The story
In 2004 Jeanette and Peter borrowed $4,000 from Cash for Cars to buy Peter a car (“Peter’s car”). The loan was secured by Peter’s car and an all present and after acquired property clause in the loan agreement. Jeanette and Peter did not make any loan repayments. Peter’s car was stolen and when it was recovered it was worthless and uninsured. Jeanette and Peter separated, and at the time of our investigation Jeanette did not know where Peter was.
In 2005 Cash for Cars obtained a court judgment for a debt of $8,500. In 2007 Cash for Cars applied to the court for an order for examination and attachment order on Jeanette’s benefit. The debt was now $10,000, and the court placed an attachment order of $5 a week on Jeanette’s benefit. Peter was not making any payments and with an interest rate of 7.5% the loan balance was increasing.
Jeanette paid $5 a week until October 2012 when her benefit stopped because she had started working. Jeanette did not make arrangements with her employer to continue to pay Cash for Cars and borrowed money from another finance company to buy a car to drive to work (“Jeanette’s car”).
By February 2013 the loan balance was $16,000 and Cash for Cars managed to locate Jeanette. Without warning Cash for Cars repossessed Jeanette’s fridge/freezer, washing machine, dining table and chairs in April 2013. Jeanette thought she had been robbed. Jeanette contacted Cash for Cars. Because Jeanette was working she could afford to increase her payments to $30 a week. A couple of weeks later Jeanette found out she was unexpectedly pregnant. She had to work reduced hours and could no longer afford $30 a week. When Jeanette missed a couple of payments Cash for Cars threatened to repossess her car. To stop the repossession Jeanette said she would increase her payments to $40 a week.
Unfortunately $40 a week was even more unaffordable and in July 2013 repossession agents came to Jeanette’s work to repossess her car. Jeanette needed her car that day to get to the hospital for an emergency pregnancy scan so lied and said her car was at home. The repossession did not take place. At this point Jeanette went to a law centre and a budgeter for help. Payments of $40 a week to Cash for Cars left Jeanette’s budget $42 in deficit. The law centre and the budgeter tried to explain to Cash for Cars Jeanette could not afford to increase her payments.
Jeanette called us about the problems she was having with Cash for Cars. We referred the complaint to Cash for Cars’ internal complaints process. At Jeanette’s budgeter’s request Cash for Cars agreed to put recovery action on hold until after the baby was born.
In May 2014 Cash for Cars repossessed Jeanette’s car without warning. Jeanette contacted us again, Cash for Cars said it was not interested in making any new repayment agreements with Jeanette and we began our investigation.
Dispute
Jeanette said Cash for Cars’ repossession was unreasonable. Jeanette wanted Cash for Cars to return her car without charging repossession and storage costs, and let her repay the loan at $40 a week.
Cash for Cars considered its repossession was reasonable, was not prepared to waive repossession or storage costs and would not return Jeanette’s car until she increased her payments to at least $60 a week.
FSCL’s review
During the early stages of this complaint we spoke to Jeanette and Cash for Cars to see whether it was possible to resolve the complaint without the need for a formal decision. As time went by it appeared Cash for Cars was using our process to delay returning Jeanette’s car and we decided to issue a notice of recommendation to clarify the issues.
No legal right to repossession
We considered Cash for Cars did not have the legal right to repossess Jeanette’s household goods or her car. We proposed to recommend Cash for Cars return Jeanette’s car and refund all repossession costs debited to Jeanette’s account, approximately $1,300 and pay Jeanette $500 as compensation for inconvenience caused.
Jeanette’s car and household goods did not secure the debt
By signing the loan agreement Jeanette had given Cash for Cars a security interest over her present and after acquired property and a power of attorney. However Jeanette’s car did not secure the loan until either she, or Cash for Cars appropriated the car as security for the loan. Jeanette had not appropriated the car as security for the loan. We then considered whether Cash for Cars had used its power of attorney to appropriate the car as security but there was no evidence that Cash for Cars had done so. It was also our view that the power of attorney in the loan agreement was limited, and did not allow Cash for Cars to appropriate after acquired property, that was Jeanette’s new car, as security for the debt.
Did Jeanette’s car replace Peter’s car as security for the loan?
We were also satisfied that Jeanette’s car did not replace Peter’s car as security for the loan under Section 44 of the Personal Property and Securities Act 1999. Peter’s car did not contribute to the purchase price and in 2004 Jeanette had her own car that was later repossessed by another finance company when she was unable to repay the loan. She had managed without a car during the intervening years while at home with a baby.
Repossession failed to follow correct process
We were also concerned that Cash for Cars had repossessed Jeanette’s car without issuing a prepossession notice. Diary notes indicated Cash for Cars believed it could repossess the car because the loan had not been repaid within the original term. However Section 8 of the Credit (Repossession) Act 1997 only allows for repossession without a prepossession notice where the creditor believes the goods to be ‘at risk’. There was no indication in Cash for Cars diary notes that it believed Jeanette may dispose of her car.
Outcome
Cash for Cars did not accept our preliminary findings, but indicated a willingness to reach a repayment agreement with Jeanette. Jeanette went back to her budget adviser, and closely reviewed all her expenses. Jeanette negotiated reduced payments with some other creditors. Jeanette’s budget now indicated she could afford weekly payments of $40. Cash for Cars agreed:
- to reduce the outstanding balance from $19,000 to $15,000
- suspend all interest charges where it had previously been charging interest at 7.5%
- return Jeanette’s car immediately
Jeanette agreed to:
- continue to repay the debt at $40 a week
- tell Cash for Cars if she moved
- agree to a review in 12 months, and answer truthfully any questions about her financial position.
The complaint was settled on this basis.
