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Ava gets her payments back on track

In 2015, Ava took out a loan from a lender for $10,000. Including fees and interest, the total amount to pay over three years was $17,700. Weekly loan payments were $113. Security for the loan was Ava’s 2009 Mitsubishi vehicle.

From September 2015, Ava’s loan payments fell into default because her business had been placed into liquidation. In March 2016, the lender repossessed Ava’s Mitsubishi vehicle due to non-payment.

Ava complained that the lender’s repossession action was unlawful, and that the lender did not follow the correct process and treated her unfairly when she fell into unforeseen hardship in September 2015.

Communication between Ava and the lender

We could see that during September, October, and November 2015, the lender called and texted Ava at the number she provided on the credit contract. The lender also sent correspondence to Ava’s email and physical addresses as noted on the credit contract. The communication told Ava that her account was in arrears, interest and fees were being incurred, and asked Ava to contact the lender about her account. Five overdue notices were also sent to Ava’s physical address.

On 19 October 2015, the lender issued a pre-possession notice (PPN) to Ava’s physical address on file, telling Ava to pay $660 within 15 days otherwise the lender would commence repossession action. The next day the lender contacted Ava’s referees who did not know where she was. The lender issued another PPN on 9 November 2015 to the same address.

On 25 November, Ava contacted the lender and updated her telephone number and physical address (the second physical address). The second physical address was in the same area as her old address. Ava said she intended to sell the Mitsubishi vehicle and pay off the debt. The lender gave Ava three weeks to sell her vehicle and asked her to make a payment of $50 in the meantime. The $50 payment was not made.

Communication in December 2015 and January 2016

During December 2015, the lender unsuccessfully tried again to contact Ava, and asked its repossession agent to try and locate Ava’s vehicle which was also unsuccessful.

On 5 January 2016, Ava contacted the lender and updated her address to another address (the third address), also in the same area. Ava said she had been unable to sell the car and wanted to keep it as she needed it for a new job, and would pay $50 per week. The lender placed repossession action on hold.

Ava made a $50 payment but missed another one. On 22 January 2016, the lender texted Ava and said that she had broken the payment arrangement, and that if contact was not made by 4pm that day, repossession action would resume.

Communication in February and March 2016

On 19 February 2016 the lender issued Ava with a final notice saying it intended to take legal action to recover the debt, if $3,370 was not paid within 10 days. The notice was sent to the second physical address, not the third address. However, the lender also emailed that notice to Ava on 26 February 2016.

On 7 March 2016, the lender repossessed Ava’s vehicle and repossession costs of $920 were added to the loan balance. On 8 March 2016, Ava contacted the lender and said she was paying $3,000 towards the debt and that she was going to commence weekly payments.

On 10 March Ava complained to the lender and FSCL that she had been treated unfairly because she had paid most of the amount to clear the arrears of $3,370, however she had then been told she had to pay another $1,400 to clear the arrears.

There had also been $800 in vehicle storage costs incurred. The lender said it would be prepared to release the vehicle if Ava paid these costs. Ava paid $400 towards the storage costs. The lender entered into another discussion with Ava about making weekly payments.

Ava did not meet that repayment arrangement and another PPN notice was issued on 31 March 2016.

Our view

Unforeseen hardship

Although Ava entered into the credit contract with the lender in May 2015, prior to amendments to the Credit Contracts and Consumer Finance Act 2003 (the CCCFA) effective from June 2015, any assessment of an unforeseen hardship application still needed to comply with the new law. However, because by 25 November 2015 (when Ava finally contacted the lender after falling into default) Ava had failed to make four consecutive payments and had been in default for more than two months, she was ineligible to make a formal unforeseen hardship application.

Responsible Lending Code (the Code)

Despite Ava being outside the time period to make a formal application, under clause 12.3 of the Code, the lender still had to be proactive in telling Ava that she had missed payments so the time period for her to make a formal application did not expire. We could see that the lender was proactive in contacting Ava in various ways as soon as she missed her first payment. We thought the lender had acted appropriately in this regard.

In addition, section 12.13 of the Code says that if a customer is prepared to sell the security for the loan to pay the debt, this should be considered by the lender. The lender gave Ava time to try and sell her vehicle, but she was unable to and then wanted to retain it. It was not necessary at the stage Ava was intending to sell the vehicle for the lender to discuss entering into a reduced payment arrangement with Ava.

Further, sections 12.14 and 12.15 of the Code say that even if a borrower does not meet the criteria to make a formal application, if the borrower is willing to work with the lender, the lender should where possible consider entering into a reduced payment arrangement. The lender had tried to do this in June 2016 when it said Ava could reduce her payments to $50, to increase once she was employed.

Unfortunately, Ava broke several payment arrangements and avoided communicating with her lender. It was therefore reasonable for the lender to take the March 2016 repossession action to recover the debt.

Did the lender follow the correct repossession process?

Because Ava entered into the credit contract before the June 2015 amendments to the CCCFA, the applicable repossession law was that prior to June 2015. This meant the PPNs issued to Ava did not expire, whereas under the new law they would have expired after 60 days. The last PPN was issued 4 months prior to repossession on 7 March 2016, which was in accordance with the law. There was no obligation for the lender to re-issue the PPNs to Ava when she updated her address.

In addition, Ava was aware the lender intended to repossess her vehicle following conversations it had with her in early January 2016, and emailed the final demand notice on 26 February 2016.

What was discussed about the $3,000 payment?

Ava said the lender misled her during the telephone call on 8 March 2016 that her payment of $3,000 would clear the arrears. We reviewed the log note of the telephone call and we accepted that the lender gave no indication that $3,000 would clear the arrears. This was simply an amount Ava indicated she would pay. In addition, during the conversation it was recorded that Ava said she would speak to WINZ about seeking an amount in addition to the $3,000 to clear the arrears. This indicated Ava knew the $3,000 payment would not clear the arrears.

How did we think the complaint should be resolved?

By this time, it was clear that Ava was unable to pay the loan especially as she was only on a benefit. It appeared the best option was for Ava’s car to be sold. Information from the lender’s file showed an auction house had indicated Ava’s vehicle could fetch $10,000 at auction. That would leave a residual debt to pay of at least $2,000. However, by the vehicle being sold, the residual debt would be crystallised (no extra fees or interest could be added to the debt).

Negotiated resolution

We asked Ava to see a budget adviser and provide a statement of her financial position so that we could assist her and the lender to enter into a reduced payment arrangement.

 Ava was unable to get a statement of financial position to us, but had found work. We assisted Ava and the lender to enter into a settlement agreement to bring the complaint to a resolution. The terms of the agreement were that:

  • Ava agreed to pay two initial payments of $165.
  • The lender would then restructure Ava’s loan meaning:
    • default interest and fees would no longer accrue
    • the term of the loan was extended by 8 months
    • Ava needed to make weekly payments of $115 until the debt was paid in full
    • the lender added a $125 restructure fee to the loan account.
  • If Ava did not make the payments, the lender would reinitiate repossession action.
  • If Ava’s vehicle was sold following repossession (voluntary or otherwise), Ava’s debt to the lender would be crystallised with Ava liable to pay the remaining balance. If Ava did not then pay that balance, the lender reserved its right to recover the remaining debt including through court.
  • If Ava fell into unforeseen hardship again she agreed to contact the lender immediately. If Ava did not agree with the lender’s assessment of any future unforeseen hardship applications, Ava could contact FSCL.

Both parties signed the agreement. Ava got her payments back on track and the complaint was resolved.