Whanganui company Finance Ezi Limited (trading as Ezi Finance) will return just over $400,000 to current and former borrowers following a settlement agreement with the Commerce Commission.
Ezi Finance offers personal loans up to $5,000 to consumers. In November 2016 the Commission reviewed its disclosure statement for compliance with the requirements of the Credit Contracts and Consumer Finance Act (CCCFA) as part of a pro-active review.
“In the Commission’s view Ezi Finance did not meet its legal obligations under the CCCFA because key information required by the Act was left out of its initial loan documents. Ezi Finance has acknowledged that this initial disclosure did not comply with the CCCFA. It has updated its documents, given affected borrowers the right information and has agreed to make payments and/or adjustments to their loan balances.” said Commission Chair Anna Rawlings.
Between June 2015 and February 2017 Ezi Finance entered into 1,464 consumer credit contracts with 654 different borrowers. Those contracts failed to include:
- an accurate statement of the borrower’s cancellation rights
- a statement of the borrower’s right to apply for a variation to their loan if they suffer unforeseen hardship
- Ezi Finance’s registration details from the Financial Service Providers Register.
“It is important for borrowers to receive the key information required by the Act when they enter into loans, including information about their rights under their loan contracts. This settlement reflects the fact that, under the CCCFA, failing to provide this information carries serious financial consequences for lenders. Ezi Finance has agreed to repay some of the interest and costs it charged to affected borrowers,” said Ms Rawlings.
Initial disclosure is a name for the key information about a loan that lenders must give to borrowers when they enter into the loan, such as the total amount to be repaid. It helps borrowers understand what the loan will cost them and what their rights and obligations are under the loan.
The disclosure rules ensure the borrower gets the details of their loan, and a written record of the key terms of their contract, before they enter into it. Other disclosure rules help borrowers keep track of their debt throughout the terms of the loan.
The key information is fully described in Schedule 1 of the CCCFA.
Cost of borrowing and statutory damages
Cost of borrowing includes interest, credit fees and default fees. A lender cannot enforce the costs of borrowing against a borrower that are charged over any period during which the lender has failed to comply with Section 17 of the CCCFA, which specifies initial disclosure requirements.
Lenders may also be liable to pay statutory damages to affected borrowers for breaching the disclosure rules. For breaches of initial disclosure, the amount of statutory damages are the lesser of $6,000, or 5% of the total advances made, but in any case not less than $200 per loan.
Lenders are able to apply to reduce or extinguish their liability for statutory damages.