Problems with credit

This section sets out potential problems with credit and how you can deal with them.

You didn’t get a copy of the contract documents

If you don’t receive a copy of the disclosure statement and other contract terms either before the contract is made or within five working days from the date the contract was made, the lender can’t force you to meet the contract’s conditions and you may not have to pay all the credit charges (eg, interest and fees). The same goes if the contract doesn’t include all the information set out in What’s in a contract?

What do I do?

First ask the lender for a copy of the disclosure statement and other contract terms.

If they still don’t give you this information, you can make a claim with the Disputes Tribunal or the Courts (see Getting outside help). You can claim a refund of any credit charges you’ve paid the lender while you haven’t had this information.

Goods bought under a credit sale are faulty

The Consumer Guarantees Act 1993 says that goods you buy from a seller must be of an acceptable quality and match their description. They must also be able to do what they’re supposed to.

What do I do?

Contact the seller not the lender. If the goods are faulty, the seller must put this right by providing you with a ‘remedy’ – eg, repair, replacement or a refund depending on how serious the problem is.

For more information on your rights when goods are faulty, see Faulty Goods

Don’t stop payments when goods are faulty

If you’re having a dispute over faulty goods on credit sale, don’t stop your payments. Your dispute with the seller over the goods is separate from your agreement with the lender.

If you stop your payments, you could end up paying penalty interest, or worse, the goods could be repossessed. Tell the lender you have a problem with the goods.

Goods bought under a credit sale are lost, stolen or damaged

It’s your responsibility to look after the goods while you’re paying them off. While not required by law, many lenders will insist you insure the goods. Your existing household insurance may be acceptable cover.

Insurance requirements

The contract should explain any insurance requirements, including how much of the premium you’ll get back if you make a full prepayment early. See Repaying early.

Lenders can’t make unreasonable insurance requirements. However, they may insist you have some insurance before agreeing to provide you with credit. This may include insurance for:

• loss or damage of the goods (your household contents insurance policy may be enough)
• yourself to cover your ability to keep up payments.

What do I do?

• If you’ve taken out insurance, check your policy or check with the insurance company to see how to make a claim. The money the insurance company pays out should cover your debt to the lender.
• If you haven’t insured the goods and they are lost, stolen or damaged, you’ll have to keep paying for them.

You can’t keep up payments

Contact the lender as soon as you realise you can’t afford the payments. They may agree to one of the three options below. If you don’t contact them, you might be charged penalty interest and the goods or security could be repossessed – at this point you’ll also have to pay repossession fees.

What do I do?

Contact the lender and ask them if you can apply for one of these options:

1. Spread the payments over a longer period

While you’ll pay less for each monthly payment, you’ll pay more over the term of the contract because you’re borrowing over a longer period. Any changes to payments must be agreed, in writing, by you and the lender. A written copy of the new arrangement must be sent to you before the changes can take effect.

2. Apply for hardship

If you can show you’ve experienced unforeseen hardship, you can ask the lender to change the terms of your credit contract. ‘Hardship’ may cover illness or injury, losing your job or ending a relationship. You can only apply for this if you couldn’t have ‘foreseen’ the hardship when you entered the contract – eg, you had an accident six months after you took out the loan and because of the accident you had to stop working. You also need to be up to date with your payments and within your credit limit – eg, for credit card contracts – when you apply for a change to your contract because of hardship.

What changes can you apply for?

• To spread the payments over a longer term, which reduces the amount of each payment.
• To postpone payment dates.

Or

• A combination of these two options.

3. Ask the lender to take the goods back

The lender can choose whether or not they take the goods back. This is called ‘voluntary repossession’. If they agree to take back the goods, the lender might get a price for the goods less than the total amount you still owe. You’ll be required to pay off any remaining amount.

If the lender takes the goods back, they can’t charge you repossession fees unless you’ve asked them to pick up the goods. However, they can charge you for the costs of preparing the goods for resale.

Need help budgeting?

If you’re struggling to meet your loan payments, you may like to visit a Budgeting Advisory Service. They can help by preparing a budget, which may make it easier for you to meet your payments before the need to take other action. You can find your local service by looking under Budget Advice Services in the White Pages.

You think the contract terms are ‘oppressive’

Maybe the amount of some fees or the contract’s insurance or other requirements are ‘oppressive’. ‘Oppressive’ means that the contract conditions are harsh or unreasonable. If you think your contract terms are oppressive, you can take a claim against the lender to the Disputes Tribunal (Ministry of Justice) or Court.

If it decides the terms are oppressive, the Tribunal or Court can require the lender to change the credit terms of a contract. For example, a contract that requires you to make payments in person, in cash and only on a Friday before noon, with no other payment options, could be considered unreasonable.

What do I do?

First, contact the lender and ask them to consider changing the terms you think are harsh or oppressive.

If the lender doesn’t agree, you can take a claim to the Disputes Tribunal. See Getting outside help for more information.

Your goods are to be repossessed

If you don’t keep up the payments or you break other contract requirements – eg, you have a car on credit sale and you let an unlicensed driver drive it – then the lender can repossess the goods you’ve bought by credit sale or offered as security for your loan. The right to repossess the goods or security must be included as a term of your credit contract.

What do I do?

See the six steps of repossession. These rules cover your rights and options, and must be followed by lenders repossessing goods. They are set out in the Credit (Repossession) Act 1997.