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Australian-owned Bluestone Mortgages has lost the High Court battle to strike out Commerce Commission claims against it.
Under the Credit Contracts and Consumer Finance Act 2004, the Commerce Commission filed civil proceedings against three Bluestone companies Bluestone Mortgages, Trustees Executors and TEA Custodians (Bluestone) because it doubted how reasonable its deferred establish fees were.
It took on the case on behalf of borrowers.
Bluestone targets people who traditional lenders would not be eligible for normal borrowing criteria.
“Bluestone’s customers include those with adverse credit records, immigrants, the elderly, and the unemployed, who may not have established financial records, and other groups who, for various reasons, may not be attractive to first tier lending institutions,” Justice John Priestley said in his judgment.
The majority of loans Bluestone provided were thirty-year home loans on higher interest rates than most lenders charged.
One of the restrictions on mortgage lenders is that they cannot prevent a borrower from paying the loan back ahead of the agreed term,
Bluestone charged a deferred establishment fee, which Commerce Commission saw as a breach of consumer protection legislation, the Credit Contracts and Consumer Finance Act.
In one example of a borrower’s contract, the following appeared:
Deferred Establishment Fee
You have not been charged the full costs of setting up this loan. The amount you have not been charged is 4% of the Total Loan Amount. You may pay this establishment fee on the Settlement Date if you wish. However, if you do not pay it on the Settlement Date, the Lender will waive the whole of this fee if you keep the loan for 4 years or more. If you repay this loan in full during the first four years of the term you must pay the following establishment fee:
• if you repay during the first year of the term: 4%
• if you repay during the second year of the term: 3%
• if you repay during the third year of the term: 2%
• if you repay during the fourth year of the term: 1%
Bluestone argued the Commerce Commission’s case against it should be thrown out because it didn’t stand up to scrutiny but Justice Priestley did not agree. The case will now go to a full hearing at a later date.
