Unregistered company – unreasonable fees

Between October 2013 and February 2017, Cassie bought a number of household goods from a mobile trader.  When Cassie defaulted on some loan payments, the mobile trader assigned Cassie’s account to a debt collection company in November 2017.  At this time, Cassie owed about $1,030.

The debt collection company contacted Cassie and it was agreed that Cassie would repay the debt at the rate of $10 per week.

Cassie made some payments as agreed, but also missed some payments.  Each time Cassie missed a payment, the debt collection company charged a $70 default fee.

 

Dispute

Cassie’s budget adviser complained on her behalf to FSCL about the level of the default fees charged to her account. Cassie thought the fees were unreasonable. The debt collection company didn’t think it had done anything wrong and declined to settle Cassie’s complaint.

 

Review

When we looked for the debt collection company, we found it was not registered on the Financial Service Providers’ Register, nor a member of dispute resolution scheme.  As the debt collection company became a creditor under a credit contract when Cassie’s debt was assigned to it by the mobile trader, the debt collection company was required to be registered.  After discussing this with the debt collection company, the company registered on the Financial Services Providers Register and joined FSCL.

Because the debt collection company was not complying with the law (by not being a registered financial service provider or member of a dispute resolution scheme) when they charged the default fees, we found that the company could not charge any default fees until they joined FSCL in November 2018.

We also considered the default fee of $70 was unreasonable and had not been properly disclosed to Cassie.  Under her original contract with the mobile trader, the default fee was only $15 per missed payment. When we pointed this out, the debt collection company agreed to reduce future default fees to $15.

Finally, we were of the view that the debt collection company had caused unnecessary stress and inconvenience to Cassie by charging $70 default fees in breach of the law, and so increasing her debt by some margin.

We recommended that the debt collection company write off default fees totalling $770 and credit Cassie’s loan account with the sum of $250 as compensation for inconvenience.  This had the effect of reducing Cassie’s outstanding loan balance to approximately $340.

 

Outcome

The parties accepted our recommendation and the complaint was settled.

 

Insight for consumers

When dealing with any type of financial service provider, you should check to see that they are registered on the Financial Service Providers Register and a member of an approved dispute resolution scheme.  If the provider is not registered, they are not complying with the law.

If you think a fee charged is unreasonable, or not in accordance with your loan contract, you should query this with your provider.  If you do not receive a satisfactory response, you can complain to FSCL.

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