Commerce Commission prosecutes finance company for taking security over prohibited items

In the first prosecution of its kind by the Commerce Commission, Aotea Finance (West Auckland) Limited (Aotea Finance) recently pleaded guilty to five representative charges under the Credit Contracts and Consumer Finance Act 2003 (CCCFA) for taking security over prohibited items such as beds and cooking equipment.

Between June 2015 and March 2016, Aotea Finance took security interests over items such as beds, cooking equipment, washing machines and refrigerators.  The Commerce Commission viewed 52 sample contracts and found that 19 contracts showed a security interest unlawfully claimed over items prohibited by the CCCFA.

Part 3A of the CCCFA prohibits a creditor under a credit contract from taking a security interest over certain essential consumer goods such as beds and bedding, cooking equipment, medical equipment, portable heaters, washing machines, refrigerators, travel documents, identification documents and bank cards (Prohibited Items), unless the security interest is a purchase money security interest under the Personal Property Securities Act 1999 (PMSI).  A creditor under a credit contract must ensure that its contract does not contravene the prohibition under the CCCFA.

In her sentencing, her Honour Judge Jelas said “the legislation is designed to protect the vulnerable, and high standards are required of those who operate within it”.   Her Honour accepted that “there was no repossession, or risk of repossession, given the lender’s policy, but by entering into the contract the borrower, who were generally vulnerable, believed they were at risk of losing items that were of high value to them”.  Aotea Finance was fined $48,750 for the offences and was ordered to pay statutory damages totaling $4,515.41 to the 19 affected borrowers.

The Commerce Commission’s prosecution signals a continuation of the Government’s tightening of consumer credit laws to protect those who are most vulnerable as we discussed in our recent articles Government signals further tightening of consumer credit laws and Consumer Credit Law Update.

It is important for creditors under a credit contract to ensure that their contract excludes the taking of a security interest over any Prohibited Items, except where it is a PMSI.  The case also serves as a timely reminder for creditors to understand their responsibilities and obligations when repossessing goods.  Please talk to a member of the Lane Neave Banking & Finance team if you would like your credit contract reviewed or if you would like to discuss about your lender responsibilities and obligations under the CCCFA.

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