Budget Loans fined $720,000 for “cynical and deliberate” offending
Wellington, May 31, 2018
Finance companies ‘Budget Loans Limited’ and ‘Evolution Finance Limited’ (together, ‘Budget Loans’) have been fined $720,000 in the Auckland District Court, on 125 charges under the Fair Trading Act.
They were also ordered to pay a total of $53,000 emotional harm reparations to nine victims, and approximately $38,000 in refunds and credits to borrowers.
Misrepresentation of Rights
Over six years from 2009 till 2014 Budget Loans misrepresented its right to repossess goods, and recover interest and costs from borrowers. It also misrepresented amounts borrowers were required to pay under attachment orders and made misrepresentations about the benefits of refinancing existing loans.
Budget purchased the distressed loan books of Western Bay Finance and National Finance in 2004.
“The Court acknowledged yesterday (May 30) that Budget Loans attempted to create cash flow by getting Western Bay and National Finance borrowers to pay as much as possible for as long as possible. It continually added costs and interests to loans and then repossessed essential goods from borrowers without notice when they couldn’t pay, regardless of whether it was legally entitled to do so,” Mary-Anne Borrowdale, Commerce Commission General Counsel, Competition and Consumer said.
Repossession costs high
The costs of the repossession were, for the most part, higher than the value of the goods and sometimes Budget Loans simply threw repossessed goods away rather than selling them. It also obtained judgments against some borrowers but continued to add interest and costs and demand more from borrowers than the courts had awarded and to misrepresent its right to repossess.
Where loans were not secured Budget Loans sought to convince some borrowers to sign new, secured loans by telling them that they would get a discount on their loan balance. However, the amount of the discounted loan was higher than the amount the borrower was actually required to pay.
Vulnerable borrowers in debt trap
“Budget Loans’ conduct and misrepresentations kept vulnerable borrowers in a cycle of debt and repossession. It knowingly engaged in illegal repossessions of essential items from people that it knew were already living in hardship. The financial and emotional distress caused by this conduct to borrowers and their families should not be underestimated,” said Ms Borrowdale.
83 of the charges were for misrepresentations around repossession, including where there was no valid right to repossess a secured item of property (such as a vehicle or household goods), or where there was no outstanding loan balance to be paid.
Houses stripped bare
In some cases Budget Loans stripped houses almost bare. In other cases, it repossessed items that it should have known were of low value, and dumped them. Its own loan notes include such comments as “someone’s great idea to undertake an illegal repo” and “debtor not to know we can’t repo.”
In June 2016 the Court held that in one case the extent of the repossessions “offended justice.”
In sentencing, Judge David Sharp said it was “cynical and deliberate” offending.
He said the repossessions were “reprehensible” and were “used as a direct means of coercion.”
29 charges were for adding interest and costs to a loan balance after repossession, when that is not allowed under the Credit Repossession Act.
“One borrower declared herself bankrupt when told her loan had ballooned from about $9,000 to $57,000. In fact she had less than $2,500 to pay at that time,” said Ms Borrowdale. Ten charges were for misrepresentations about adding interest to loans, beyond amounts in attachment orders issued by the courts. One borrower’s loan balance was $8,600 following an attachment order, but it was “recalculated” to nearly $56,000.
The final three charges were for misrepresentations about the benefits of refinancing with Budget Loans.
Serious breaches of FTA
“We are very pleased with the result. These were particularly serious breaches of the Fair Trading Act. Lenders must not misrepresent their rights under loan contracts and they must act within the law. They cannot require borrowers to pay amounts and extra costs they do not owe, as happened time and time again with Budget Loans.” said Ms Borrowdale.
Commission seeks banning orders for Allan and Wayne Hawkins
During the relevant period the directors of Budget Loans were Allan Robert Hawkins and his son Wayne Robert Hawkins.
“The Commission is seeking banning orders against both men, following this sentencing and the earlier conviction of Budget Loans on 34 charges under the Fair Trading Act in 2010. As our application is before the courts the Commission will make no further comment on it at this time,” said Ms Borrowdale.
Budget Loans was convicted on 106 charges in July 2016. Nineteen charges were dismissed and the Commission successfully appealed that decision.
Budget Loans’ application for leave to appeal to the Court of Appeal was dismissed in November 2017.
Previous decisions in this case can be found here
In 2010 Budget Loans was fined $30,750 on 34 charges under the Fair Trading Act, and it undertook to return $500,000 in overcharged interest and fees to borrowers.
Picture of Auckland District Court from file.