On 3 May, Riccardo applied for a $10,000 loan from a finance company to purchase a car. The same day the finance company said Riccardo was conditionally approved for a loan, subject to the type of vehicle being purchased, and payment of a $500 deposit.
On 5 May, Riccardo signed a vehicle offer and sale agreement with a car yard, and paid the car yard $500. The finance company issued a draft loan agreement, and both Riccardo and the finance company signed it. However, the finance company did not actually approve or advance the loan because Riccardo was unable to obtain car insurance due to his driving history.
However, the car yard allowed Riccardo to drive the car away on 5 May. Realising its mistake, on 16 May the card yard asked the finance company (the companies being related), to assist in taking back possession of the vehicle.
The finance company issued Riccardo with a repossession warning notice saying he needed to pay $10,000 to have the car returned, and $800 for repossession costs. Riccardo said he did not need to pay those amounts and complained to FSCL. He wanted the car returned to him, and to start making loan payments to the finance company.
Riccardo said the finance company did not tell him it was a loan condition that he first obtain insurance for the car. Riccardo said the finance company had breached the Credit Contracts and Consumer Finance Act 2003 (the CCCFA) by repossessing the car and by not acting as a responsible lender.
The finance company said it had done nothing wrong, and was entitled not to approve the loan because the car was uninsured.
The vehicle offer and sale agreement
When Riccardo signed the vehicle offer and sale agreement, he was agreeing to purchase the car from the car yard. The agreement confirmed Riccardo had paid the car yard a $500 deposit, and the $9,500 balance would be paid by way of a loan from the finance company. To complete the purchase, the finance company had to approve the loan. That is, the car yard had to be paid the full $10,000 for the car. When the loan was not approved, Riccardo could not complete the purchase.
The loan agreement also set out that Riccardo would be arranging his own insurance, as opposed to the car yard arranging this for him. We pointed out to Riccardo that there is no requirement for a person to have car insurance when they buy a car. However, it was a loan condition that he have car insurance.
Errors all around
The car yard made an error and should not have allowed Riccardo to drive the car away, because he had not paid for it. At the same time, it was Riccardo’s responsibility to ensure he had obtained the loan from the finance company, and that the car had been paid for, before driving it away.
We said it may have been helpful if the finance company had advised Riccardo that granting him a loan was conditional on him insuring the car, when it conditionally approved the loan on 3 May. However, it was Riccardo’s responsibility to obtain insurance if he wanted the loan.
We also said that the finance company should not have issued Riccardo with a repossession warning notice because there was never a credit contract in place. Ultimately however, the card yard took the car back into its possession; the finance company simply confused matters by becoming involved in that process.
The finance company had not breached any of the lending responsibility principles in the CCCFA because there was never a credit contract in place. Also, we could not require the finance company to enter into a credit contract with Riccardo.
We did not uphold Riccardo’s complaint.