Repossession

Repossession can happen when you can’t keep up the payments on your credit sale or loan contract or you break other contract requirements – eg, if you have a car on credit sale and you let an unlicensed driver drive it, then the creditor can repossess the goods you’ve bought by credit sale.

However, the right to repossess the goods or security must be included as a term of your credit contract.

Credit (Repossession) Act

A law called the Credit (Repossession) Act 1997 covers the process that a creditor (a person or company you owe money to) or their agent must follow when they repossess goods under a credit sale contract or loan contract .

The Act does not give the creditor the right to enter your property and take the goods unless this is written into your agreement. The creditor can only take the goods relating to the agreement you have broken (either the goods you purchased under a credit sale or the security provided for a loan). The creditor cannot take goods not listed on the agreement.

The six steps of repossession cover your rights and options, and must be followed by creditors repossessing goods.

Word watch

Contract – A legal agreement – eg, between you and another party – for the supply of goods or services such as a credit contract.

Credit contract – A contract that sets out the terms and conditions of the seller or lender providing the credit.

Credit sale – A type of credit contract where you buy goods with the right to use them and pay them off later – eg, by making monthly payments (instalments). This used to be called hire purchase.

Guarantor – A person, such as a friend or family member, who agrees to ‘guarantee’ the credit – that is, take responsibility for paying off your loan or goods if you can’t.

Goods – The things you buy – eg, a car, a stereo, carpet. ‘Consumer’ goods are goods usually bought for personal or household use.

Hire purchase – The old term for ‘credit sale’. The new term applies from 1 April 2005.

Repossession agents

There are restrictions on who can act as a repossession agent. People can’t be repossession agents if they have been:

• convicted of a crime of violence or dishonesty, such as theft, within the past five years
• sentenced to 10 years in prison
• released from prison within the last year.

Entering your property to repossess goods

Agents can only enter your property between 6am and 9pm Monday to Saturday. They can’t come on Sundays or public holidays unless, after missing payments, you’ve signed an agreement to allow agents to come at these times as well.

Guarantors

If you’re a guarantor, the creditor must send you the same pre-possession and post-possession notices that are sent to the borrower. This is because under your guarantor agreement, you’ll have to pay any money the borrower can’t or won’t pay.

The notices are sent to your last known address, so if you’re moving house remember to write to the creditor and let them know. This way you’ll have some warning if payments aren’t being made by the borrower.

The creditor doesn’t have to send you a notice when the goods are sold.

Six steps involved in repossession

Step 1: The creditor sends a pre-possession notice

The creditor must send you a notice before they repossess the goods. This ‘pre-possession notice’ must tell you:

• the amount you owe (the arrears)
• that you have 15 days from the day the notice was sent to pay the arrears.

This is sent to your last known address. If you’ve moved house and haven’t told the creditor, in writing, of your new address, you may not receive this notice. The creditor will have met their obligations if they sent the notice to your last known address. Your obligation is to keep them informed of your current address.

Creditors don’t always have to give notice

If the creditor has good reason to believe the goods are at risk – eg, you’ve advertised them for sale – they don’t have to send you a notice or wait 15 days before repossessing the goods.

Step 2: The creditor repossesses the goods

If you don’t pay the amount owing within the 15 days, the creditor can repossess the goods. Creditors often use repossession agents for this.

If you’re at home…

When the agent comes, they must give you:

• a copy of the pre-possession notice
• written proof that they’re working for the creditor.

You must not stop the agent from entering your house but you can pay them the arrears to stop them taking the goods. Even if the goods aren’t taken, you may have to pay the creditor’s costs for using a repossession agent.

The agent doesn’t have to accept a cheque. They may allow you time to get to a bank or money machine.

If you’re not at home…

The agent is allowed to enter your house and take the goods. But they must leave:

• a notice to say they’ve entered the house
• a list of the goods they’ve taken
• a copy of the pre-possession notice
• written proof that they’re working for the creditor.

They can only take the goods listed on the credit contract and they must enter your house in a reasonable way. If necessary, they’re allowed to break in, but they must do as little damage as possible and they should not leave your house obviously open. The agent may have to meet your costs of repairing unnecessary damage.

Do I have to pay repossession costs?

Yes. You agreed to pay these costs when you signed the contract. If you think the costs are unreasonable:

• ask the creditor to explain the charges
• check out how much other places charge
• go to the Disputes Tribunal

Step 3: The creditor sends a post-possession notice

The creditor must send you a post-possession notice within 21 days of the goods being taken. This notice must tell you:

• the date they took the goods
• the creditor’s repossession costs
• what you need to do if you want to ‘reinstate’ or ‘settle the agreement’. To reinstate you’ll have to pay whatever is needed to get the contract back up to date before you can get the goods back and start paying for them again. Settling the agreement means paying the full amount owing on the credit sale.
• the creditor’s estimate of the current value of the goods – usually this is not the same as what you paid for them
• what will happen if you don’t pay.

The creditor doesn’t have to send you this notice if:

• they value the goods at less than 80 percent of the cash price
• you choose to return the goods voluntarily.

Step 4: You decide your response

You now have 15 days before the goods are sold. Your options are to:

• pay the default amount and repossession costs
• pay the total amount owing
• find someone who’ll buy the goods for the current value
  do nothing.

In deciding what to do, ask yourself:

• do I really need the goods?
• how much of the contract have I paid off already?
• would I be worse off if I borrowed money to pay the default – eg, will I pay a higher interest rate than on the original credit sale?

Information on what to do if you can’t keep up payments (in the Problems with credit section of the Credit guide) may help you to decide.

Step 5: The creditor sells the repossessed goods

If you decide to do nothing, the creditor can sell your goods privately, at auction or by tender. If by auction or tender, they must tell you the time and place of the auction or the details of the tender. Both you and the creditor have the right to bid for the goods.

The sale must be commercially reasonable and the creditor must make a reasonable effort to get a good price – that is, they can’t sell the goods to a mate for a cheap price. If the goods are reasonably valuable, say a car, you may want to get your own valuation done before they are sold. You have to pay for this.

If the goods don’t sell within three months, you can write to the creditor to tell them to put the goods up for auction.

Step 6: The creditor sends a statement of account

Within 10 days of selling the goods, the creditor must send you a statement of account, showing:

• how much the goods sold for
• the cost of the sale – eg, advertising, auctioneer’s fees
• how much you owed before the goods sold (the amount required to settle the agreement)
• how much you still owe, or, if the goods were sold for more than you owe, how much you’ll get back. (It’s most likely you’ll owe money to the creditor.)

Quick guide to repossession

1. Pre-possession notice sent.
2. Repossession takes place if no payments made.
3. Post-possession notice must be sent within 21 days.
4. Debtor has 15 days from the date the post-possession notice is sent to pay arrears or choose other options.
5. Goods can be sold if debtor doesn’t take any action.
6. Statement of account after sale to be sent within 10 days of sale.

The law on unreasonable debt collection fees

The Ministry is often asked how much creditors and debt collection agencies are allowed to charge debtors in collection fees. This information explains the laws that apply and how to use the law to challenge unreasonable debt collection fees.

Credit Contracts and Consumer Finance Act 2003 (CCCFA)

The fee provisions of the CCCFA will apply to debts arising from consumer credit contracts entered into after 1 April 2005. The CCCFA requires that default fees charged under a consumer credit contract must be reasonable. Default fees include charges payable on the enforcement of a credit contract. This would include collection costs - So the new law will provide real relief for debtors who have been charged unreasonable collection costs. Debtors can challenge these fees in the Disputes Tribunal.

A debtor could also use the oppression provisions of the CCCFA. This will be especially useful for debts relating to credit contracts to which the fee provisions do not apply for example business debts. A debtor can apply to a court or disputes tribunal to reopen and vary a contract where the contract or the conduct of a creditor is oppressive. In determining whether a credit contract is oppressive the court can consider whether the amount payable under the contract, is oppressive including the amounts of penalties on default.

The Credit Contracts Act (1981)

Where the debt relates to a credit contract entered into before 1 April 2005, a debtor could use an argument of oppression under the Credit Contracts Act (1981). Note that the oppression provisions in the CCCFA are almost identical to the Credit Contracts Act. A court or disputes tribunal can look at whether any amount payable by the debtor under the contract (whether or not on default by the debtor) is oppressive, and can reopen and vary the contract or the amount charged by the creditor.

Credit Repossession Act (1997) (CRA)

This law applies to credit sale / hire purchase contracts. The CRA limits the amount a creditor can recover where secured goods have been sold after being repossessed or voluntarily returned to the creditor by the debtor. The creditor or their collection agents are not entitled to charge more than the balance owing at the date of sale.

The part of the act that sets this out is section 35

35. LIMIT ON CREDITOR'S RIGHT TO RECOVER FROM DEBTOR--

If the net proceeds of sale are less than the amount required to settle the agreement under section 31 as at the date of the sale, the creditor is not entitled to recover more than the balance left after deducting those proceeds from that amount (whether under a judgment or otherwise).

A High Court case makes it clear that the debt owing to a creditor, under a hire purchase contract or a secured loan is “crystallized” as at the date of sale of the repossessed goods, and that interest cannot continue to accrue, not can any other extra costs or fees be recovered.

Creditors are not always aware of this law, so I have included the name of the case as it may help your clients in their negotiations with creditors.
Expansionary Holdings Ltd v Cambridge Discounts Ltd (2001) 7 NZBLC 103, 364

Reasonable Fees

Where a right to charge collection costs is included in a contract, the court has said there is an implied term that these costs must be reasonable in the circumstances. This means any fees must relate to actual work done by the creditor or collection agency and these fees must be reasonable. This principle will apply to collection fees added to all debts, not just those relating to credit contracts.

In one case, heard in the High Court, the judge found that a charge which amounted to 20% of the debt was unreasonable, where the only evidence of the services provided by the debt collector was that they sent one letter to the debtor.

Where collection fees appear excessive, you could ask the creditor or the collection agency to explain what services they have provided for this fee. If the fees do not appear reasonable in the circumstances, your clients can take a claim for non liability for some of the fees to the Disputes Tribunal.

Again it may help you to have the name of the case when you negotiate with creditors. Rembrandt Custodians v Pro drill (auck) Ltd HC AK 337 (13 June 2003).

Expenses that can be recovered from the debtor after repossession of consumer goods

The Credit Repossession Act (CRA) allows a creditor to claim the amount of the costs and expenses of and incidental to the sale. See CRA s 33

A margin or a profit made on the sale is not a cost or expense of the sale. It is reasonable that a defaulting debtor should have to pay for the out of pocket costs of a creditor after goods have been repossessed and sold, but the law does not allow the creditor to make a profit out of such a sale.

Other charges

Including repairs, grooming and storage can be charged. The test is - are they actual costs incidental to the sale? And are the charges actual and reasonable? Ask the creditor for receipts/worksheets that prove this.

Commission

A commission on the sale of a repossessed vehicle is a cost incidental to the sale. This is because selling the car on a car yard is a good way to obtain the best market price for the car. Where a car is sold in this way there will usually be a commission paid to the salesperson responsible for the sale. As long as the commission is actual and reasonable it can be charged to the debtor.

You have asked if a creditor is entitled to charge a commission of $1500 on a vehicle they have sold after it was repossessed under a hire purchase contract.

The answer to this question is found in the Credit (Repossession) Act 1997 (the act)

This act allows a creditor to claim “the amount of the costs and expenses of and incidental to the sale.” Section 31(2) makes it clear that any costs or expenses claimed must be reasonable. The question of legitimate “reasonable expenses” of the creditor was considered in Keegan v Wright Stephenson & Co Ltd [1959] NZLR 1110. There the judge found that reasonable expenses may be actual expenses incurred and may not be calculated as a portion of the value of the goods, or take into account general overheads, or allow for a profit factor for the “services” of the creditor.

A commission charged by a creditor on the sale of a repossessed vehicle may be “a cost incidental to the sale”, and can be added on to the amount owing. This is because selling the car on a car yard is a good way to obtain the best market price. Where a car is sold in this way there will usually be a commission paid to the salesperson responsible for the sale. However any amount charged for the commission must be the “actual and reasonable” amount paid to the salesperson.

Actual means it must be the amount actually paid in the particular sale.

Reasonable means the amount must be the usable or common market rate that is paid to salespeople as commission for selling a vehicle.