An old debt
Caroline took out a loan many years ago with Old Debt Limited. Old Debt Limited went out of business and Caroline thought she did not need to pay the debt.
Caroline was then approached by Finance Me Limited, 3 or 4 years later. Finance My Loan had purchased Caroline’s debt from Old Debt Limited. Finance My Loan offered to reduce Caroline’s existing debt from $13,000 to $8,000 if she refinanced onto a new loan contract with Finance My Loan.
In August 2013 Caroline returned home to find that her Ford vehicle had been repossessed by Finance My Loan. Caroline complained that she had not received a pre-possession notice from Finance My Loan, and, she did not think Finance My Loan had the right to repossess the vehicle. The balance of the loan was $7,400. Default fees and interest had been accruing on the loan for some time.
We reviewed the complaint and found there were differences between the Old Debt contract and the Finance My Loan contract. The most significant difference was that the Finance My Loan contract allowed the company to include consumer goods Caroline now owned or may own in the future (all present and after acquired property), as security for the loan.
Finance My Loan could do this because of a power of attorney clause in the contract. That is, a Finance My Loan director could sign a document, as if they were Caroline, to say that her Ford vehicle became security for the loan. This meant Finance My Loan had ‘appropriated’ the Ford vehicle to the loan. When Caroline defaulted on the loan payments, Finance My Loan could then take repossession action.
We also found that Finance My Loan had not breached the Credit (Repossession) Act 1997 when it did not issue a pre-possession notice. This was because the Ford vehicle could have been considered security at risk because it was not being kept at the address Caroline had given Finance My Loan.
Caroline said if she had known about the power of attorney clause she would never have signed the Finance My Loan contract. Caroline conceded she should have read the Finance My Loan contract before signing it.
Given the major differences between the old and new contracts were not explained to Caroline by Finance My Loan, we considered Finance My Loan’s omission could amount to misleading conduct under the Fair Trading Act 1986. In particular Caroline was not made aware that by signing the new loan agreement with Finance My Loan, she was giving Finance My Loan security over all her possessions. However, we did note that Caroline was in a better position when she signed the Finance My Loan contract, because there had been a reduction of the old loan balance by around $5,000.
We suggested that Finance My Loan enter into a suitable repayment arrangement with Caroline and return the Ford vehicle. We also pointed out to Caroline that Finance My Loan could look to take action to repossess the Ford vehicle again if she fell back into arrears.
Caroline said that she had fully paid a loan to another finance company, Pay Me Limited, in relation to the Ford vehicle. We told Caroline she also had the option to sell the Ford vehicle and use the proceeds to pay off a chunk of the balance of the loan.
After our CEO issued her notice of recommendation setting out her view on the complaint, Caroline and Finance My Loan spoke and agreed that Caroline would pay $200 per month towards the loan. The complaint was resolved.
Lesson to be learned
Always read the contract before you sign it. Be aware that by granting a power of attorney you may have given a finance company significant rights to repossess your goods.
If you are in any doubt about what any sections of the contract mean, seek advice from a lawyer.