Long contracts in small print that often have complex clauses cause big problems, FSCL finds

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The financial products with most grievances lodged against them are primarily loans to buy cars.

The Financial Services Complaints Ltd (FSCL), in its annual report, says lenders have refused to agree to hardship relief, engaged in unfair repossessions or set unrealistic demands for higher repayments.

Grievances against all lenders more than doubled since last year, with the FSCL investigating 149 cases.

This was a 62 per cent increase in its resolution rate – as first reported online at www.autofile.co.nz.

Complaints against insurers made up the greatest share of cases investigated at 36 per cent and those against lenders jumped to 39 from 17 while insurance brokers came third with 17 complaints, up from nine.

FCSL says many problems are caused by long contracts in small print that often have complex clauses. Some consumer credit complaints involve difficult legal issues.

In some cases, lenders have acted unlawfully or their actions have been oppressive in breach of the Credit Contracts and Consumer Finance Act.

Chief executive Susan Taylor says the growth in complaints over the past year have reinforced the value of the FSCL’s disputes regime.

“This illustrates a shift towards consumers being more aware of free and independent resolution services,” she said.

Credit case study

In 2002, $13,000 was borrowed. The loan was $23,000 including interest with “vehicle one” as security. The borrower’s daughter was guarantor.

The father fell into arrears and in 2004 vehicle one was repossessed and sold.

The lender applied to recover the balance and the court ordered his daughter to pay off the debt.

She was making fortnightly $80 payments when another finance company bought the loan book. She went on maternity leave in 2006, but she didn’t tell the company as she was unaware it held the debt.

In April 2007, she resumed the $80 payments. The company debited and credited penalty interest in 2008 and 2009. In January 2010, she increased payments to $120.

The daughter moved to Australia in April 2012. She credited $360 from her final pay to the loan account but didn’t know it had $3,300 outstanding.

The company issued her father with a notice to repossess two vehicles he owned.

The daughter asked FSCL if the lender could add interest and fees after the initial security, vehicle one, was repossessed. She also queried how it could repossess vehicles two and three when they weren’t security. The second lender used power of attorney and “all present and after acquired property” (APAAP) clauses granted by the borrower and his daughter when they signed the credit agreement with the first lender to repossess vehicles two and three.

It used power of attorney to “appropriate” the cars to recoup the debt.

While the motives were questionable, FSCL considered a court would uphold this. The company stated “post-judgement costs” were added and were unknown before the first lender went to court in 2004.

FSCL couldn’t see why the second lender added such costs because these would have been known to the first lender before it applied to the court.

The daughter never received statements from the second lender and did her best to calculate the outstanding debt.

On this basis, the FSCL found the debt was repaid after the final $360 was paid. No extra interest should have been added after vehicle one had been repossessed because this was contrary to the Credit (Repossession) Act.

The loan had been unsecured since vehicle one was sold.

When the lender repossessed vehicles two and three to pressure the daughter to pay the balance, its actions were unfair and could have amounted to oppressive conduct.

It should have treated the debt as repaid when the final $360 was paid, so it agreed to write off the $3,300 added to the loan account.

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This story was first published in Autofile magazine, and is republished here with permission.