Co-operative Bank admits breaches of CCCFA for unreasonable fees

The Co-operative Bank (Bank) has admitted that it charged unreasonable fees across its lending products between 2015 and 2021 in breach of the Credit Contracts and Consumer Finance Act 2003 (CCCFA).

While regulatory oversight of consumer credit is shifting to the Financial Markets Authority next year, the Commerce Commission continues to be very active in the interim with around 23 open CCCFA investigations. Lenders are therefore on notice that high levels of scrutiny continue.

Background

The CCCFA is New Zealand’s principal consumer credit protection legislation. It protects the interests of borrowers in relation to credit contracts, consumer leases, and buy-back transactions of land. It does so by imposing obligations on lenders to ensure that borrowers will be fairly treated when participating in New Zealand’s credit markets.

Relevant to the Bank’s breaches, the CCCFA contains rules around interest charges, credit fees, default fees, and payments contained within consumer credit contracts. These rules broadly prohibit the charging of “unreasonable” fees.

The test for reasonableness of fees under the CCCFA is tied to whether the fee “reasonably compensates” the creditor for the work undertaken and cost incurred. Fees cannot be profit-generating and can only recover a creditor’s costs. Creditors also have an obligation to review any fees where their reasonableness is likely to have been materially affected.

The Bank’s breach

Following an investigation, the Commission found the Bank had charged twelve unreasonable fees across its various lending products, with most being charged between June 2015 and November 2021. The relevant fees included establishment fees, facility fees, variation fees, and discharge fees. This meant consumers applying for mortgages, vehicle financing, and cash advances were likely met with additional charges that did not just compensate the Bank, but allowed additional profit to be collected at numerous points in the creditor/debtor relationship.

The Commission said the Bank’s failure to undertake regular fee reviews, and invest in adequate systems, processes and controls that ensure legal compliance, meant its conduct fell short of what would be expected from a responsible lender.

For as long as it still holds onto its regulatory responsibility to enforce the CCCFA (with the responsibility soon to be shifting to the Financial Markets Authority), the Commission’s view is that “Holding banks accountable is an important part of the Commission’s ongoing work to ensure compliance with consumer credit laws and to ensure people are able to borrow money safely and fairly”.

Penalty and result

The Bank has repaid $7.225 million to 48,249 customers. It has entered into a settlement with the Commission, and the High Court be asked to decide an appropriate pecuniary penalty under the CCCFA, which will likely be determined based on an appropriate recommended penalty range agreed between the Bank and the Commission.

Under the CCCFA, companies are liable for fines of up to $600,000 for each act or omission in breach. Given the Bank has admitted charging twelve unreasonable fees across a period of six years, we would expect the maximum penalty to be significant. However, that is likely to be reduced somewhat to reflect the Bank’s admissions of liability and proactive approach in remediating affected customers

The settlement reflects the Commission’s ongoing focus on CCCFA enforcement targeting disclosure, responsible lending, reasonable fees and robust compliance frameworks. Parliament shares this focus, as seen in recent legislative amendments, including the introduction of additional compliance requirements for financial institutions to treat consumers fairly under the Financial Markets (Conduct of Institutions) Amendment Act 2022, which came into force in March 2025, and the Credit Contracts and Consumer Finance Amendment Bill, which is due for its second reading in Parliament having recently been reviewed by the Finance and Expenditure Select Committee.