasonable under the Credit Contracts and Consumer Finance Act 2003 (CCCFA). The fees, which were charged to more than 5,000 borrowers, were:

  • an establishment fee over $190
  • an early settlement fee over $65
  • a variation fee over $55.

“The Commission has been actively monitoring credit fees charged by lenders to assess whether fees cover costs that are closely related to the particular loan transaction, as required by consumer credit law. Proper fee setting enables borrowers to better compare the cost of different loan products," said Ms Rawlings.

Pacific Loans

Pacific Loans assigned distressed loans to B&D Holdings Limited (In Liquidation) for collection.

Pacific Loans has agreed that it breached the Fair Trading Act 1986 (FT Act) by representing that it had the right to add interest and fees to loan accounts after repossession and sale of borrowers’ assets, when this was not the case.

Adding those costs was prohibited under the Credit (Repossession) Act 1997 (now repealed, see background), under which a loan balance was frozen when repossessed assets were sold.

Pacific Loans has agreed to return a total of $134,779.23 to 82 affected creditors.

“Pacific Loans has undertaken to credit loan accounts by 28 February 2019. It has stopped charging interest and fees after repossession and sale action,” said Ms Rawlings.

Separately, B&D Holdings has been warned that, in the Commission’s view, it likely breached the FT Act by representing that it was entitled to add interest, fees and commission to debtors’ loans after repossession and sale of loan securities.


Unreasonable fees

In May 2016 the Supreme Court ruled in favour of the Commission’s view that credit fees should only cover costs that are closely related to the particular loan transaction. The Court said that “[i]t is not permissible to take all operating costs (or virtually all) and allocate them to one fee or the other.” Fees should not be used to recover general business costs or to generate profits - that is what interest is for.


The Credit (Repossession) Act 1997 set out the rules that applied when a creditor took possession of consumer goods under a security agreement covered by the Act. It was repealed in 2015 and replaced by provisions in the CCCFA.

For contracts entered into after 6 June 2015, section 83ZM of the CCCFA provides that any debt that remains after repossession is frozen when goods are sold. The lender cannot add further interest or fees after that point.