The Trade Commission and used goods trader Cash Converters have reached an agreement regarding the company’s payday loan contracts.
As part of the settlement, all 12 cash conversion companies across the country have admitted to breaking credit contracting and consumer finance law with their Next Pay loans, the commission said today.
Next Pay loans generally have a term of four weeks. There is no interest charged, but each loan includes a set-up fee and a data management fee. Next Pay loans are for a maximum amount of $ 1,000.
The commission concluded that the inclusion of certain costs in the establishment costs may be unreasonable under the Act.
The law strictly limits what lenders can recover from these fees. The fees must be equal to or less than the actual costs of setting up the loan and should only recover the costs associated with setting up the loan.
When calculating the loan set-up fee, Cash Converters included the cost of bad debts and defaults. As part of the settlement Cash Converters agreed to, they broke the law as including such costs in the set-up fee was unreasonable as they were not costs of establishing a loan .
However, the commission acknowledged that the violations were not willful and Cash Converters fully cooperated with the investigation.
As part of the settlement, Cash Converters agreed to redesign their Next Pay loans to ensure future loans comply with the law.
The company has also agreed to make donations totaling $ 60,000 to five community groups that provide budget counseling services.
Lenders had to be careful when calculating set-up fees to ensure that the fees were only for the cost of setting up loans, said Graham Gill, the commission’s Auckland fair trade manager.
“Default fees cannot be charged to customers at the time they take out a loan. These charges can only be billed, as default charges, to customers who are actually in default. Likewise, lenders cannot use charges as a means of collecting bad debts. ”
Payday loans have often been taken out by people who may be in financially vulnerable circumstances, he said.
“We are therefore delighted that Cash Converters is making the necessary changes to ensure that its Next Pay product complies with the law. ”