Debt buyer and lender Credit Corp will set up a remediation program after finding that it charged interest on funding arrangements after telling customers it had reduced their interest rates to zero as part of a COVID-19 forbearance program.
Credit Corp announced yesterday that a quality assurance review uncovered an administrative error that resulted in contractual interest being re-applied.
An internal investigation has not been completed, so the company is not yet in a position to say how many customers were affected or how much the remediation will cost. Its current estimate is that refunds will be around A$4 million.
The company said the majority of affected customers established flexible repayment arrangements during the pandemic, when, as part of a forbearance program, it temporarily reduced all interest rates to zero across the entirety of its Australian and New Zealand purchased debt ledger portfolio.
“It was decided that the forbearance would be permanently applied for the term of all new repayment arrangements established during the temporary period. Due to an administrative error, however, contractual interest was subsequently re-applied,” it said in an ASX announcement.
The company also reported that, in a separate matter, it is co-operating with an ASIC investigation of an “historic practice”. It said that for many years it maintained policies to avoid the establishment of payment arrangements of indefinite duration. These policies mandated the application of forbearance to lower, or reduce to zero, any contractual interest rate to prevent initiating such arrangements.
The company amended its policy in 2021 and discontinued the practice of accepting temporary repayment arrangements. Interest forbearance was retrospectively applied from the date of commencement of all such arrangements in place at the time of the policy change to bring them into conformity with the revised policy.
Now the company has initiated a further process to retrospectively apply key elements of the revised policy to all temporary arrangements in place from July 2015. This additional process is likely to result in refunds plus interest of around $800,000.