Overview of restrictions on repossession
If you fail to pay a debt, there are circumstances where someone might come and seize your things to sell to pay the person you owe money (see: “How Court judgments are enforced”, and “When you can’t pay your debts: Bankruptcy and other options”).
However, without a court order or you being subject to an insolvency event (like bankruptcy), there are a number of significant restrictions on when lenders can come and collect your things. These are:
- They can only take either:
- the hire purchase good they gave you, or
- goods listed as security under your contract.
- Goods can only be repossessed if the contract explicitly allows this (see: “When lenders can repossess” below).
- When repossessing, the lender must comply with the lender responsibility principles in the CCCF Act (see: “Lender responsibility principles”).
- The repossession must also comply with the detailed procedural requirements in the CCCF Act (see: “The repossession process”).
Note: The law uses the term “repossession” not just for when hire-purchase goods are taken from you but also for when a lender takes possession of property that you (or a guarantor) have put up as security for the credit. This means that the word “repossession” is used – and the repossession restrictions will apply – even if the lender never previously had possession of the goods.
When lenders can repossess
When does a lender have a right to repossess property from me?
Goods can only be repossessed from you if your credit contract explicitly allows this. The repossession rules in the CCCF Act do not give a lender any repossession rights that aren’t in the contract – it just sets rules about how they can use those repossession rights.
When the credit contract does allow repossession, the lender can repossess goods only if:
- you “default” on your debt – this means you fail to make your payments or you breach the contract in some other way, or
- the goods are “at risk” – this means that the lender has reasonable grounds to believe the goods have been (or will be) destroyed, damaged or removed.
A lender also can’t repossess property from you if:
- they’re not registered as a financial service provider (all lenders must be registered), or
- you’ve made a written complaint about some action the lender has taken to enforce the credit contract and the complaint hasn’t been resolved yet, or
- you’ve made a hardship application that the lender hasn’t yet decided about (see: “Unforeseen hardship”).
Your property can also be repossessed if you provided it as security to guarantee someone else’s loan and the borrower hasn’t been doing everything their loan contract requires (see: “Guarantors”).
Note: There are certain types of consumer goods – stoves and fridges for example – that usually can’t be used as security for a loan and that therefore can’t be repossessed if you miss your payments (see: “What is a secured loan?”). However, that restriction doesn’t apply when one of those items is bought on hire purchase and the security is part of the hire purchase arrangement, or if a bank or other lender loans you money specifically so you can buy the item (those types of securities are called “purchase money security interests”).
What happens to my debt when my property is repossessed?
When your property is repossessed interest stops so the total amount of your debt is fixed and doesn’t grow larger. You still need to pay it off or the leftover debt could be passed onto a debt collector. For example, you might have $10,000 debt left on a car loan. If the repossessed car sells for $6,000, you still have to pay back $4,000. The debt collector cannot add any fees or charges on the remaining debt.
How must a lender behave during a repossession?
During any repossession process, the lender must treat you and your property reasonably and ethically (including property that you don’t own but that’s in your possession, like hire-purchase goods). Lenders must take all reasonable steps to make sure that nothing is damaged, that repossessed items are adequately stored and protected, and that they don’t enter your home in an unreasonable way.
Lenders also have a general duty, whenever they’re dealing with you, to exercise the care, diligence and skill of a responsible lender.
The repossession process
The CCCF Act describes the process that the lender (and the agent the lender uses to do the repossession) must follow when taking property from you. There are specific rules dealing with what has to happen before, during and after the repossession.
Before the repossession: Requirement for warning notice
Before they can repossess goods from you on the grounds that you’ve defaulted under your contract, the lender must send you (and any guarantor) a repossession warning notice at least 15 days before they repossess. These used to be called “pre-possession notices”.
However, the lender doesn’t have to send you a warning notice before repossessing goods if they have reasonable grounds to believe that the goods have been or will be destroyed, damaged or removed (if the goods are “at risk”).
The warning notice must include a range of information, including what the default is (that is, how much you’re behind in your payments, or in what other way you’re breaching the contract). If the default can be put right – for example, by getting your payments up to date – the notice must set a time limit for you to do this. That time must be at least 15 days after you receive the notice. After that time, the lender can repossess the goods.
There are certain rules about how the lender must give you the warning notice. Usually it must be either:
- hand-delivered to you
- left at or mailed to your home or work or another address you’ve given the lender for this purpose, or
- emailed to an email address you’ve given the lender for this purpose.
There are special ways the warning notice can be given if you can’t be found or are outside New Zealand or if the person has died. The Court can make orders for the warning notice to be given in dfferent ways
Repossession warning notices don’t stay valid indefinitely. They expire after 60 days, so if the lender hasn’t repossessed within that time, they’ll need to send you another warning notice giving you at least another 15 days before they can repossess.
If you’ve received a warning notice, you have the option of voluntarily delivering the goods to the lender to the place specified in the notice.
When the goods are repossessed
If you don’t pay what is owing or otherwise remedy the breach of the credit contract, within the time specified in the repossession warning notice (which must be at least 15 days), then the goods (and/or their keys) can be repossessed. This means the lender (or an agent doing the repossession on their behalf) can enter your private premises (like your house) and take the goods away.
However, the lender or their agent can only enter your property to take the goods if this is allowed under the credit contract or if you allow them to enter.
If the lender or their agent can enter your property to reposses the goods, they must do so in a reasonable way and in accordance with the below rules:
- Only licensed repossession agents can carry out repossession – Repossession agents must be licensed and hold a certificate of approval under the Private Security Personnel and Private Investigators Act 2010. Lenders also can’t repossess goods personally unless they themselves are licensed and approved. If they’re not licensed, they must use a licensed and approved agent instead. If it’s a vehicle being repossessed, licensed tow-truck operators can also be used.
- Repossession can only happen at certain times – The repossession can only be carried out between 6am and 9pm, Monday to Saturday, and not on public holidays (unless, after you defaulted but before the repossession, you agreed in writing to the repossession happening outside those allowed times).
- If you’re home at the time – If you or anyone else is home at the time, the lender or their agent must give you certain documents, including:
- a copy of the repossession warning notice
- a copy of the credit contract
- if it’s an agent, evidence of their authority to repossess the goods on the lender’s behalf
- a copy of their repossession agent’s licence or their certificate of approval to be a repossession employee (or, if it’s a tow-truck operator repossessing a vehicle, they’ll have to meet the identification requirements that apply to them – see: “Legal requirements for tow-truck operators”)
- a statement that the premises have been entered, the date of entry and a list of goods to be taken, and
- a statement of your rights after repossession and your right to complain about the conduct of the person doing the repossessing.
- If you pay what’s owing on the spot, you can stop the goods being taken away. However, you’ll also have to pay the reasonable costs of the repossession.
- If no-one’s home – The lender should try to carry out the repossession when you are home. However if you are not home, your lender can enter your house anyway, if they have the right under your loan contract to do so (this includes towing your car, if your car is being repossessed). However, they must leave a notice saying that the premises have been entered and the date of entry, an inventory of the goods that have been repossess and the documents listed above. They also have to make sure they don’t leave your home obviously open when they leave.
- Repossessing things attached to other items – There are specific rules that apply to repossessing goods (called “accessions”) that are installed in or attached to other consumer goods – for example, a car stereo or a replacement car engine. The lender or agent must remove the accession in a way that causes the least amount of damage to the item it’s attached to (for example, your car) and the least inconvenience to you as the owner of the other item.
After repossession: Requirement for post-repossession notice
Within 14 days after the repossession, the lender must send you and any guarantor a second notice, called a “post-repossession notice,” that gives you 15 days to do one of the following things:
- “Reinstate” the contract, by bringing your payments up to date, paying other costs like repossession and storage costs, and putting right any other breaches. This puts you back on the same footing as before you fell behind in your payments or otherwise defaulted. The goods must then be returned to you, and you can carry on making your usual payments.
- “Settle” the contract, by completely paying off everything owed under the contract and other costs such as the repossession and storage costs. The goods must then be returned to you. You’re now the owner of the goods, and the credit contract is over.
- Find a buyer. You can find someone to buy the goods at the lender’s “estimated value,” which must be set out in the notice.
Note: A financial mentor may be able to help you decide which of those three options is best (see: “Where to go for more support” at the bottom of this page).
If you don’t take any action within the 15 days, the lender must offer the goods for sale. The lender can’t sell, or offer to sell, the goods before the 15 days are up.
You can reinstate or settle the agreement at any time before the lender sells, or agrees to sell, the goods.
If the lender doesn’t give you a post-repossession notice after repossessing, they can’t sell the goods or exercise any of their other rights in relation to the goods, and they also have to bear their repossession costs.
What are my rights when the goods are sold?
If the lender sells the goods, they must take reasonable care to obtain the best price they reasonably can at the time. All other aspects of the sale, including the method, time and place, must also be commercially reasonable.
The lender must give you and any guarantor reasonable notice before the proposed sale. If the sale is to be by auction or tender, then you, the lender and any guarantor are all entitled to bid or submit tenders.
You can force the lender to put the goods up for auction if the goods haven’t been sold within 30 working days after being repossessed.
Within seven days after selling the goods, the lender must give you and any guarantor a “statement of account” that tells you:
- how much the goods sold for
- the lender’s costs in selling the goods
- the amount you needed to pay at the time of the sale to settle the contract
- whether there’s money left over from the sale that the lender must pay to you, or whether you still owe money to the lender.
If you still owe money to the lender, you’ll have to negotiate with them about how this will be paid. The lender can’t claim anything other than what’s left owing after the sale – that means they can’t claim any ongoing interest or costs.
What action can be taken against lenders who breach the repossession rules?
If the repossession process isn’t followed properly, you can take the lender to the Disputes Tribunal or to the courts. They can make a range of orders against the lender, including:
- ordering them to pay you compensation for property damage, for financial loss, or for stress, humiliation or inconvenience, or
- ordering changes to the terms of the credit contract.
Even if you haven’t been caused any loss or damage, the lender or their repossession agent may have to pay you up to $6,000 in “statutory damages” for breaching the repossession rules.