The decision ends a long running fees dispute by Sportzone Motorcycles Limited and Motor Trade Finances Limited with the Commerce Commission.
In 2009, the Commission filed court proceedings alleging Motor Trade Finances and Sportzone charged unreasonable establishment and other credit fees on 39 finance contracts entered into between 2005 and 2008.
The Commission alleged the fees charged, including establishment fees, monthly account maintenance fees, pre-payment administration fees and default fees were unreasonable under the provisions of the Credit Contracts and Consumer Finance Act 2003.
The fees per transaction ranged from an initial $203 dollars to about $300 dollars if a default in payments occurred and repossession fees needed to be issued.
Both a challenge in the High Court in 2013 and Court of Appeal decision last year were dismissed, ruling in favour of the Commerce Commission.
It is worth noting in the Supreme Court ruling that there was evidence before the High Court that the Board of MTF had treated the introduction of the 2003 Act as presenting "profit opportunities", including the chance to increase fee income. The Commission highlighted evidence that one of MTF's senior executives commented that attempts to claw back provisions and bad debts through fees "would be wrong", but this did not deter MTF from seeking to recover such items through fees.
In a final showdown, Motor Trade Finances and Sportzone – which is now in liquidation took their case to the Supreme Court in November last year.
In a decision released yesterday, the Supreme Court dismissed the appeal, and instructed Motor Trade Finances and Sportzone Motorcycles to pay $25 thousand dollars plus reasonable disbursements toward the Commerce Commissions legal costs.
In its ruling, the five Supreme Court Justices were unanimously of the view that the Credit Contracts and Consumer Finance Act 2003, "indicates a transaction-specific approach to the setting of fees. It is not permissible to take all operating costs (or virtually all) and allocate them to one fee or the other.
The Commerce Commission's General Counsel Mary-Anne Borrowdale says the Supreme Court has now definitively ruled on the approach lenders should take to the charging of fees.
"The Supreme Court has made clear that credit fees should only cover costs that are closely related to the particular loan transaction. It agreed with the Commission that the purpose of the CCCFA is to protect borrowers, ensuring transparency in the costs of borrowing. Fees should not be used to recover general business costs or to generate profits – that is what interest is for.
"Consumer credit issues, such as lenders charging excessive fees and not meeting their disclosure requirements, are a real focus for the Commission. We are obviously pleased that the Court has backed our approach in this case and sent a clear message to all lenders, large and small, on what the law requires." Ms Borrowdale says.