UDC provided loans of typically $10,000 or more for the purchase of motor vehicles. Between June 2015 and September the following year it charged a $45 dishonour fee when a borrower failed to make a scheduled loan repayment. If the borrower remained in default seven days after the scheduled payment was missed, UDC then charged a late payment fee. Between June 2015 and February 2021, the late payment fee charged varied between $45 and $73. 

Following entry into the settlement, the Commission sought, and UDC did not oppose, High Court declarations that UDC had contravened section 41 of the Credit Contracts and Consumer Finance Act by charging unreasonable dishonour fees and unreasonable late payment fees.

Commission Chair Anna Rawlings said consumer credit law requires that credit fees should only cover costs that are closely related to the particular loan transaction. 

“In this case, the dishonour fee and late payment fee exceeded UDC’s reasonable costs. The late payment fee covered costs that UDC had not yet incurred and that UDC might not incur at all if borrowers remedied their defaults promptly. UDC has accepted that its fees were unreasonable and has agreed to compensate borrowers for their loss,” said Ms Rawlings.

UDC will compensate borrowers as follows:

$37 for each borrower that was charged a $45 dishonour fee between 6 June 2015 and 4 September 2016.

For each borrower charged a late payment fee between 6 June 2015 and 2 February 2021:

  • a full refund of the late payment fee for borrowers who remedied their arrears within seven days of being charged the fee, and
  • the difference between the late payment fee paid and the amount payable had UDC charged $14 for every 14 days the borrower was in arrears (beginning at 14 days) for all remaining borrowers.

UDC will also pay $50,000 towards the Commission’s legal costs. In accordance with the settlement agreement, UDC has posted a notice on its website notifying the public that it charged unreasonable dishonour and late payment fees and explaining that it would contact customers who were owed a refund. Customers may also contact UDC to see whether they are owed a refund.

UDC was one of 36 lenders whose fees were reviewed by the Commission in 2016. The Commission opened an investigation into UDC following that review.


Unreasonable fees

In May 2016 the Supreme Court ruled that fees under consumer credit contracts cannot be used to generate profits or to recover business costs that are not closely connected to the matter giving rise to the fee. Lenders must recover their profit and any costs not allowed by the fees provisions from interest charges or charges for optional services.