The Commerce Commission has warned ASB Bank Limited (ASB) over likely responsible lending failures which resulted in borrowers being overcharged Early Repayment Adjustment (ERA) fees.
The Commission has warned ASB that in the Commission’s view the bank is likely to have breached its obligations under the Credit Contracts and Consumer Finance Act (CCCF Act) by failing to act with the care, diligence and skill of a responsible lender, and the Fair Trading Act (FT Act) by making false or misleading representations of its right to charge the incorrect ERA fees.
ASB has agreed to repay approximately $8.9 million to borrowers who were overcharged and has provided the Commission with enforceable undertakings which explain how it will locate affected customers and make the refunds due to them. Affected customers will be paid the difference between the amount that they should have been charged and the amount that ASB actually charged them, together with interest. ASB began repaying customers in July 2020 and has already repaid a significant proportion of the $8.9 million to affected borrowers.
ASB identified these issues and reported them to the Commission. As a result of calculation errors, over 48,000 ERA fees were overcharged for borrowers who had terminated their fixed rate term loans early between April 2005 and December 2016. Nearly 11,000 ERA fees were also undercharged. Of the affected loans, the majority of them were home loans, with a small number being business loans, asset finance, commercial, personal and rural loans.
“ASB accepts that it likely breached some of its obligations under the CCCF Act when it charged ERA fees that had not been accurately calculated. The Commission also considers that it likely breached the FT Act by representing that it had a right to charge that fee when in fact it exceeded the fee that ASB was contractually entitled to charge,” said Ms Rawlings.
“Lenders must implement robust systems and processes to help them to comply with their legal obligations. Those processes should include adequate checks to identify and rectify failures quickly if they arise.”
“ASB identified these matters itself and reported them to the Commission. It developed a plan for compensating borrowers and it has begun making refund payments to affected customers. It has waived any claim in relation to undercharged ERA fees. ASB has also made process changes to ensure the problem does not reoccur,” said Ms Rawlings.
A copy of the warning letter and enforceable undertakings can be found on the Commission’s website.
ASB also recently entered into a settlement with the Commerce Commission after admitting it failed to ensure its systems and processes were sufficient to ensure that required information was given to home and personal loan customers who made certain changes to their loans.
It agreed to repay $8.1 million to customers who may have been affected by a breach of its lender responsibilities under the CCCF Act.
The Commission may accept a written undertaking given by a person or a business in connection with any matter relating to the enforcement of the FT Act or CCCF Act. If any term of the undertaking is breached, the Commission can apply to the court to enforce the undertaking, including applying for an order requiring compliance with it.
A warning letter explains the Commission’s opinion that the conduct at issue is likely to have breached the law. It is not a finding of non-compliance – only the Courts can decide whether a breach of the law has occurred.
The purpose of a warning letter is to inform the recipient of the Commission’s view that there has likely been a breach of the law, to suggest a change in the recipient’s behaviour and to encourage future compliance with the law.