Fast cars and bad debts
In September 2004, 17 year old Jason Jones took out a loan for $19,123.48 with Zee Finance Limited (“Zee”) to buy a new car. Jason made regular repayments to his loan through 2004 and 2005. In 2006, Jason was unable to make payments and defaulted on the loan.
In October 2006 Zee repossessed and sold Jason’s car. After the car had been sold, the balance of Jason’s debt crystallised at $4,619.07.
In 2006, Jason says he received a letter from Zee saying it had written off the outstanding debt and was not going to pursue him further. Jason did not keep a copy of this letter.
On three separate occasions in 2007 Zee wrote to Jason concerning the debt and asking him to make payment. Zee’s last letter in 2007 said it would accept $3000 in full and final settlement of the debt or a payment arrangement of $100 per week. Zee said it would take legal action if Jason did not make payment.
Jason says he did not receive any of the letters and in any case, did not take up the offer and no legal proceedings were started.
In August 2008, Athena Loans Limited (“Athena”) bought Zee’s loan book including Jason’s debt.
In January 2015, Athena wrote to Jason seeking payment of $4,619.07 and if payment was not received, it would pass it to debt collection. By now, Jason had started a career in finance and was doing well. Jason was very concerned about the impact on his credit rating and the implications this could have for his employment and future borrowing. Jason contacted FSCL about Athena pursuing the debt.
The complaint
Jason believed it was unfair for Athena to demand payment when Zee had written off the debt. Jason wanted Athena to confirm the debt had been written off and to stop any enforcement action that would impact on his credit rating.
FSCL’s involvement
We investigated and found:
- Athena had no access to Zee’s records to prove or disprove that a letter had been sent to Jason advising the debt had been written off.
- The debt crystallised following Zee’s sale of Jason’s car in October 2006. From this time, Zee had 6 years in which to pursue the debt from Jason.
- Athena should have filed proceedings by August 2014 if it wanted to pursue the debt.
- Athena’s demands for payment of the debt were outside of the time prescribed for recovery of debt under section 11(1) of the Limitation Act 2010;
- The doctrine of laches, which says that a legal right or claim will not be enforced if a long delay in asserting the right or claim has prejudiced, the other party would apply. Here Athena’s delay in pursuing the debt had clearly caused prejudice to Jason.
Outcome
We found that Athena should not reasonably pursue Jason for the debt. Athena hadn’t sent any letters to Jason and had made no attempt to contact Jason until January 2015, despite being aware of Jason’s debt from August 2008. We believed Jason would be able to defend any claim under the Limitation Act 2010.
We also found it would be unreasonable for Athena to pursue Jason now as the delay had led to an unreasonably increased burden for Jason. In 2006 Zee had archived the debt and it no longer appeared on a check of Jason’s credit history. Jason had since built up a positive credit history and started a career in the financial services sector and Athena’s threats to refer the debt to a debt collection agency may jeopardise Jason’s employment.
Athena agreed not to pursue Jason and to clear the debt.
Lesson
Monetary claims should be made within 6 years of the act or omission which gave rise to them. If the claim is not pursued within this time frame, it can reasonably be defended under the Limitation Act 2010.
The doctrine of laches could also make it unreasonable to pursue longstanding debts if the delay in pursuing the debt causes an unjust burden on the debtor.
