Reasonable Debt Collection Fees
Many of us get into debt at some point in our lives. Student loans, mortgages, car financing, and buying goods on credit are common examples. But if you can’t keep up repayments, you go into default on your loan, credit contract, or credit sale (formerly known as hire purchase). Often you owe the unpaid amount, plus debt collection costs and default fees.
If creditors want to add extra default charges to actual amount you owe, they must tell you about those charges when you make the credit purchase or sign a contract. They can do this by:
- clearly displaying notices at reception desks, checkouts, or on price lists
- stamping notices on the back of cheques
- statements in application forms for credit cards or store cards
- having a clause in the contract that tells you what fees will be charged.
If you go into default on a loan, credit sale or contract, you need to know about “reasonable fees” and which laws apply. If you think default fees are unreasonable, or a creditor’s conduct or a contract are oppressive, you may be able to challenge them under law.
You should talk to your creditor in the first instance and try to resolve the situation with them. Going to Court or the Disputes Tribunal should be a last resort, but the law is there to protect you if you need it.
Remember: think twice before you sign any contract or credit sale agreement. Ask for a copy, take it home to read, get advice, and compare the costs with those of other traders or creditors.
If a creditor has a right to charge collection fees or costs, the court says these costs must be actual and reasonable. This means any fees must relate to actual work done by the creditor or collection agency, and these fees must be reasonable. This applies to collection fees added to all debts, not just those relating to credit contracts.
If you think collection fees are unreasonable, you can ask the creditor or the collection agency to explain what services they have provided for this fee. If the fees do not appear actual (related to the services) and reasonable (not excessive), you can take a claim to the Disputes Tribunal and ask that the fees on your debt be reduced.
Credit Contracts and Consumer Finance Act 2003 (CCCFA)
The CCCFA applies to credit contracts, like money loans and car financing, from 1 April 2005 onwards. This law says that any default fees must be reasonable. Default fees include extra charges such as collection costs. If you think the fees are unreasonable, you can challenge them in the Disputes Tribunal.
Another way the CCCFA can help you is if your credit contract or the conduct of the person loaning you the money is “oppressive”. Oppressive means that the contract or the actions of the creditor are truly harsh, unjust, or heavy-handed. If you think the credit contract or the conduct of the person loaning you money is oppressive, you can apply to the Court or the Disputes Tribunal. They can look at whether the amount payable under the contract is oppressive, including the penalties on default. The Court or Disputes Tribunal may order the terms of these contracts to be changed.
Rules about oppression also apply to credit contracts signed before 1 April 2005, but under a different law, the Credit Contracts Act (1981). This old law had similar provisions to the CCCFA.
Credit Repossession Act (1997) (CRA)
The CRA limits the amount a creditor can get back if secured goods have been sold after being repossessed, or if you returned the goods to the creditor because you could not keep up the payments. The creditor must deduct the amount of money they received from the sale from the amount you owe. They can add extra fees and costs before the goods are sold, like storage or repairs, but once the goods are sold they cannot add any extra charges, like interest or extra fees.
For more information
Look in your phone book for the Citizens Advice Bureau or Budget Advisory Service nearest to you. You can also find your District Court and Disputes Tribunal contact information in the blue government section of the phone book.
Visit the “Consumer Information” section of the Ministry of Consumer Affairs website for more information about credit issues.