The Commerce Commission has issued a warning to The Hongkong and Shanghai Banking Corporation Limited (HSBC) over its failure to comply with the information disclosure requirements of the Credit Contracts and Consumer Finance Act 2003 (CCCFA).
HSBC self-reported the matter to the Commission following a routine audit of its business in New Zealand. HSBC identified six occasions between 2014 and 2018 when it failed to disclose an interest rate increase to borrowers. The failures affected 225 loans and 180 borrowers.
In the Commission’s view, HSBC likely breached the requirements of the CCCFA for lenders to disclose changes following the exercise of a contractual right or power.
“HSBC advised the Commission these failures were due to inadequate internal manual processes and failure to identify errors in a timely way,” said Commission Chair Anna Rawlings.
“The disclosure requirements are there to protect consumers. They ensure that lenders provide essential information about a loan when it is first taken out or, as in this case, when the lender makes a change to the loan, as allowed in the contract. Lenders must fully and accurately inform borrowers about such changes and within the required time limit. HSBC failed to do so in relation to these cases,” said Ms Rawlings.
HSBC has written to borrowers providing full particulars of the change following the interest rate increase in 2018 and made changes to its processes including moving to automated disclosure processes where possible. It has also provided compensation to affected borrowers totalling about $7,000.
“In light of the actions already taken by HSBC and the relatively small number of affected borrowers, the Commission decided that a warning was appropriate in this case. We note HSBC’s pro-active conduct in self-reporting the matter and its subsequent co-operation with our investigation,” said Ms Rawlings.
The CCCFA protects consumers when they borrow money or buy goods on credit. It sets out the rules that must be followed by lenders when they provide loans.
Disclosure is important information about a loan that lenders must give borrower at different times during the loan, including when it is first set-up, on an ongoing basis, and if a loan is varied.
It helps borrowers understand what the loan will cost them and what their and the lender’s obligations are under the loan.
Where a lender exercises a right under the contract to increase the loan interest rate or loan payments, the lender must disclose full details of the change to the borrower within 5 working days of the change.
A warning explains the Commerce Commission’s opinion that the conduct at issue is likely to have breached the law. Only the Courts can decide whether a breach of the law has in fact occurred.
The purpose of a warning letter is to inform the recipient of the Commission’s view that there has been a likely breach of the law, to suggest a change in the recipient’s behaviour, and to encourage future compliance with the law.