LEGAL
HOW THE CREDIT CONTRACTS AND CONSUMER FINANCE ACT AFFECTS THE HIRE INDUSTRY By Geoff Hardy of Auckland law firm Martelli McKegg
I
have mentioned before that the hire industry is remarkably unregulated and free of any specific laws that govern the industry. There is no “Hire Act” or anything like that. You are, of course, bound by the general laws that all businesses are subject to like the Fair Trading Act, the Commerce Act, the Consumer Guarantees Act, the Employment Relations Act, the Companies Act, etc. And there are a couple of Acts of Parliament that do single you out – the Health and Safety at Work Act (which has rules that particularly relate to the hire industry) and the Personal Property Securities Act (which encourages you to register all hires for more than 12 months on the Personal Property Securities Register). But there is one more statute that might occasionally have unintended consequences for you, and that is the Credit Contracts and Consumer Finance Act 2003 (the “CCCFA”). What is the CCCFA all about? Well sometimes the less sophisticated borrowers within our society get taken for a ride by unscrupulous loan sharks and back alley finance companies. Or sometimes they simply get into trouble through their own lack of discipline and unfamiliarity with financial matters. So this Act is designed to protect them. Why should that be relevant to the hire industry? After all, you don’t typically lend money. However, what you frequently do is hire out goods to consumers, and you hire them out on the basis that they pay for those
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goods some time after they receive them. That in itself is not a problem because most of the provisions of the CCCFA will only apply to you if your hire contract is a “consumer lease”, or a “consumer credit contract”. But while the criteria for becoming one of those are quite narrow, they can occasionally catch you out.
...the hirer has the right to apply to the courts to review the terms of the hire contract if they are considered to be “oppressive”. Consumer leases Let’s start with a consumer lease. A “lease” means a contract for the hire of goods. But the CCCFA is intended to protect consumers, so your customers only qualify for protection if they are human beings (not a company) and the hire is for personal, domestic or household purposes. Next, you must be in the business of leasing goods, and the term of the lease must be for one year or more, or your customer must have an option to purchase the goods (which is commonly known as hire purchase). Not many of your hires are going to meet those criteria. Nevertheless there will be some situations where you hire out a marquee, a campervan, a car, a digger, a minor dwelling or a portable cabin to human beings for their personal
use, on a long-term basis. If so, you’ve got yourself a consumer lease. That has four implications for you. First, you have to make a whole lot of mandatory disclosures to your customer at three different times – before you enter into the hire, whenever you change the terms of the hire, and whenever the hirer asks for specific information. Second, there is a limit to how much you can charge your customer if they want to terminate the lease early. Third, you can’t unreasonably require the hirer to take out credit-related insurance, an extended warranty or a repayment waiver. And finally, the hirer has the right to apply to the courts to review the terms of the hire contract if they are considered to be “oppressive”. Before you enter into the consumer lease you have to provide a statement telling the hirer that the hire is a consumer lease under the CCCFA. The statement has to say who you are, how long the hire is for, the cash price of the hired goods, whether the hirer has an option to purchase, and if so for how much. You also need to disclose the amount, timing and number of payments the hirer has to make, how much is payable by way of deposit, the total amount the hirer will pay over the term of the hire, what rights the hirer has to prematurely end the hire and what they must pay in that situation, what add-on services the hirer is paying for, and any default fees, charges or enforcement costs that the hirer may have to pay if they breach the hire terms.
