Geoff Hardy

HOW THE CREDIT CONTRACTS AND CONSUmER FINANCE ACT AFFECTS THE HIRE INDUSTRY

By Geoff Hardy of Auckland law firm Martelli McKegg

IHAVE 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 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.

CONSUMER CREDIT CONTRACTS

However it gets much worse if your hire contract is a consumer credit contract instead of a consumer lease. It will be a consumer credit contract if your customers are human beings, they hire the goods for personal, domestic or household purposes, you are in the business of hiring out goods, and either: „ the amount payable by the customer is the same or more than the “cash price of the goods” or „ the customer has an option to purchase the goods for way less than their fair market value.The cash price of the goods is defined as the lowest price at which a person could have purchased them from you on the basis of payment in full at the time the hire contract was made, or if there is no such price, the fair market value of those goods at the time the contract was made. This is basically aimed at hire purchase arrangements, but it’s not essential that the hirer has a right to purchase the goods. And there will be many situations where you hire something to a consumer long term, and the total amount they pay in rental will be equivalent to or more than what they could have bought the item for. In those situations you need to observe the following rules. The disclosure requirements for consumer credit contracts are similar to but more extensive than the consumer lease requirements. Like the consumer lease requirements there is a limit to how much you can charge your customer if they want to terminate the lease early, you can’t unreasonably require the hirer to take out certain add-on products or services, and 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”. There are also limits on what interest and fees you can charge, and the hirer has both a “cooling off period” at the outset when they can change their mind, and a right to prematurely bring the hire contract to an end. The hirer can also ask you for temporary relief or relaxation of the contract terms if they suffer an unexpected hardship and are up to date with their payments.

OTHER RESTRICTIONS

But wait, there’s more. There are important restrictions on your ability to repossess consumer goods under your consumer credit contract. These apply whenever your contract gives you the right to repossess consumer goods over which you hold a “security interest” or your contract gives you the right to enter premises for any purpose in connection with that security interest. And guess what? Under the Personal Property Securities Act, you are deemed to hold a security interest in your own goods if you hire them out for an indefinite period of for more than 12 months. Finally, the Financial Service Providers (Registration and Dispute Resolution) Act 2008 also applies to your long-term consumer hire, and that Act (among other things) requires you to register as a financial service provider and join an approved dispute-resolution service. As you can see, this area of the law is hugely complicated. So overall, you might want to think twice before you hire out goods like marquees, campervans, cars, diggers, minor dwellings or portable cabins, to consumers for personal, domestic or household purposes, for one year or more, or for a total rental that matches or exceeds the cash price of those goods. ■

Geoff Hardy has 45 years’ experience as a commercial lawyer and is a partner in the Auckland firm Martelli McKegg. He guarantees personal attention to new clients at competitive rates. His phone number is (09) 379 0700 and e-mail address is geoff@martellimckegg.co.nz. This article is not intended to be relied upon as legal advice.