12.1.5 Rejection of goods under the Consumer Guarantees Act and collateral credit agreements

A consumer who has purchased goods on credit may have the right to cancel the purchase under the Consumer Guarantees Act, but the consumer will remain liable to pay the price of the goods under the credit agreement.

This situation is dealt with under the Motor Vehicle Sales Act 2003 (MVSA). Section 89(2) provides that a Disputes Tribunal may order the rights and obligations of the buyer of a motor vehicle under a collateral credit agreement (meaning one that is procured by the dealer) vest in a motor vehicle trader if:

a. the credit agreement is associated with the contract for the sale of that motor vehicle; and
b. the motor vehicle trader is a party to that contract for sale; and
c. either:

i. the buyer exercises the right to reject the motor vehicle under the Consumer Guarantees Act and the Disputes Tribunal orders a refund be paid; or

ii. the Disputes Tribunal declares the whole or any part of the contract for sale to be void under section 43(1) of the Fair Trading Act on the basis that the buyer has (or is likely to) suffer loss or damage because of the dealer’s misconduct.

There is no equivalent section under the Consumer Guarantees Act. This concept was only thought of at the time of the MVSA introduction which came 10 years after the Consumer Guarantees Act was first introduced.

The lack of an equivalent section in the Consumer Guarantees Act can potentially leave consumers in a difficult position. In instances where they have cancelled the sale and purchase agreement and returned the goods due to a serious fault or where they have been subject to a misrepresentation or practice covered by the Fair Trading Act, they will normally still be liable under the collateral credit agreement (as it is a contractual relationship with a third party). The consumer is potentially able to pay the debt by using the refund of the purchase price of the good. If the money is not refunded by the supplier of the goods the consumer is still liable to effectively pay for the goods which have been returned to the supplier. In some cases, this exposure has caused real detriment to consumers.

For example:

A furniture store in Christchurch and Wellington went into liquidation in late 2007. Some consumers had returned furniture under the Consumer Guarantees Act and were told the money would be refunded to the finance company, but it was not. The finance company held these consumers to the contract even thought they had returned the furniture. They would have ended up paying for furniture they did not receive, had the finance company not eventually organised replacement furniture from another store.

When a company selling educational software door to door, went into liquidation, it refused to refund money to consumers when they rejected goods under the Consumer Guarantees Act. A finance company then pursued the consumers for the debt, even though the goods were no longer in their possession.

If a provision similar to that in the MVSA was provided for in the Consumer Guarantees Act, in situations where the supplier has not provided the appropriate remedy such as refunding the purchase price (thus allowing the consumer to pay back the finance company), the consumer would be able to take a claim to the Disputes Tribunal. They could seek an order that the supplier be vested with the rights and obligations that the consumer has under the collateral credit agreement.

Effectively this would create an incentive for the supplier to promptly provide repayment when a good has been rejected under the Consumer Guarantees Act. It would also create and incentive for suppliers to properly meet their obligations under the Consumer Guarantees Act, and to not engage in misleading or deceptive behaviour under the Fair Trading Act.
It should be noted that if the trader is in liquidation (like under the above examples), the consumer would be released from their obligation under the credit agreement, and there would be little chance of payment to the finance company by the supplier.

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