KiwiBank facing potential compo payout over credit disclosure issues

Kiwibank says its has uncovered "disclosure issues" in relation to the Credit Contracts and Consumer Finance Act. Photo / Paul Taylor

Another bank is facing a potential compensation payout over how it gave information to borrowers.

Kiwibank has noted a contingent liability in its half-year accounts and says it has uncovered "disclosure issues" in relation to the Credit Contracts and Consumer Finance Act and has proactively discussed these with the Commerce Commission.

"At this stage, the possible impact of the commission's position cannot be determined with any certainty."

A contingent liability means the cost may or may not occur depending on certain outcomes.

Kiwibank would not comment on which product the disclosure issues related to or how many customers could be affected by the issues.

"At this stage, there is nothing to add to what is in the disclosure statement," the bank's spokeswoman said.

The products are likely to be either credit cards, personal loans, business or home loans.

A Commerce Commission confirmed Kiwibank had self-reported a matter to the commission.

"We are unable to comment further at this stage."

Earlier this month Westpac New Zealand paid out $3.7 million in compensation to 19,365 customers after admitting it breached the Credit Contracts and Consumer Finance Act.

Westpac New Zealand had to compensate customers by $3.7 million last month over a credit card blunder. Photo / Stuart Munro

The bank breached the law by failing to provide key information to credit card customers before they entered into their contracts.

Those affected were new credit card customers who received their card without receiving a welcome letter containing disclosure information between May 2017 and March 2018.

Westpac reported the issue to the Commerce Commission in March 2018, who filed High Court proceedings against the bank in July last year.

Westpac said the error occurred during an upgrade to its IT systems, which resulted in the letter not being sent to more than 19,000 customers.

The Credit Contracts and Consumer Finance Act requires lenders to provide important information that helps consumers understand their rights and obligations under their loan before they enter into their loan contract.

Most of those who have run afoul of the law in the past have been mobile shop traders.

The Commerce Commission identified industry-wide compliance issues for mobile traders in a 2014/15 report and prosecuted 11 mobile shop traders in 2016.

But finance companies have also had issues meeting the law.

In September last year, Linsa Finance reached a settlement agreement with the commission to pay back $350k to about 900 borrowers for failing to disclose key information required under the Credit Contracts and Consumer Finance Act.

In July Aotea Finance also reached a settlement and agreed to credit or refund current and former affected borrowers $2.7 million after it did not include all the key information required to be disclosed to consumers.