A provider of small amount credit contracts, Sunshine Loans, charged prohibited fees over a four-year period, which it defended with “fanciful arguments” a court has ruled.
The fees in question were charged for varying the terms of the loan contract, amending them by deferring a payment data or for reorganising the dates on which payments were due.
Sunshine Loans has operated with a credit licence since 2011. In the period dealt with in the case brought by ASIC – 2016 to 2020 – it offered five different versions of small amount credit contracts. The terms were all essentially the same.
The company included so-called “amendment” or “rescheduled payment” fees in more than 670,000 contracts over the period. The fees were applied on 12,693 occasions and $293,160 was charged.
Section 31A of the Credit Code says a small amount credit contract must not impose or provide for fees and charges if the fees and charges are not of the following kind: an establishment fee; a monthly fee; a fee that is payable in the event of default; and a government fee payable in relation to the contract.
The company argued that the fees were payable on the borrower’s default and were permitted under legislation.
The Federal Court looked at when the fees were payable and found that the rescheduled payment fee was payable when the time for making a payment was rescheduled. The description of an amendment fee indicated that it was payable when the terms of the agreement were amended.
It found that the fee was payable when the parties agreed to amend the terms of the contract, in circumstances other than the “event of a default”. The fee was a prohibited monetary liability.
Evidence showed that Sunshine Loans did, in fact, charge the amendment fee prior to the occurrence of a default.
The common pattern was that a borrower would contact the company seeking an alteration to their payment obligations, for example by extending the time for repayment or the amount of each repayment, and a new schedule would be agreed. The borrower would be charged the amendment fee.
The court said: “Sunshine Loans’ submission in relation to this point proceeded upon the assumption that any agreement or arrangement between it and a borrower to alter the timing and/or quantum of repayments had no effect on the borrower’s obligation to make repayments in accordance with the payment schedule to which the parties had originally agreed, and therefore the borrower was in default when they paid in accordance with the agreed [amended] schedule.
“It is difficult to know whether, in this respect, Sunshine Loans has adopted a deliberately obtuse attitude, was effectively misleading borrowers or was concocting a fanciful argument to avoid liability in these proceedings.”
The court ruled that Sunshine Loans contravened the Credit Code on 670,609 occasions.