Rent-to-buy: Comm'n urges independent legal advice
Issued 2 June 2004-05/136
Rent-to-buy schemes - Commission urges independent legal advice
The Commerce Commission is urging people thinking of buying a house under a rent-to-buy contract to make sure they’re getting the protections the new Credit Contracts and Consumer Finance (CCCF) Act provides for them. The Commission urges purchasers to ensure they receive independent advice about such an important transaction.
The CCCF Act came into force on 1 April this year with the intent of providing increased protection for personal, domestic or household credit arrangements. It is monitored and enforced by the Commerce Commission.
The CCCF Act provides protection to consumers by providing minimum standards for contractual terms and requiring that consumers are given key information about consumer credit contracts. This includes information about details of all fees and charges and the total interest payable under the contract. In addition the Act gives consumers the right to cancel within a short time after having entered into the contract and also allows consumers to repay the amount outstanding at any time.
“The rent-to-buy schemes are not illegal. However, in many instances they have features which meet the definition of a consumer credit contract, and the Commission recommends that purchasers get independent legal advice to ensure their position is protected,” the Commission’s Acting General Manager, Peter Taylor said.
“We have also written to a number of rent-to-buy scheme providers throughout the country reminding them of their obligations to consumers under the terms of the CCCF Act.
“Our interest in the rent-to-buy schemes stems from a complaint from the Waikato area. We felt that because the CCCF Act has been in force for only two months, it would be prudent to raise public awareness about the CCF Act and specifically also to remind the providers of these schemes of their obligations,” said Mr Taylor..
“Under the new legislation the Commission has enforcement powers where it considers there has been non-compliance with the Act and the Commission also has the ability to apply to the Court to re-open oppressive credit contracts.”
There are significant penalties for breaching the Act including fines of up to $30,000 per conviction.
Under section 7 of the CCCF Act a credit contract is a contract under which credit is provided and also includes contracts that are in substance or effect credit contracts.
Rent-to buy schemes may have
some or all of the following characteristics:
a conditional sale and purchase agreement between the creditor and purchaser
the purchaser pays a deposit and takes possession of the property
the purchaser makes regular payments to the creditor. A portion of that amount is deemed to be rent and a proportion is deducted from the purchase price of the property
the contract states that if the purchaser is unable to complete the purchase a penalty interest on the amount outstanding may be applied
if the contract is cancelled the creditor may retain all amounts paid under the contract by the purchaser
Title to the property usually remains in the name of the creditor or a related entity until all payments have been made.