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New car, someone else’s debt?

When Tim purchased a car from a private seller for $6,000, he thought it was smooth sailing. He enjoyed driving his new car but was shocked when an agent came to repossess his car a little while later. Not only had Tim forked out money for the car, but he stood to lose both his money and the car, because the seller still owed money on a debt they had used the vehicle as security for.

“Tim is one of a number of consumers who have contacted us after finding themselves in similar situations. Left high and dry after unscrupulous sellers decide to offload their vehicle as well as their unpaid debt on a trusting buyer,” explains FSCL Chief Executive Officer, Susan Taylor, “Our complaints process can help to resolve complaints between a consumer and a lender, about a financial service that the lender is providing to a consumer.  Unfortunately, we cannot help with disputes between a consumer and a third-party”.

Tim felt it was unfair that he was left without a car he had paid for and said the seller had not mentioned anything about a loan owing to a lender.

He was annoyed that he did not hear anything from the lender until the repossession agent turned up on his doorstep and felt the lender should have been chasing the seller for the loan balance, rather than taking away the car he had paid for.

The lender said they were following their standard process. They had not received payments or contact from the borrower, so they had a right to collect the car, which was the registered security for the loan.

The lender said they would be happy to talk to Tim about a lump sum payment to release the security, or look at transferring the loan into his name, but they would need authority from the seller to do so.

As the seller could not be contacted, this was not an option. In any event, Tim felt that would not resolve his complaint because he should not have to pay the seller’s debt when he had already paid the seller $6,000 when he bought the car.

“There was nothing we could do to help Tim with his complaint; however it does highlight the need for consumers to check the Personal Property Securities Register (PPSR) when they are purchasing a vehicle from a private seller,” explains Ms Taylor.

The situation in Tim’s case could easily have been avoided if Tim had done a search for the vehicle on the PPSR. The PPSR will disclose if there is money owing on a vehicle. This means the purchaser can decide not to go ahead with the purchase.

“When someone purchases a vehicle on finance from a lender, the lender will register their legal claim to the vehicle on the PPSR. This means the vehicle is ‘security’ for the loan and the lender is a ‘secured party’ who has a legal interest in the vehicle. If the borrower does not pay back the money they borrowed, the lender will repossess and sell the car to recover the money they are owed. The registered legal claim means that the lender can repossess the vehicle, even if it has changed hands and has a new owner,” explains Ms Taylor.

“In an ideal world, a private seller would tell you that the vehicle they are selling secures debt owed to a lender. The private seller would use your money to repay that debt and the lender would remove their security interest over the vehicle on the PPSR.”  

Unfortunately, as Tim’s case shows, when a consumer buys from a private seller, the risk is that the seller may not disclose that there is money owing on the vehicle.

“Lenders are not responsible for ensuring that their borrowers do not sell a secured vehicle without telling the buyer of the lender’s interest,” says Ms Taylor.

“If someone has sold you a vehicle with a registered security interest attached to it, you may want to contact the private seller about repaying their debt. If the seller does not repay the money you could seek legal advice, perhaps from a community law centre, and take the matter to the Disputes Tribunal.”