THE hire-purchase (HP) companies have been capitalising from systematic fraud taking place in the industry for decades.
A major fraudulent practice is the calculation of the credit charges.
This unethical behavior was one of the key findings of the council's recently launched Hire Purchase Industry in Fiji report.
The legislation provides the maximum amount of an interest charge that may be imposed or provided for under a credit contract. This sum under (s26) of the Consumer Credit Act is:
(a) if only one annual percentage rate applies to the unpaid balances under the contract - the amount determined by applying the daily percentage rate to the unpaid daily balances;
(b) in any other case - the sum of each of the amounts determined by applying each daily percentage rate to that part of the unpaid daily balances to which it applies under the contract.
The law provides for regulations to be put in place by the minister to provide for the calculation of unpaid daily balances.
So far, no such regulation has been published. Given this, the provisions of the legislation hold that interest charged be on the actual outstanding credit, calculated on a daily basis. Any deviation from this would be contrary to law.
Six random consumer documents were analysed for credit charges, and the charges compared with the provisions of the legislation.
The analysis shows that dealers have been charging an interest on a sum greater than the outstanding credit.
In fact they have been charging an interest for the entire duration of the credit contract on the basis of the full sum of credit taken (compound interest applied).
The overcharges ranges from 87 per cent to 95 per cent, that is, almost twice of what the charge should have been.
A considerable amount of consumer money is being siphoned off by HP dealers through adopting a method of calculation which is contrary to law.
It is established that the method of calculating the actual total interest payment and monthly repayments is incorrect.
The dealer declares the interest rate.
But given that the quantum of interest charged at each repayment remains the same over the term of the loan, in effect the consumers are charged an interest for both credit due and credit already paid by repayments.
The massive overcharge, which is contrary to law, has gone on unchecked for a long time.
The issue here is that the law does not regulate on how the interest is calculated; it is assumed that an interest is only due on amount that is actually on loan, and that there is no interest on sums which have been repaid.
Any demand for an interest on a sum that is not owed by a consumer, is fraudulent.
Even though the law allows a credit charge to be levied, to no specific limit, on the actual outstanding credit, calculated on a daily basis, no HP dealer abides by this; instead as shown in the example, they levy a credit charge on the sum that is already repaid. It is estimated that this fraudulent conduct generates at least $13.3m per annum.
This substantial sum of money appropriated from consumers, who are generally less well to do in Fiji is worrying.
Consumer protection in financial services in this modern day and age is vital where victims of poor financial advice and practice are a vulnerable group caught in the never ending debt cycle.
Urgent action needs to be taken against hire-purchase companies for over charging the consumers.
The council in its recommendation in the report is calling for all consumers affected by the fraud committed by hire-purchase companies to be paid back the extra sums that they have lost through this practice.
Next week: We take a look at why Rule of 78 must be abolished.
* This is a weekly contribution from the Consumer Council of Fiji