If a consumer defaults in payment under say a car loan, the credit provider may decide to repossess the car.

The Code regulates repossession. Usually a notice must be served on the consumer and there is a special process for repossession if the amount still to be paid is less than 25% of the amount financed, or $10,000 (whichever is the lesser amount) – check with ASIC.

A consumer may be able to negotiate a deferral of this procedure e.g. if the borrower can prove they are about to receive monies owed to them that will cover the costs.

Hardship
If you have any personal hardship (e.g. illness or unemployment) you can try to negotiate with the lender. If possible, do all you can to avoid repossession. You may be able to come to an arrangement about a repayment schedule (e.g. extend the loan but reduce the individual payments).

Hardship can only be claimed where the maximum amount of credit is less than $500,000.

If the credit provider does not agree to extending the period of the contract and consequently reducing payments or postponing payments for a period of time, a borrower can apply to the Financial Ombudsman Service or the courts. If you do this make sure you get legal assistance.

Sale
The credit provider must get the best price possible for the goods. On the other hand, it is possible for the original borrower to introduce a buyer to the credit provider. If the best possible price has not been obtained (this may be difficult to prove if you did not have the goods valued prior to repossession), or the provider unreasonably refuses the person you introduced, you should seek professional advice.

Money owed after sale
If the amount obtained on the sale does not equal the amount owed under the contract, the credit provider may begin legal proceedings in a local or magistrates court to recover the balance.

Guarantors
Think very carefully before going guarantor for someone – you are accepting the responsibility for the loan if there is a default. It is not merely a reference! Get professional legal advice before you sign anything.

There are detailed rules about guarantees and when a guarantor is required to pay. In some situations the guarantor may not be liable, for example, where a guarantee is altered by the credit provider or there is any evidence of fraud or duress used by the borrower.

The Code also introduces a number of additional requirements, for example the guarantee must be in writing and a copy of the credit contract must be given to the guarantor.

Unjust contracts
Under the Consumer Credit Code, any of the parties to the regulated credit contract can ask to get out of a contract if it was unjust or harsh at the time it was entered into.

Whether the contract was unjust will depend on the circumstances. It may be because of:

  • harsh terms in the contract;
  • the way the negotiations were conducted to induce the borrower to enter into the contract;
  • a rate of interest that is excessive in the situation. It is important to get legal advice of you believe the contract is unjust because the issue must be adjudicated by a court or tribunal.

Under the Code the court may look into (amongst other things):

  • the inequality of the bargaining situation;
  • public interest;
  • whether independent professional advice was obtained prior to signing;
  • whether the borrower understood the terms of the contract;
  • whether there were unfair tactics or unfair pressure applied to the borrower.

Avoiding repossession
You can pay the money that is owed (it will be disclosed on the notice) within the specified time period. Asked permission to sell the goods or apply for hardship.

Last Updated – June 2012