Australian high-cost short-term lender Quadsaa Pty Limited (trading as Pretty Penny and PPL) has undertaken to write off all outstanding loan balances in a settlement agreement with the Commerce Commission.
After indicating that Pretty Penny is no longer lending in New Zealand, it has also signed court-enforceable undertakings that it will no longer advertise for, invite or enter into consumer loans in New Zealand, and it will not provide any information about borrowers to third parties (except where required by law).
In addition to writing off all outstanding loan balances at the time of its removal from the Companies Register, Pretty Penny will refund the full cost of borrowing to 21 borrowers named in the Commission’s Statement of Claim against it, filed in the High Court in August 2019.
“We filed proceedings against Pretty Penny because, in our view, it had breached a number of the responsible lending provisions of consumer credit law. That conduct has now ceased because Pretty Penny will no longer do business here in New Zealand, and this agreement means outstanding balances owed to Pretty Penny should now no longer be payable,” said Commission Chair Anna Rawlings.
The Commission has agreed to discontinue its proceedings against Pretty Penny. The proceedings alleged that, between February 2017 and June 2019, it breached the lender responsibility principles of the Credit Contracts and Consumer Finance Act 2003 (CCCF Act).
In that period Pretty Penny offered loans of between $50 and $550 for terms of between 1 and 92 days with an annual interest rate of 365%, or 1% per day with interest compounding daily.
The Commission alleged that Pretty Penny failed to exercise the care, diligence and skill of a responsible lender, as required by the lender responsibility principles, including that it failed to ensure its loan agreements were not oppressive.
“Recent changes in consumer credit law capped interest and fees charged on a high-cost loan at 100% of the amount first advanced, and have brought in other protections for borrowers. The Commission has provided guidance to lenders on the changes and we are actively monitoring compliance with them,” said Ms Rawlings.
New rules applying to high-cost loans
From June 1 high-cost lending to consumers is now subject to specific restrictions that do not apply to other forms of lending.
The key restrictions on high-cost lending are:
- interest and fees charged on a high-cost loan are capped at 100% of the amount first advanced
- the rate of charge (excluding default fees) on a high-cost loan is capped at 0.8% per day
- lenders are restricted from making high-cost loans to some repeat borrowers
- lenders have extra disclosure obligations.
The Commission has developed guidance which explains these key restrictions. The specific rules are set out in the CCCF Act and the Credit Contracts and Consumer Finance Regulations 2004. These rules are complex, and lenders are encouraged to take legal advice to ensure that they operate within the restrictions.
Cost of borrowing
The cost of borrowing includes all applicable credit fees, default fees and all interest charges, including annual rates of interest, and default interest charges.
Lender Responsibility Principles
Lenders entering into consumer credit contracts on or after 6 June 2015 are required to comply with the lender responsibility principles, as set out in the CCCF Act.
These include that lenders must make reasonable inquiries, before entering the agreement, to be satisfied it is likely the borrower will make repayments without suffering substantial hardship.
Responsible Lending Code
The Code provides guidance as to how lenders can comply with the principles. It includes the type of enquiries a lender should make into a borrower’s income and expenses, and it specifies that more extensive enquiries should be made if the borrower is vulnerable.
The Code is not legally binding, but if lenders comply with it that will be treated as evidence they complied with the principles.