This means that in the last two years, Commerce Commission investigations into break fees charged by banks and other lenders have resulted in approximately $1.4 million returned to consumers in settlements and ex-gratia payments.
The latest settlement relates to alleged misleading representations made between September 2007 and June 2009 about mortgage break fees for loans issued by Propertyfinance Securities.
The New Zealand Guardian Trust took over management of the loans when Propertyfinance Securities was placed in receivership in August 2007.
The Commission's investigation identified that Propertyfinance Securities' customers had contracts that stated that the break fee would be calculated using a formula set out in the Credit Contracts and Consumer Finance Regulation (the ‘safe harbour' formula).
However, in practice, affected customers were charged a different break fee which was greater than it would have been, had the safe harbour formula been used.
By using a formula that was different to the one set out in the customers' contracts, New Zealand Guardian Trust acknowledged that it was likely to have breached the CCCF Act.
New Zealand Guardian Trust also acknowledged that using the different formula was liable to mislead borrowers about the cost of break fees and therefore breach the Fair Trading Act.
Commerce Commission's enforcement manager Graham Gill says banks and lending institutions need to ensure when quoting or charging break fees that they accord with the terms of the contract.
"Break fee formulae are complicated and the average customer is unlikely to be able to check the calculation to confirm that it is correct."
He says customers are reliant on creditors getting it right because otherwise there can be huge financial impacts.
The Commission says New Zealand Guardian Trust cooperated fully with the investigation and changed its method of calculating break fees as soon as it was advised of the problem.
