In early 2020, Mei took out a loan to finance buying a car. She defaulted on her loan several times during 2020. Mei found it difficult to keep up with her repayments due to the impacts of COVID-19 on her business.
The lender agreed to a repayment arrangement for the arrears, which Mei defaulted on. The lender then agreed to add the arrears to the end of the loan. However, Mei continued to default on the loan.
In early 2021, the lender repossessed the secured car. The lender went on to sell the car because Mei did not pay the loan arrears.
Before the lender sold the car, they obtained a valuation. The valuer believed the car was worth between $18,000 and $20,000. The valuer described the condition of the car as average, and they noted that the registration and warrant of fitness (WOF) had both expired.
The lender advertised the car for sale for six days before an online auction. At the auction, the lender’s reserve price of $19,000 was not met. After the auction, the lender negotiated with one of the bidders and sold the car for $17,500. Mei was left with an $18,000 shortfall debt.
Mei complained to the lender about the price they obtained for the car. The lender believed they had sold the car for a reasonable amount. However, the lender offered to settle the debt for a $15,000 lump-sum. Mei declined the offer and complained to FSCL.
Mei believed the market value of the car was around $40,000. She gave us advertisements for similar cars with asking prices ranging from $30,000 to $38,000. She believed the expired registration and WOF were not relevant to the market value of the car because it was a special, limited-edition car.
Mei was also not happy that the lender had sold the car after only one auction, with a six-day advertising period.
The lender believed the sale price was reasonable given the condition of the car and the cost (for the purchaser) to obtain a new WOF was uncertain.
The Credit Contracts and Consumer Finance Act 2003 provides that, when a lender is selling repossessed consumer goods, they must take reasonable care to obtain the best price reasonably obtainable for the goods at the time of sale.
The Responsible Lending Code provides that lenders can sell goods by an auction that is advertised in a way appropriate to the nature of the goods, or by private sale where the lender is satisfied the price is the best price reasonably obtainable for the goods.
We concluded that the lender had taken reasonable care to obtain the best price reasonably obtainable. They had:
- used an auction house that specialised in auctioning vehicles
- used an online auction, which meant there was potential to reach buyers nationwide
- advertised the car for sale before the auction (a six-day advertisement period seemed reasonable)
- weighed up whether it was best to negotiate a sale price with one of the bidders or to relist the car at another auction.
The lender had also considered their valuation when they set the reserve price for the auction. The advertisements Mei gave us did not prove that the lender’s valuation was not a reasonable estimate of the value of the car.
It appeared to us that the condition of the car and the expired WOF and registration were relevant to potential buyers, especially those that intended to use the car, as opposed to buying it as an investment because it was a limited-edition car.
We suggested that Mei should either discontinue her complaint or accept the lender’s offer to settle the debt for a $15,000 lump-sum payment. We encouraged the lender to consider a repayment arrangement if Mei could not afford a lump-sum.
Mei remained of the view that the car was worth more than what it was sold for, but she decided to settle with the lender. She offered to settle the debt for $15,000, repaid at $100 per week, which the lender agreed to.
Insights for consumers
If a borrower does not agree with the lender’s estimated value of a repossessed asset, it is best to discuss this with the lender before they sell the asset. It can be difficult for a borrower to dispute the value of an asset once it has been sold.
The borrower may wish to obtain their own valuation (at their own expense) for the lender to consider before they sell the asset.