Guarantors
Your rights as a guarantor
Right to key information about the guarantee and the credit contract
Credit Contracts and Consumer Finance Act 2003, ss 24, 25
If you agree to be a guarantor for a borrower, the lender must give you the following information before you give the guarantee:
- a copy of the guarantee, and
- a copy of the key information about the consumer credit contract (see “The information you must be given” in this chapter).
The lender must also provide you with certain information if you make a written request for it – for example, the amount required for full payment at any date, or details of any changes made to the contract, or a copy of the contract. The lender has 15 working days to give you the information (or until 15 working days after you pay any reasonable fee charged by the lender, if this is later).
Sometimes guarantors also agree to guarantee any future debts that the borrower incurs with the lender. If the lender does later agree to lend the borrower more money to which the guarantee applies, the lender must inform the guarantor of this within five working days.
Right to be notified of contract changes
Credit Contracts and Consumer Finance Act 2003, s 26
The lender must give you, the guarantor, full written details of any changes to the credit contract that either increase the borrower’s obligations or shorten the amount of time the borrower has to pay the debt. The lender must give you this information within five working days after the change.
Repossession of goods from the borrower or guarantor
Credit Contracts and Consumer Finance Act 2003, ss 83G, 83V
If you as a guarantor have put up some of your property as security for the borrower’s debt, there’s a strict process the lender must follow if the borrower doesn’t make their payments and the lender wants to take your property (“repossess” it) to cover the debt. This includes first having to give you a “repossession warning notice” (see “Repossession” in this chapter).
If the lender repossesses property from the borrower (that is, either hire-purchase goods or property that the borrower has put up as security for a loan), you the guarantor must also be sent the notices that are sent to the borrower.
What can the guarantor do if the contract is unfair?
Credit Contracts and Consumer Finance Act 2003, ss 117–131
The courts can change the terms of a credit contract if the contract is “oppressive”, which means “harsh, unjustly burdensome, unconscionable, or in breach of reasonable standards of commercial practice”. If the credit contract also requires a guarantee, the guarantee is treated as forming part of the credit contract, and so the guarantee can be changed too.
The judge can also change or strike out the terms of the guarantee if you were pressured into signing it by oppressive means, or if it would be harsh and oppressive to enforce the guarantee against you. For information about challenging unfair contracts and guarantees, see “Challenging an unfair credit contract” in this chapter.
How the “responsible lending principles” protect guarantors
Credit Contracts and Consumer Finance Act 2003, s 9C(2), (4); Credit Contracts and Consumer Finance Act 2003, ss 93, 96
Lenders have certain responsibilities towards you if you give a guarantee for a consumer credit contract. These are similar to the responsibilities owed to borrowers.
The central responsibility is that, before a lender takes a guarantee from you, and in all their later dealings with you in relation to the guarantee, the lender must exercise the care, diligence and skill of a responsible lender. The lender also has these specific responsibilities:
- Checking out your ability to fulfil the guarantee – Before you give the guarantee, the lender must make reasonable enquiries so that they’re satisfied you’ll be able to fulfil the guarantee without suffering substantial hardship. The lender is entitled to rely on the information you give them unless they have reasonable grounds to believe it’s not reliable.
- Helping you reach an informed decision – The lender must help you to reach an informed decision about whether to give the guarantee and to be reasonably aware of the guarantee’s full implications. As part of this responsibility, the lender must make sure that any information they give you isn’t likely to be misleading, deceptive or confusing, and that the terms of the guarantee are written in plain language and are clear, concise and understandable.
- Reasonable, ethical treatment – The lender must treat you reasonably and ethically at all times, including when problems arise, such as the borrower missing their payments.
- No oppressive terms or conduct – The lender must make sure that the guarantee isn’t oppressive, that they don’t exercise any of their rights or powers under the guarantee in an oppressive way and that they don’t pressure you by oppressive means into giving the guarantee.
- Meeting all legal obligations – The lender must meet all their legal obligations to you, including, for example, the requirements in the Credit Contracts and Consumer Finance Act to provide you with necessary information.
If a lender breaches any of those responsibilities, the courts can order them to pay you compensation, or can make various other orders (see “Enforcing the credit contract laws against lenders” in this chapter).
