A unit of payday lender Aotea Finance has been fined almost $49,000 and ordered to pay damages of $4,500 for using prohibited items such as beds and fridges as security for its loans.
Judge June Jelas sentenced Aotea Finance West Auckland in the Waitakere District Court on Friday in the first case of its kind. The Commerce Commission said the offending took place between June 2015 and March 2016.
Legislation prevents lenders from lodging security interests over a range of items, such as cooking and medical equipment, heaters, washing machines and fridges, beds, and identity documents. Aotea breached that by taking security interests over beds, cooking equipment, washing machines and fridges in 19 of 52 sample contracts seen by the regulator. That meant the items could be repossessed if a payment was missed.
“These goods are protected by law because, generally, they are worth more to borrowers than they are worth as security for loans,” commissioner Anna Rawlings said. “Lenders may not use the threat of repossession of these goods to encourage borrowers to pay.”
Payday lenders are under increasing scrutiny with the government about to impose a cap on the fees and aggregate interest able to be charged on small loans.
Aotea Finance West Auckland is part of the wider Aotea Finance group, which are all separately registered, but owned by Terry Cooke.
The regulator noted the judge’s comments that Aotea’s policies meant there was no risk of actual repossession, but the borrowers, generally vulnerable consumers, believed they were at risk of losing them. Accordingly, a high level of deterrence was appropriate.
Aotea Finance advertises $50 referrals and the chance for borrowers to win a smart TV on its website. It has maximum loan periods of two years and charges interest of between 28.95 percent and 35.5 percent. Loan processing fees range from $110 for a loan of $300 to $499 to $530 for a loan of $7,000 or more. There’s also a $10 monthly administration fee.
In its 2018 annual report, the Financial Dispute Resolution Service noted a rise in lending complaints in the year ended June 30, with an increase in the number of small lenders.
Separately, Financial Services Complaints Ltd said it receives very few complaints about payday lenders, despite the anecdotes that those lenders might not be lending responsibly or are creating problems for vulnerable customers.
“By and large, we find lenders are complying with responsible lending obligations and are doing their best to help borrowers facing a period of financial hardship,” FSCL chief executive Susan Taylor said. “However, we have received complaints where lenders have not met their obligations, which has had severe consequences for borrowers.”