Aotea Finance fined for lending on prohibited items including beds, fridges
By Paul McBeth
Oct. 31 (BusinessDesk) - A unit of payday lender Aotea Finance has been fined almost $49,000 and ordered to pay damages
of $4,500 for using prohibited items such as beds and fridges as security for its loans.
Judge June Jelas sentenced Aotea Finance West Auckland in the Waitakere District Court on Friday in the first case of
its kind. The Commerce Commission said the offending took place between June 2015 and March 2016.
Legislation prevents lenders from lodging security interests over a range of items, such as cooking and medical
equipment, heaters, washing machines and fridges, beds, and identity documents. Aotea breached that by taking security
interests over beds, cooking equipment, washing machines and fridges in 19 of 52 sample contracts seen by the regulator.
That meant the items could be repossessed if a payment was missed.
"These goods are protected by law because, generally, they are worth more to borrowers than they are worth as security
for loans," commissioner Anna Rawlings said. "Lenders may not use the threat of repossession of these goods to encourage
borrowers to pay."
Payday lenders are under increasing scrutiny with the government about to impose a cap on the fees and aggregate
interest able to be charged on small loans.
Aotea Finance West Auckland is part of the wider Aotea Finance group, which are all separately registered, but owned by
The regulator noted the judge's comments that Aotea's policies meant there was no risk of actual repossession, but the
borrowers, generally vulnerable consumers, believed they were at risk of losing them. Accordingly, a high level of
deterrence was appropriate.
Aotea Finance advertises $50 referrals and the chance for borrowers to win a smart TV on its website. It has maximum
loan periods of two years and charges interest of between 28.95 percent and 35.5 percent. Loan processing fees range
from $110 for a loan of $300 to $499 to $530 for a loan of $7,000 or more. There's also a $10 monthly administration
In its 2018 annual report, the Financial Dispute Resolution Service noted a rise in lending complaints in the year ended
June 30, with an increase in the number of small lenders.
Separately, Financial Services Complaints Ltd said it receives very few complaints about payday lenders, despite the
anecdotes that those lenders might not be lending responsibly or are creating problems for vulnerable customers.
"By and large, we find lenders are complying with responsible lending obligations and are doing their best to help
borrowers facing a period of financial hardship," FSCL chief executive Susan Taylor said. "However, we have received
complaints where lenders have not met their obligations, which has had severe consequences for borrowers."