Jailed ex-National Finance 2000 director Allan Ludlow who 'lacks skills to be in consumer finance industry' is banned for life after 'outrageous' behaviour

Former National Finance 2000 director Trevor Allan Ludlow, who was sentenced to six years jail in October after being convicted of theft and false accounting, has now been banned indefinitely - in the first such move - from setting up, operating or working in the consumer finance industry.

The banning order was issued by the North Shore District Court after a case taken by the Commerce Commission under the Credit Contracts and Consumer Finance Act (CCCF Act). The case was taken against Takarunga Management Limited, which traded as Mortgage Rescue, and its director and sole decision maker Ludlow. The Commission says it's the first such ban under the CCCF Act).

According to the Commission, Mortgage Rescue offered homeowners in financial strife temporary finance to prevent mortgagee sales. It encouraged homeowners to borrow more than was required to pay their arrears, so they could also renovate their homes. Mortgage Rescue’s intention, the Commission says, was that in addition to acting as a financier, it would also be paid to carry out the renovations.

Judge Hinton fined Mortgage Rescue NZ$29,000 and Ludlow NZ$1,000. The small fine Ludlow was hit with reflects the fact he's is currently serving a prison sentence and is therefore unable to earn any income, and has "substantial" debts. However, both Mortgage Rescue and Ludlow were also ordered to pay reparation to borrowers of about NZ$24,000. Ludlow won't have to start making these payments until two months after he is released from prison. See the full judgment here.

The Commission says it prosecuted Mortgage Rescue and Ludlow under both the CCCF Act and the Fair Trading Act, in relation to consumer credit contracts entered into with two families.

In the first of the two cases, the borrowers cancelled the contract the day after they entered into it, as they were legally entitled to do. Mortgage Rescue charged a NZ$5,000 cancellation fee , and a NZ$1,500 legal fee when it had only paid NZ$675 for legal services.

"Both the company and Ludlow were convicted of charging an unreasonable cancellation fee and the company was convicted of not passing on the legal fee at cost, as the CCCF Act requires," the Commission says.

"In the second case, the loan and renovations went ahead, but Mortgage Rescue tried to recover more than the loan amount for the work it had carried out on the property. Mortgage Rescue issued a default notice and sold the property."

"The Judge found that Mortgage Rescue had misrepresented the amount that it could recover, as it had not disclosed any variation to the loan amount. Also Mortgage Rescue had no right to charge a services fee as it had not arranged a refinance, and it had served the default notice before it was legally entitled to make a demand for payment. Mortgage Rescue was convicted of all three charges and Ludlow on two of the three."

Judge Hinton observed that in his view Ludlow “lacked the skills to be in the industry”, says the Commission, and didn't “display the integrity and fair dealing that is appropriate in this type of dealing.”

'Clearly outrageous'

Furthermore the Judge said Ludlow’s response to borrowers cancelling their contracts or disagreeing with him was “clearly unlawful and in the circumstances, outrageous”.

“The type of credit contract Mortgage Rescue was offering was targeted at vulnerable people. Homeowners who have fallen on hard times and need to refinance or face mortgagee sale are particularly vulnerable and have the right to the full protection of the law,” said Commerce Commission competition manager Graham Gill.

“This is the type of behaviour that demonstrates why the Credit Contracts and Consumer Finance Act and the Fair Trading Act exist to protect consumers. Mr Ludlow’s conduct was very poor and we are pleased that he has been removed from the industry as this was a key reason for the prosecution,” Gill added.

Takarunga Management only entered into four consumer credit contracts and no longer trades. Ludlow was one of two directors and was the sole business generator and decision maker, the Commission says.

National Finance 2000 was the first of 65 finance companies, mortgage trusts and investment funds to be frozen or collapse between May 2006 and this year, interest.co.nz's Deep Freeze list shows. Used car lender National Finance 2000 owed NZ$25.5 million to 2,026 investors when it was put into receivership in May 2006. About 48% of the money was recovered and repaid.

Ludlow was convicted in the Auckland District Court in Julys of seven Crimes Act charges relating to theft by a person in a special relationship and false accounting, following a Serious Fraud Office (SFO) investigation. He was sentenced in the Auckland District Court in October.

Ludlow, who represented himself in his trial, was found to have breached the terms of National Finance 2000's Trust Deed, defrauding investors of an estimated NZ$3.5 million. The SFO says this included about NZ$2.7 million of unauthorised or unsecured advances made to his Payless Car group of companies, plus undisclosed related party transactions totalling more than NZ$800,000 to an audio company, a property in Fiji; and land purchased for another company he owned.

(Update adds link to judgment).