Non-bank mortgage provider Foundation Custodians is to pay refunds of $200,000 in a settlement reached with the Commerce Commission about early loan repayment fees.Loan documents issued by Foundation Custodians stated that in the event of a fixed-rate loa
Non-bank mortgage provider Foundation Custodians is to pay refunds of $200,000 in a settlement reached with the Commerce Commission about early loan repayment fees.
Loan documents issued by Foundation Custodians stated that in the event of a fixed-rate loan being paid back before its full term, the formula used to calculate any break fee would be the "safe harbour" formula set out in Credit Contracts Consumer Finance (CCCF) Act regulations, the commission said today.
But between August 2008 and September 2009, when a customer wanted to repay a loan early, Foundation Custodians used a different formula when calculating the fee to be charged, which was based on changes in wholesale interest rates.
That resulted in higher break fees being quoted and passed on to customers. The company did not notify customers that it was using a different formula.
Under the CCCF Act, lenders must set out in the contract how they were going to calculate any break fee in the event that the customer elected to repay a loan early, the commission said.
By using a formula that was different to the one set out in the contract, Foundation Custodians admitted that it breached the CCCF Act. Foundation Custodians also admitted that using the different formula was liable to mislead its customers about the cost of break fees and breach the Fair Trading Act.
Foundation Custodians had agreed to recalculate the break fee that should have been charged to its customers who prepaid loans in the period involved. Total refunds of about $200,000 would be provided to 35 affected customers.
The commission said it accepted that at the time Foundation Custodians started applying the incorrect formula the company believed the fee it charged would be reasonable and would not produce a higher charge than the "safe harbour" formula.
Foundation Custodians had suspended all new lending in February 2009.
