On 30 June 2017 the New Zealand Commerce Commission (NZCC) released its final guidelines on credit fees.

The updates to the previous draft guidelines (released in September 2016) provide lenders with guidance on assessing the reasonableness of credit fees under the Credit Contracts and Consumer Finance Act 2003 (CCCFA).  The guidelines also emphasise conclusions drawn in Sportzone Motorcycles litigation, which established that a lender’s approach to the setting of fees generally must be “closely connected” to the transaction, and cannot be used to recover non-transaction-specific costs, nor include any element of profit.

For an overview of the Sportzone Supreme Court decision and the NZCC’s draft guidelines, see our legal update dated 13 October 2016.

The key points in the final guidelines can be summarised as follows:

  • the CCCFA does not require exact precision as to fees. A lender can estimate its costs when setting fees in advance, but must make reasonable efforts to ensure that the estimate is as accurate as possible;
  • it is reasonable for a lender to average its costs across a class of contracts when setting credit fees, so long as the costs measures actually apply to each contract in the class. In other words, no loan in the class may be charged for costs not actually incurred in relation to that particular loan. (One way to think about this would be to say that only a group of loans, to each of which the relevant cost measure applies, can be considered a “class”); and
  • lenders should regularly undertake a full assessment of their credit fees to ensure that they are only recovering transaction-specific costs and losses, and that their fees are not unreasonable. We note that the that it will not always be reasonable to charge a fee based on actual costs incurred, where the fees are unusually high or relate to a step unreasonably taken.

A PDF version of the final guidelines is accessible at http://www.comcom.govt.nz/consumer-credit/guidelines-post/consumer-credit-fees-guidelines/.