Finance company GE Money will be giving the Federation of Family Budgeting Services a NZ$60k Christmas present this year as part of a settlement with the Commerce Commission over a misleading advert encouraging customers to use a debt consolidation facility on offer.
GE admitted to breaching the Fair Trading Act by inviting customers to take advantage of a loan that it marketed as a money saving move but in reality left people worse off because the repayment period was drawn out over five years. The October 2011 ad was pitched to customers via a direct mail, print and radio advertising campaign including a 110,000 letter fan-out targeted South Auckland neighbourhoods where debt consolidation would be most in demand.
Graham Gill, competition manager for the Commerce Commission, said analysis of the finances of the real life customer used in the print advertisement showed that while monthly payments were initially reduced, they were substantially higher than the original loan repayments for the majority of the 60 month loan period. The advertising stated that customers would be "better off each month" and have "more cash left in your wallet."
Gill said GE Money was unable to supply the Commerce Commission with "acceptable evidence" that customers would be financially better off outside the initial transfer period, adding that consumer protection was paramount.
"Consumers must be able to rely on claims made in advertising, especially on claims about debt products that they might not have a high level of knowledge about."
A complaint about GE Money's debt consolidation campaign was received by both the Commerce Commission and the Financial Markets Authority however the investigation was led by the Commission.
To GE Money's credit, Gill said the company was fully compliant, promptly recognising its wrongdoing and reaching a "satisfactory settlement" which avoided the necessity of a court proceedings. (To see the full settlement details click here).
Under section 11 of the Fair Trading Act, no person shall, in trade, "engage in conduct that is liable to mislead the public as to the nature, characteristics, suitability for a purpose or quantity of services.''
GE Money's latest financial results for New Zealand show it more than doubled profit after tax to NZ$65.4 million last year from NZ$28.5 million in 2009.