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Southern Cross Finance to refund NZ$700,000 to 250 customers charged 'unreasonable' loan establishment fees

Southern Cross Finance to refund NZ$700,000 to 250 customers charged 'unreasonable' loan establishment fees

Read the Commerce Commission's statement below:

In a settlement with the Commerce Commission, Southern Cross Finance Limited has admitted charging unreasonable loan establishment fees and will refund just under $700,000 to 250 customers it overcharged between July 2006 and October 2009.

The Commission investigated Southern Cross Finance, a privately owned non-bank mortgage provider, under the Credit Contracts and Consumer Finance Act 2003 (CCCF Act). Under the Act, establishment fees charged to customers in consumer credit contracts must reflect the creditor’s reasonable costs of establishing a loan, which are costs associated with the loan application and processing, documenting the contract and advancing the loan.

The Commission’s Enforcement Branch Manager in Auckland Graham Gill said that, before the Commission’s investigation in 2009, Southern Cross Finance had been charging customers an establishment fee that was generally about 1-2 per cent of the loan advanced.

“In the Commission’s view, establishment fees for consumer loans that are a percentage of the loan advanced are inherently unlikely to reflect the actual cost of establishing a loan and be reasonable,” said Mr Gill.

Mr Gill said that as part of the Commission’s investigation, Southern Cross Finance had calculated its actual average reasonable cost of establishing or renewing a consumer credit contract at around $1,000.

“So a borrower who took out a $250,000 mortgage could have been charged $5,000 as an establishment fee and therefore overcharged by $4,000” said Mr Gill.

Mr Gill said the CCCF Act had been established to protect the interests of consumers, and enable them to make informed choices about using credit.

“Establishment fees are an important consideration for consumers when selecting loan products. The fee should genuinely relate to the cost of setting up a loan so that consumers can meaningfully compare competing products,” said Mr Gill.

Southern Cross Finance also lends to borrowers which are companies and trusts and where loans are used for business purposes. These borrowers can negotiate their own fees. However, under the Act, fees on consumer loans are required to be reasonable. Southern Cross Finance is contacting affected customers to arrange refunds.

Southern Cross Finance cooperated fully with the Commission’s investigation and changed its fees in response to the Commission’s concerns. Southern Cross Finance now charges a standard $500 establishment fee on all consumer loans.


The Credit Contracts and Consumer Finance Act 2003 regulates consumer lending, consumer leases and buy-back transactions, requiring the disclosure of certain information to consumers entering into consumer credit contracts and providing rules that relate to interest, payments and credit fees.

Section 41 of the CCCF Act states that a consumer credit contract must not provide for a credit fee or a default fee that is unreasonable. Section 42 of the CCCF Act states that in considering whether an establishment fee is unreasonable regard must be given to whether the fee is equal to or less than the creditor’s reasonable costs in connection with specific elements of setting up the loan.

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