Judges
can jump on the brakes unilaterally to stop money-lenders enforcing consumer
credit contracts which might be oppressive, but lenders must be given a chance
to justify fees claimed before courts cut back the amount recoverable the High
Court ruled.
Concerns that oppressive loan contracts
are not being closely policed when money-lenders get default judgments without
a court hearing has led District Court registrars to refer debt-collecting
files to judges. Real Finance Ltd
challenged this administrative practice, complaining it was in breach of court
rules. District Court debt-collecting
rules enable creditors to get a default judgment against debtors who do not
respond to claims filed in court. The
High Court was told registrars had expressed general concerns about
money-lenders apparently delaying filing, allowing individual debts to escalate
dramatically because of high interest rates charged and ongoing fees
levied.
A test case was taken to the High Court
on one Real Finance debt collecting action diverted from the District Court
default judgment procedure and referred to a judge for formal hearing. Real Finance had sued to recover $6700
allegedly owing on two loans: the first loan for $3415; the second for
$1815. Interest at 29 per cent was
charged, with penalty interest of 39 per cent on default. Each loan contract had a voluminous schedule
of further costs including a mandatory monthly “administration fee” of $60 and
further costs for follow-up letters and phone calls on default. The debtor took no steps to defend. The judge
unilaterally deducted from Real Finance’s claim $2900 described as monthly administration
fees. He said these fees were excessive
and oppressive. Of the $6700 claimed:
$2900 was for monthly adminstration fees; $3000 for interest arrears and $495
for letters sent on default. The judge
gave no advance warning of his intention to dissallow administration fees and
refused an adjournment when Real Finance objected.
In the High Court, Justice Mallon said
the Credit Contracts and Consumer Finance Act allows any court to reopen a
credit contract on its own initiative if the contract is considered
oppressive. But creditors must be given
an opportunity in court to respond to any complaints that elements of a loan
are oppressive.
Real
Finance v. Setefano – High Court (27.09.16)
16.141