On 4 December 2014 Matthew and Coral entered into a finance agreement to purchase a 2004 Mazda Atenza. To repay the loan, Matthew and Coral would pay a total of $14,243.39 over two and a half years.
Change in financial circumstances
On 28 July 2016 Matthew telephoned the finance company to say their financial circumstances had changed and they could no longer afford their weekly repayments of $110. Matthew and Coral’s boarder had suddenly moved out. They had been receiving $180 a week from the boarder.
The finance company told Matthew he could apply for hardship, but it required further information about Matthew and Coral’s financial position.
On 29 July 2016 Matthew and Coral visited a budget adviser who sent a budget sheet to the finance company. The budget sheet showed that, including the car loan repayments, Matthew and Coral had a weekly deficit of $74.86.
Almost two weeks later, Matthew telephoned the finance company to follow up on his hardship application. The finance company said it could not process his application because he had provided insufficient information.
The finance company wanted:
- three-month bank statements for both Matthew and Coral
- separate budget sheets for both Matthew and Coral
- separate letters from both Matthew and Coral requesting hardship
- if working, a letter from their employers
- if receiving the benefit, a breakdown from WINZ for each of their benefits.
The finance company also said Matthew would need to pay the loan arrears before the hardship application could be considered.
Matthew gave the finance company their bank statements the following day and made a payment of $110 to the finance company that evening. However, the loan account was still $220 in arrears.
On 24 August 2016 the finance company told Matthew that the financial hardship application was being reviewed and he would be updated shortly.
On 3 September 2016 the finance company sent Matthew and Coral a repossession warning notice.
On 6 September 2016 the finance company called Matthew to say that their hardship application had been declined due to incomplete documentation.
On 7 September 2016 the finance company told Matthew that if he paid $200 by the end of that day, he could have until the end of that week to find a boarder.
Car “at risk”
On 15 September 2016 the finance company telephoned Matthew. The finance company’s note of the conversation included Matthew saying that he will put the car on a tow truck and sell it for scrap.
The car was repossessed by the finance company later that day.
On 17 November 2016 the car was sold at auction. Following the sale of the car, Matthew and Coral still owed $4,198.62 on the loan.
Matthew sought help from Jenneke, an independent advocate. Jenneke contacted FSCL with a complaint against the finance company.
Matthew and Coral’s position
Matthew was upset that the car had been repossessed and considered that they had been treated unfairly by the finance company.
Jenneke said that under the Credit Contracts and Consumer Finance Act 2003 (the CCCFA), Matthew and Coral had a right to apply for hardship. However, they were unable to fulfil their rights because the finance company had breached the CCCFA.
Jenneke maintained that, due to the finance company’s breaches of the CCCFA, Matthew and Coral should not owe any money to the finance company.
Finance company’s position
The finance company agreed that its assessment of Matthew and Coral’s hardship application could have been better. In particular, it could have provided Matthew with its decision on the hardship application sooner.
However, the finance company said it was satisfied that it had followed the correct procedure when repossessing the car. The finance company said that as Matthew had threatened to damage the car, it considered the car to be “at risk”, allowing it to repossess the car immediately.
The finance company offered to reduce the balance of the debt by $2,000 to resolve the complaint. Matthew, Coral and Jenneke did not accept this offer.
Hardship application process
In our view, Matthew and Coral had suffered genuine financial hardship as a result of their boarder leaving and we found that the finance company made it difficult for them to seek hardship relief.
We considered that, from the date (28 July 2016) Matthew telephoned the finance company to say that they were experiencing financial hardship, the finance company was responsible for assisting Matthew with the application. Instead, the finance company had made Matthew and Coral “jump through hoops” to apply for hardship relief.
In particular, we found that the amount of information the finance company asked Matthew and Coral to provide was inappropriate. Matthew and Coral shared a household and were joint borrowers so it was unnecessary to request separate budget sheets from Matthew and Coral.
We considered that the budget sheet Matthew provided to the finance company on 29 July 2016, along with his explanation for the change in their financial position, was sufficient information for the finance company to assess the hardship application.
We also considered that the finance company had not complied with timeframes for assessing a hardship application as set out in section 57A of the CCCFA. Under this section, the finance company should have provided Matthew and Coral with its decision on their hardship application within 20 working days.
On several occasions the finance company had told Matthew that their loan account had to be up-to-date for them to apply for financial hardship. It appeared that the finance company was applying the old provisions of the CCCFA. The amended section 57A no longer requires an account to be up-to-date for a borrower to apply for hardship.
There are circumstances where a borrower cannot apply for hardship, but none of these were applicable to Matthew and Coral’s situation.
Under section 83J of the CCCFA, a lender cannot take enforcement application where the borrower has made a hardship application and a decision has not been reached on that application.
In our view, the finance company breached section 83J when it issued Matthew and Coral with a repossession warning notice on 3 September 2016.
Under section 83J, a lender can repossess a car even where there is a pending hardship application if it considers the car to be “at risk”. The finance company’s position was that the car was at risk because Matthew had threatened to take the car to a scrap metal yard.
We accepted the finance company was right to take Matthew’s threat seriously. However, we needed to assess whether it was reasonable in all the circumstances for the finance company to take immediate repossession action.
We considered that, at the time Matthew made the threat, he had been experiencing financial hardship for some time. He had also:
- been in contact with the finance company about his financial hardship application for 7 weeks
- been told to pay $200 and that if he did not pay, he would risk losing the car
- been given incorrection information that his loan account had to be up-to-date to continue with a hardship application
- received a repossession warning notice.
Given the circumstances, it was not surprising Matthew became agitated during the telephone conversation with the finance company on 15 September 2016. Also, the account statements showed that, prior to experiencing hardship, Matthew and Coral had been reliable borrowers having never missed a payment.
In our view, the finance company did not need to repossess the car immediately after the telephone conversation with Matthew. The finance company could have telephoned Matthew later that day, once he had the opportunity to calm down, to discuss the seriousness of the threat and the steps that it would have to take if he continued to threaten destroying or damaging the car.
We found that the finance company should not have repossessed Matthew and Coral’s car at the time that it did.
Matthew and Coral’s financial position
When Matthew and Coral first applied for hardship relief, their boarder had just moved out. It was reasonable for them to believe that they would find a new boarder and would be able to afford to meet their repayments again.
However, by the time we received Matthew and Coral’s complaint, a number of months had passed since their boarder had left and they had not found a replacement. It appeared that their financial circumstances were unlikely to change in the near-future.
We considered that even if the finance company had not repossessed the car when it did, it was likely that the car would have needed to be sold, because the change in Matthew and Coral’s financial circumstances was not temporary. Without the income from the boarder, they were unable to afford loan repayments.
The purpose of varying a loan on the grounds of financial hardship is to provide borrowers with temporary relief for a temporary change in their financial circumstance. Where there is a permanent change in a borrower’s financial circumstances, it may be best for the security (e.g. the car) to be sold at the earliest opportunity.
We found that the finance company should reduce Matthew and Coral’s residual balance by $2,566.72, made up of:
- $390.20 for the repossession costs
- $676.52 for third party fees the finance company was not entitled to charge to Matthew and Coral’s loan balance
- $1,500 as compensation for stress and inconvenience Matthew and Coral had suffered through the hardship and repossession process.
This meant there was still a remaining loan balance of $1,631.90 for Matthew and Coral to pay to the finance company. Even though we had found that the finance company had failed to comply with various sections of the CCCFA, we did not consider the whole unpaid loan balance should be waived.
Matthew and Coral had entered into the loan agreement with the finance company and, as such, they were still obligated under their loan agreement to pay the residual loan balance of $1,631.90.
Matthew, Coral and Jenneke were unhappy with this outcome and still believed no further money should be paid to the finance company.
On Jenneke’s advice, Matthew and Coral declined to accept our final recommendation. This meant that the finance company was under no obligation to reduce the balance of their loan. However, Matthew and Coral could proceed with their complaint through any other avenue available to them.