KEY POINTS:
Finance company Avanti Finance will today deny taking excessive fees from borrowers who repaid their loans early.
Avanti, one of New Zealand's largest lenders to low-income borrowers, is facing charges brought by the Commerce Commission under the Credit Contracts and Consumer Finance Act and the Fair Trading Act.
The Herald understands the hearing in the Auckland District Court is a test case, because other credit providers also charge borrowers similar fees for early repayment of loans.
It is also understood to be the first time a financier has defended charges brought by the competition watchdog under the Credit Contracts and Consumer Finance Act.
Avanti faces 50 charges under the act, which says a financier can charge only administration costs and a "reasonable" fee for its losses if a loan is repaid early.
It's also facing 50 charges under the Fair Trading Act of misrepresenting the interest rates, fees and conditions of the loans.
Avanti could be forced to compensate borrowers if it loses the case.
Avanti offers car and personal loans, debt consolidation and mortgages.
The company's website says its mortgages are available to homeowners needing to pay off other debt or avoid a mortgagee sale. It charges mortgage interest rates of 15 to 19.95 per cent.
Avanti Finance is owned by interests associated with Auckland businessmen Glenn Hawkins and Steve Eltringham.
Last year, the manager of the Commerce Commission's fair trading branch, Graham Gill, said several finance companies had taken the view that they could charge early repayers for interest income the financiers lost until that money could be lent again.
"We have told the industry that they can't do that," he said.
"Some have taken it on board ... but some will be waiting for the matter to be tested in court."
Mangere Budgeting and Family Support services chief executive Darryl Evans said he had raised the issue several times with the Commerce Commission.
"It's ridiculous. The majority of companies penalise you for paying your debt early."
He said borrowers were often not told that they would be charged if they paid loans before they were due.
"Key things of the contract should be pointed out to you ... the length of the term of the contract, the interest rate, the set-up fees and what penalties are likely if you miss a payment."
Consumers NZ chief executive Sue Chetwin said it was common for credit companies to charge early fees.
"I think it's fair to charge a penalty but it's not fair when it's very high."
