$788,000 refunds over redundancy insurance

Media Release Issued 27 May 2007/no 137

$788,000 refunds over redundancy insurance for the unemployed

In an out-of-Court settlement reached with the Commerce Commission, Auckland company Club Finance has agreed to refund $788,000 to borrowers who were required to insure their car loans against the risk of redundancy, despite being unemployed at the time they took out the loans.

Over 1,500 of Club Finance’s customers were unemployed when they took the loan, but were still sold insurance that ensured loan payments on their cars would be met if they were injured or made redundant.

A clause in the contract meant that, even if borrowers got a job after taking out the loan and were then made redundant, they would not be eligible for the redundancy insurance, so there was no possible way for them to benefit from the insurance.

In the settlement, Club Finance admits breaching the Credit Contracts and Consumer Finance Act by requiring that unemployed borrowers have redundancy and injury insurance. It has already refunded the full amount of unnecessary insurance purchased by its customers. Approximately 1,564 customers have received refunds averaging $504.

“The Credit Contracts and Consumer Finance Act explicitly states that borrowers cannot be required to take out insurance that is not ‘reasonably necessary,’” says Commerce Commission Director of Fair Trading Deborah Battell. “It is hard to think of anything more unnecessary than this kind of redundancy insurance for the unemployed.”

Page 1 of 3.“Club Finance and their agents should not have told their unemployed customers to take out this insurance when there was no possible way they could benefit from it.” “Many borrowers are not financially literate and do not understand what they are signing up to,” says Ms Battell.

“That is why the Act places very strict obligations on lenders to ensure that fees, charges, and insurance are reasonable and are clearly explained.” Ms Battell said that anyone borrowing money should make sure they understood exactly what they were signing up to. “If you are borrowing money, for a car or anything else, do not sign up on the spot,” says Ms Battell. “Take the contract away, and get someone who knows about finances to look at it with you.”

Ms Battell says that Community Law Centres, Budget Advisory Services, or the Citizens Advice Bureau could all assist with understanding loan contracts. “That way you know what you are signing up to, and you may save money by avoiding unnecessary charges.”

Ms Battell said that enforcing the Credit Contracts and Consumer Finance Act is a priority for the Commission in 2007. Last week, the partners in Auckland company Dolbak Finance, David Dolbel and Anthony Baker, were fined a total of $100,000 for breaching the CCCF Act and required to pay $46,600 to customers in statutory damages over failing to disclose charges and fees in car loan contracts. Page 2 of 3.Background Refunds. All customers who are entitled to refunds have had them credited to their Club Finance accounts. By June 17, all affected customers will have been notified by Club Finance of how much they have received, and they will also receive an additional refund of the interest they paid on the insurance amount.

Great Wall Motors. The credit contracts related to cars purchased between 1 April 2005 and May 2007. Almost all the cars purchased by unemployed borrowers were bought from Great Wall Motors in Otahuhu.

ends

© Scoop Media