Hire purchase - Repossession

This Topic Includes:
Credit Repossession Act
Accessions
Six steps of repossession

Whether the goods are consumer goods (i.e. goods that are used or acquired for use primarily for personal, domestic or household purposes) or not, the right to repossess must be included as a term of a hire purchase contract.

• The customer is in default under the terms of the hire purchase contract, or
• The finance company has reasonable grounds to believe the goods are at risk (have been or will be destroyed, damaged, endangered, disassembled, removed, or concealed contrary to the provisions of the contract).

Since 1 May 2002, the Credit (Repossession) Act only applies to consumer goods. The rules for repossessing goods that are not used or acquired for use primarily for personal, domestic or household purposes are provided in Part 9 of the Personal Property Securities Act.

For more information about the Personal Property Securities Act, contact your lawyer. Contact the Ministry of Economic Development on 0508 777 746 for information on the operation of the Personal Property Securities register. 

For further information, visit New Zealand Legislation.

Credit (Repossession) Act 1997

The Act sets out the rules that apply when a creditor has a security interest in consumer goods and takes possession of the goods in accordance with the provision of the security agreement. That is, the Act will only apply where a finance company has reserved the right to repossess in their hire purchase contract with the customer.

Whether goods are consumer goods is determined by the debtor at the time the security interest in the goods attached (ie, value is given by the creditor, the debtor has rights in the goods and the security agreement is enforceable against third parties).

If a creditor fails to comply with the Act, the debtor may apply to the Court or Disputes Tribunal for relief.

Accessions

In some cases goods subject to a security interest will be installed in or attached to other goods. For example, a stereo or a replacement motor that is installed in a car. These goods (ie the stereo or replacement motor) are called accessions.

Accessions can be repossessed if the security agreement provides for it and there is a default by the debtor. However the creditor must remove the accession in a manner that causes the least amount of damage and inconvenience to those with an interest in the other goods (ie, the car).

The creditor must also give a 10 working day notice of removal to others known by the creditor to have an interest in the other goods (such as the owner of the car); and to others who have registered notice of their security interest in the other goods on the Personal Property Securities Register.

There are six steps to repossession

Step 1 Pre-possession notice

A Pre-possession notice must be served (hand delivered, sent by registered mail or ordinary post) on the debtor and any guarantor. This notice must specify the nature of the default and require the debtor to remedy the default within a period (which must not be less than 15 days after service of the notice).

The Pre-possession notice does not need to be served where the creditor has reasonable grounds to believe the goods have been or will be destroyed, damaged, endangered, disassembled, removed, or concealed contrary to the provisions of the contract.

eg, moving house without telling the finance company of the new address may be grounds for the finance company to repossess without notice.

The creditor must not take possession of the goods until the period set out in the Pre-possession notice has expired. If the creditor does not follow the steps set out before taking possession of the goods he/she can be fined up to $3000. The debtor can be granted relief with such terms as the Court agrees.

Step 2 Goods are repossessed

The goods may be repossessed if the debtor does not pay the arrears within the 15 day period.

The Act does not give the creditor the right to enter the customer's property. This term must be in the hire purchase contract.

Can anybody enter on behalf of the creditor?

The creditor must provide their agent with a written authority to enter. This authority must be shown to the debtor. People with criminal records for such crimes as fraud or theft cannot act as agents.

A creditor or their agent must not enter premises in a manner that is unreasonable, and must take reasonable steps to ensure that the premises are not left obviously open when they leave.

A repossession agent cannot enter the customer's house:

• outside the hours of 6 a.m. to 9 p.m. on Mondays to Saturdays or
• any time on a Sunday or
• any time on a public holiday.

The debtor can agree to waive these restrictions after the default but before the agent arrives at the premises. These rules apply to residential premises only.

What needs to be produced on entry?

On request the agent must produce a copy of the Pre-possession notice and a copy of the agent's authority to act on behalf of the creditor.

If the occupier of the premises is absent when the goods are taken the agent must leave

• a notice stating that the premises have been entered
• an inventory of goods taken
• a copy of the Pre-possession notice
• evidence of their authority to take the goods.

Note: If the debtor is at home they may stop the repossession by paying the arrears to the agent. But the debtor will still have to pay the repossession fees even if the agent does not take the goods away. This may not apply if the creditor has reasonable grounds to believe goods maybe at risk.

What if the goods are lost or damaged while in the possession of a repossession agent?

Unless the contract contains a clause making the customer liable for any loss or damage in the event of repossession, the finance company should make good any loss or damage caused by the agent carrying out work for them.

Step 3 Post-possession notice

Within 21 days of taking possession of the consumer goods, the creditor must serve a Post-possession notice on the debtor and every guarantor of the debtor.

If the notice is not served then the creditor is not entitled to recover the costs of possession from the debtor.

In addition, within 21 days of taking possession of the goods, the creditor must give notice to any person who has registered a financing statement on the Personal Property Securities Register in respect of the goods, that is effective at the time possession is taken; and to any other person that has given the creditor notice that that person claims an interest in the goods.

Notice need not be given if the creditor believes on reasonable grounds that the value of the goods will decline substantially if they are not disposed of immediately; the cost of care and storage is disproportionately large in relation to the value of the goods; or upon application, a court is satisfied that a notice is not required.

A creditor cannot sell or dispose of the goods until after the expiry of 15 days from the date of the service of the Post-possession notice. This time period does not apply if the debtor agrees in writing to an earlier sale.

If the creditor sells the goods without consent during this period then the creditor's right to recover the full debt is removed. The debtor will not have to pay the cost of credit.

Step 4 After repossession

The creditor must offer the goods for sale after the expiration of 15 days from the date of service of the Post-possession notice on the debtor unless

• the debtor reinstates the contract by paying the arrears and the repossession costs and carrying on with the repayments, or
• the debtor finds someone else to take over the contract, or
• the debtor finds a person who is willing to buy the goods for cash (the current value of the goods as set out in the Post-possession notice), or
• the debtor settles the contract by paying the total amount owing under the hire purchase contract, or
• the Court determines otherwise in an order.

Step 5 The goods are sold

If the debtor has not taken up any of the options listed when the Post-possession notice expires after 15 days, the creditor must offer the goods for sale. The sale can be by auction, tender, or private sale. The customer must be told the time and place of the auction or tender prior to it occurring.

The creditor must use reasonable business methods to obtain the best price. We recommend that the item is sold as soon as possible before the goods diminish further in value.

The debtor probably will not be in a position to re-pay any amount outstanding after the goods are sold. Getting the best price will assist you in recovering your debt as early as possible.

If the goods have still not been sold within three months of the expiry of the notice the debtor may either

• apply to the Court for an order directing the goods to be sold, or
• require the creditor to put the goods up for sale by auction.

Step 6 After the goods have been sold

Within 10 days of the date of sale the creditor must give the debtor a written statement of account showing

• gross proceeds of sale
• the costs and expenses of and incidental to the sale
• the amount required to settle the contract and
• the balance owing either by the creditor or the debtor.

If there is a shortfall then the creditor can recover that amount.

Where the finance company owes money to the debtor, the debtor has six months to claim the amount.