Repossession occurs after failing to keep the terms of a credit or loan contract. Creditors repossess such things as cars and boats if you fail to make payments as agreed. Other reasons repossession may take place include violating the terms of the credit contract. For example, if you purchased a car on a credit sale, and let an unlicensed person drive the vehicle, your creditor has the legal right to repossess the vehicle in response to a breach of your agreed contract. Creditors must include the right to repossess as a term of your credit contract before they’re able to take possession of property and they cannot repossess goods unless a contract term is broken.
All creditors must comply with the requirements set forth within the Credit Repossession Act of 1997. The requirements within the law apply to hire or purchase agreements, secure loan contracts or chattel mortgages, and secure motor vehicle credit agreements. Creditors need to obey the act’s rules, regardless of the type of credit agreement in place.
This act requires a creditor to refrain from taking possession of consumer goods unless the debtor defaults on the terms within a credit agreement. Only if the creditor has reasonable cause to believe the goods under contract are at risk can a repossession take place under alternate circumstances. Potential risks that creditors can act on include a belief the goods secured by way of a credit agreement will be destroyed, damaged, endangered, disassembled, removed or concealed from recovery efforts during a breach of contract. The burden of proof of these risks remains with the creditor.
Credit agreement terms indicate if goods will be subject to repossession or not. When in doubt, always review the terms of your credit agreements. If the agreement in place allows a creditor to repossess goods, a strict procedure must be followed during the repossession process. Restrictions on when and how creditors repossess protect consumers from unjust repossession actions. The following procedural steps must be followed or the creditor will be in violation of the Credit Repossession Act of 1997.
A pre-possession notice must be issued to the debtor before repossession steps occur. Telephone call warnings or verbal threats of repossession are unacceptable forms of notice.
Proper notice must be written and include a grace period of no less than 15 days for the debtor to pay the amount owed. The notice must include the amount a debtor owes, the legal name of the debtor, the debtor’s complete address and an accurate description of the goods to be repossessed. The value of the good to be removed must also appear on the notice. Creditors must clearly state their intention to recover the goods.
Guarantors of the debt must get a copy of the notice, too. Creditors must issue guarantors the same pre-possession notice sent to the borrower because guarantors agree to pay money when a borrower defaults on a credit agreement. This notice can be sent to a guarantor’s last known address. For this reason guarantors are advised to inform creditors of a new address when necessary. Without notifying the creditor of a new address, guarantors won’t know when payments are not being made.
Should creditors fail to comply with the pre-possession notice requirements, they will be subjected to a fine and the debtor will have legal recourse. The fine for failing to issue a pre-possession notice is $3,000. Debtors will be able to apply for court relief as well.
Creditors may be alleviated of responsibility to issue a pre-possesion notice if there’s good reason to believe the item will decline in value if not recovered immediately after default or if the cost of storage is disproportionate to the actual value of the goods to be repossessed. Only by way of an ex parte application can a creditor request the court to dismiss the pre-possession notice requirement.
Pre-possession notices are not required when creditors are repossessing due to a justifiable belief that the goods are at risk.
Repossession Time Frame
After the pre-possession notice grace period passes, creditors can take possession of the goods if debtors fail to exercise their legal options. Repossessions can only take place between the hours of 6AM and 9PM. The repossession of goods may not occur on Sunday.
Alternate Repossession Times
Debtors may consent to turning the property over to the creditor on Sunday and outside of the specified hours if doing so is more convenient. Such consent won’t be valid unless it’s issued after the the default has occurred and before the creditor or acting agent arrives at the premises with the intent to take possession of the consumer good. Attempts to secure consent for a repossession during prohibited times nullifies such consent.
Qualified Repossession Agents
When creditors do not perform repossessions, qualified agents may do the work on their behalf. However, there are restrictions on who qualifies to act as a repossession agent. Anyone who has been convicted of a crime of violence, theft, or other crimes indicating moral turpitude within the past five years may not act as a repossession agent. Those who have served prison sentences of 10 years or more, or who have been released from prison within the last year, are also unqualified to act as repossession agents.
Repossession agents must provide debtors with proof of authority to repossess the consumer good. Failure to present proper proof is cause for the repossession to not take place. Debtors must also be given a copy of the original pre-possession notice. The debtor’s written consent to allow repossession outside of the allotted hours must also be presented if the repossession takes place outside of the mandated recovery time frame. Not producing proper documentation, such as the pre-possession notice, can only occur with the permission of the court.
Right Of Entry
Creditors or creditor agents must exercise their right to enter residential premises in a reasonable fashion. Along with abiding by the specified entry time frame, creditors and their agents must respect holidays. Repossession may not take place on any official holidays or the creditor will be out of compliance with existing law.
If the repossession event occurs while the debtor is not present, the creditor and its agents must leave a written notice of their actions in a prominent location. The notice left behind must include the specifics about the entry. The date repossession occurs along with information on the consumer good repossessed must appear on this notice. Copies of required documentation must also be left for the debtor. In addition, creditors or repossession agents must take reasonable steps to re-secure the premises before completing a repossession operation.
Willful failure to adhere to the requirements set forth in the act regarding rights of entry will result a fine of up to $10,000. Offenders will be liable upon conviction. Forcible obstruction of the repossession process during its lawful execution will also result in serious consequences.
Unwilling Termination of Possession
Creditors and acting agents with the authority to repossess consumer goods must remove goods from property without causing damage to other goods. They must also take care to not cause the debtor any greater inconvenience than is necessary to remove the consumer good. Persons who are not debtors are entitled to reimbursement for damages that occur during the repossession process. They may also request a reasonable deposit to ensure reimbursement for any damages that occur during the repossession event.
Repossession Relief Options
Court relief for debtors facing a repossession action is available after a creditor or acting agent serves a pre-possession notice. Relief is also available after a creditor has taken possession of the consumer good.
The court will consider the conduct of the involved parties and the nature of the default. Other applicable matters may also be considered by the court. Relief can be based on terms not specified in the original agreement or on terms involving costs, expenses, damages. Relevant circumstances are considered as the court decides. When the court determines a repossession as being valid, it will order the debtor to pay the creditor any outstanding debt, applicable fees, and other reasonable expenses incurred.
Twenty-one days after a repossession takes place, creditors must serve debtors with a valid post-possession order. Any guarantors listed within the credit agreement must also be served the same post-possession order. This order must state the conditions you must meet to recover the goods. You will have 15 days to reinstate the original agreement or settle the breached credit agreement terms. Reinstatement will require resuming the terms of the agreement by paying the outstanding debt along with relevant fees or correcting any breaches of the original agreement that led to the repossession. Debtors interested in settling must be able to pay off or complete the original agreement’s terms.
Creditors may not sell repossessed goods until the post-possession notice expires. Independent valuation of repossessed goods will remain an option for borrowers. After the post-possession notice expires, a creditor can hold a public auction or conduct a private sale, but they must first make sure that every aspect of such a sale is commercially reasonable. The sale’s manner, time, place and terms must also be appropriate. Reasonable efforts to obtain a suitable price for the consumer good is allowed. Conditions that may alter the creditors limitations on post-possession sales are influenced by if the good is perishable or if the good is expected to rapidly decline in value. Debtors must be notified when the good is offered for sale by way of auction. Reserve price and any public tender offers must also be disclosed to the debtor. Both creditors and debtors are entitled to bid for an auctioned consumer good. They may also pay for the good with public tender if the bidder is successful.
Debt Collection Fees
Visit http://data.consumeraffairs.govt.nz/consumerinfo/creditissues/repossession.html to learn more about the laws that apply to debt collection fees and how to challenge those that are unreasonable. Also brief yourself on the Credit Contracts and Consumer Finance Act of 2003 if you suspect you’re being overcharged.
CCFA provisions apply to outstanding debts that occur due to consumer credit contracts created after 1 April 2005. The act requires reasonable credit contract default fees that include charges for credit contract term enforcement and collection costs. This law provides substantial relief for debtors suffering unreasonable collection costs after a repossession occurs. It also enables consumers to challenge unreasonable fees in a disputes tribunal. Debtors can use the law for requesting the court or disputes tribunal to reconsider the contract terms when a creditor is found to be oppressive. The court will determine if a credit contract is oppressive or if the amount due with added default penalties is oppressive.
The Credit Contracts Act (1981)
Credit contracts created before 1 April 2005 qualify for relief under the Credit Contracts Act of 1981. Debtors can also use this law to argue that outstanding balances, fees and charges are oppressive. Note that the provisions applicable to oppression in the CCCFA are quite similar to those found within the Credit Contracts Act. The court or a disputes tribunal will examine whether amounts charged by creditors are reasonable or oppressive if your contract is covered by this law.
Credit Repossession Act (1997)
The Credit Repossession Act applies to credit sale or hire purchase contracts. This law limits the total amount creditors may recover when secured goods have been sold after repossession or voluntary returns. Creditors and affiliated collection agents may not charge debtors more than the balance owed at the date of sale, for example.
Stipulations within the law also indicate that creditors are not entitled to recover more than the balance left after deducting the proceeds from judgment determinations or outstanding balances. Creditors are often not aware of this law, so if you’d like to learn more please look up the high court case titled, Expansionary Holdings Ltd v Cambridge Discounts Ltd (2001) 7 NZBLC 103, 364. Referencing this case may be useful while negotiating with creditors.
If at any point during a repossession you believe a creditor has breached any of the laws discussed, share your concerns with the lender first. If you remain dissatisfied, further assistance is available. Contact the Office of The Banking Ombudsman.
Office of The Banking Ombudsman
Freephone: 0800 805 950
Telephone: 0064 4 471 0006
Fax: 04 471 0548
Hours: 8:30am to 5:00PM
Days: Monday through Friday
20 Customhouse Quay
PO Box 10573
Certain information is being used as in accordance under Crown copyright.