Press Release – Commerce Commission
The Commerce Commission has settled with Marac Finance Limited following the finance companys decision to refund 1,000 customers a total of about $567,000.Media Release
Issued 25 February 2013
Release No. 62
Commission settles with Marac Finance following $500,000 payout
The Commerce Commission has settled with Marac Finance Limited following the finance company’s decision to refund 1,000 customers a total of about $567,000.
The refunds are to borrowers who paid their loans back early between 2006 and 2010 but were not refunded premiums for their loan repayment insurance.
The Credit Contracts and Consumer Finance Act (CCCF Act) requires that an appropriate portion of a premium is refunded to a customer when they repay their loan early. This reduces the final balance payable on the loan.
The Commission’s General Manager Competition Kate Morrison said, “The Commission’s view was that Marac was in breach of the CCCF Act and the Fair Trading Act. We saw a settlement as a timely and cost effective way of achieving the right result.”
“We are pleased that Marac has agreed to do the right thing by its customers and make these payments.”
The insurance premiums charged by Marac were paid at the start of each loan, on the basis that the loans would run for their full term. When Marac advised borrowers of the final balance to prepay the loan, Marac did not include the rebate on the insurance premium.
The Commission believed that as Marac arranged the insurance, and was therefore required to make the refunds, it breached the CCCF Act by not refunding as required. The Commission also believed that Marac was likely to have misled customers by telling them that insurance would be rebated, thereby potentially breaching the Fair Trading Act.
Marac was of the view that it did not arrange the insurance and was not in breach of the Fair Trading Act or CCCF Act. However, it agreed to make the refunds because its contracts said that it would refund insurance premiums when contracts were prepaid.
When the matter was brought to its attention in late 2010, Marac Finance immediately changed its practices to ensure that it rebates insurance premiums when a loan is prepaid. Since then, it has been working to identify and refund the affected borrowers.
Ms Morrison said it was particularly important when companies advise customers of a final balance that this balance is properly calculated.
“Borrowers rely on the information provided to them by lenders, and often have no way of ensuring that the balance owing is correct,” Ms Morrison said. “Borrowers should be aware that if a loan is being repaid early, insurance may be rebated, and they can ask the lender if there are any rebates due to them.”
A copy of the settlement with Marac Finance can be viewed at www.comcom.govt.nz/cccf-act-enforcement-actions-register 
The Commission has a number of fact sheets on the Credit Contracts and Consumer Finance Act: http://www.comcom.govt.nz/consumer-credit-fact-sheets/ 
Marac Finance Limited is a finance company providing vehicle finance to consumers and businesses through a dealer network. It is a subsidiary of Heartland Bank Limited.
Ms V purchased a car in March 2007. She entered into a two year financing contract with Marac, which included payment protection insurance with a premium of $1,270. Ms V repaid her loan in October 2007, 17 months early. The final balance advised to Ms V should have included a rebate of $649 for the insurance. As a result of the investigation, Ms V has since received a refund of $649.
The Credit Contracts and Consumer Finance Act 2003 regulates consumer lending, consumer leases and buy-back transactions, requiring the disclosure of certain information to consumers entering into consumer credit contracts and providing rules that relate to interest, payments and credit fees. You can find more information here www.comcom.govt.nz/credit-contracts-and-consumer-finance-act 
Under the Fair Trading Act 1986 it is an offence to make a false or misleading representation. You can find more information here: www.comcom.govt.nz/what-is-the-fair-trading-act