The Commerce Commission (Commission) has obtained a pecuniary penalty order of $200,000 against Eagle M.A.N Group Limited (trading as Eagle MAN) in the High Court following multiple breaches of the Credit Contracts and Consumer Finance Act 2003 (CCCFA). The breaches included charging up to 182.5% in interest per annum, in addition to credit and default fees. The decision, Commerce Commission v Eagle M.A.N. Group Ltd [2024] NZHC 3070 can be found here.
This is only the second time that the High Court has imposed a pecuniary penalty under the CCCFA, the first being against TSB Bank earlier this year. It is also the first time the Commission has obtained pecuniary penalty orders for breach of high-cost lending rules. You can read our article on Commerce Commission v TSB Bank Limited here.
Background
Eagle MAN operated a lending business which provided loans from its two physical branches in Christchurch, and online through its website and Facebook page. Its clients were primarily Filipino temporary workers and recent immigrants to New Zealand. Eagle MAN provided high-cost loans – being a loan with an annual interest rate of more than 50%. As recognised by the Court, these products pose a particular risk to vulnerable borrowers, who may not have other credit options.
The Commission brought proceedings against Eagle MAN in March 2023 alleging breaches of sections 17, 45E and 45G of the CCCFA – the initial disclosure and high-cost lending rules with which Eagle MAN was required to comply.
Eagle MAN's breaches were discovered by the Commission following a review of sample files, required as a part of the Commission's monitoring project into high-cost credit providers. On review, the Commission found that over half of the sample high-cost loans breached, or were likely to breach, the high-cost lending rules under the CCCFA by virtue of interest charges of between 109.50% and 182.50% per annum. The Commission's investigation and subsequent statistical extrapolation determined that Eagle MAN's breaches of the CCCFA were systemic, likely to have affected the whole of Eagle MAN's loan book (and at least 40%), and occurred over a short period of time, of two years. The Court accepted the Commission's findings.
Justice Churchman held that Eagle MAN had:
- Contravened section 45E(2) and (3) of the CCCFA by providing high-cost credit contracts that had costs of borrowing in excess of, or capable of being in excess of, the maximum costs of borrowing, and by accepting payment or debiting a fee or charge to the borrowers' accounts that would result in the maximum costs of borrowing exceeded
- Contravened section 45G of the CCCFA by entering into high-cost credit contracts with borrowers at a time when those borrowers had entered into two or more high-cost credit contracts with Eagle MAN within the preceding 90 days
- Breached section 17 of the CCCFA by failing to provide key information relevant to contracts as set out in schedule 1 of the CCCFA between 11 October 2015 and 16 March 2021 (being the relevant disclosure period).
The penalty
While it was accepted that the method adopted in TSB Bank for determining the appropriate pecuniary penalty to be imposed under the CCCFA was correct, the Court in Eagle MAN held that a different approach to determining the penalty ought to be taken.1 This was in light of the fact that there were significant differences between the facts in TSB Bank and Eagle MAN. In particular, Churchman J found it persuasive that:
- Eagle MAN committed breaches that were from a common cause (failing to take adequate steps to inform itself of its obligations under the CCCFA) and over a relatively short amount of time, as opposed to 13 breaches from 13 separate causes over six years in TSB Bank
- Overall, a low number of borrowers were affected (approximately 100), compared with 42,000 in TSB Bank
- The conduct in the current case was sufficiently connected in time and nature to regard a penalty of $600,000 as being the maximum, in contrast to TSB Bank where an aggregate maximum of $7.8m across the 13 breaches was adopted.
The High Court considered there to be less utility in applying the rigid bands (as is the manner adopted in TSB Bank), and as a result, considered that determining an overall starting point based on the breaches as a whole, rather than placing each breach or type of breach into a band to come to a total starting point, would be the appropriate approach in the current instance.
As such, the High Court found that a starting point of $300,000 was appropriate in these circumstances. It was considered that any less would fail to be effective deterrence, and any more would be disproportionate given the relatively small number of borrowers affected and the fact that the breaches were not deliberate (though reckless, as Eagle MAN relied on unqualified persons to assist it in complying with the CCCFA). Justice Churchman accepted that while the breaches were not deliberate, the breaches affected vulnerable borrowers in precarious financial situations and occurred as a result of ineffective compliance measures – which would not have been discovered but for the Commission's investigation.
Churchman J applied a discount of 30% to the starting point in light of the fact that Eagle MAN immediately admitted to its likely breach, cooperated with the Commission throughout the investigation process (including by voluntarily attending interviews and providing information as and when required), and demonstrated remorse by its repeated offers to remediate consumer harm suffered as a result of its breach. The High Court also took into account Eagle MAN's actions to ensure compliance under the CCCFA following the Commission's finding of breach.
A 30% reduction from the $300,000 starting point resulted in a penalty of $210,000, which was then rounded down to $200,000 in partial recognition of Eagle MAN's limited ability to pay (as it had ceased to provide new loans during the period of the investigation).
Takeaways
The Commission has been and will continue to be active in monitoring compliance under the CCCFA, until the Financial Markets Authority becomes the primary regulator of the CCCFA. The Commission has demonstrated that it will not hesitate to take enforcement action where breaches result in harm to borrowers.
In light of these trends, lenders – in particular high-cost lenders – must ensure that they comply with their statutory obligations when providing loans and prevent excessive interest and fees from being charged to borrowers.
This article was co-authored by Cora Morrison (senior associate), Delia Fu (solicitor) and Josh Kemp Whimp (summer clerk).
1 That breaches under the CCCFA should be placed into bands of low (6% to 35%), moderate (36% to 65%) and high (66% to 95%) seriousness within the appropriate pecuniary range, with each breach assessed and placed into bands.
