When car finance deals go wrong: Legal lessons in consumer rights limitations

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Facts

The deal followed the usual three-party structure. The buyer picked up the car from a dealership. The credit provider financed the purchase under an instalment sale agreement, keeping ownership until full payment. The agreement required the buyer to check the car before delivery and confirmed that the credit provider gave no warranties about the car’s condition. Any complaints about defects or misrepresentation had to be directed to the dealership.

The buyer claimed the dealership misrepresented the car’s condition and breached the Consumer Protection Act (CPA). She returned the car within few days after delivery and complained to the Motor Industry Ombudsman and the National Consumer Commission. She also argued the credit provider failed to mitigate its loss and questioned compliance with section 129 of the National Credit Act (NCA).

Issues

The court had to decide if the buyer had a valid legal defence to stop summary judgment and these were the key questions to be answered:

1. Whether the CPA breaches by the dealership affect the credit provider’s claim?
   
2. Whether returning the car cancels the buyer’s obligations under the credit agreement?
   
3. Whether the mitigation arguments or pending consumer complaints block summary judgment?
   
4. Lastly, whether the section 129 notice was properly served?
   

Decision

The court granted summary judgment. It cancelled the instalment sale agreement; allowed the credit provider to repossess the car; and postponed the claim for the outstanding balance.

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Reasons

The court found that the buyer’s defences were not valid in law. The court found that the misrepresentation and CPA breaches relate to the dealership, not the credit provider.

The credit provider only financed the purchase and did not supply or market the car. The CPA excludes credit agreements under the NCA (section 5(2)(d)), though the goods themselves remain covered by the CPA. Accordingly, the court found that the CPA remedies apply against the supplier, not the credit provider.

Returning the car to the dealership did not cancel the credit agreement. The court found that for CPA remedies to work in financed deals, the following is necessary:

• The credit provider cedes its rights against the supplier to the buyer, or
  
• The credit provider claims against the supplier and credits the buyer’s account.

As to the other arguments — mitigation, consumer complaints, and requests for a stay — the court found that these were irrelevant. The court confirmed section 129 compliance.

Lessons

This judgment provides lessons and reminders for the public, creditor providers, and retailers. For consumers, they must direct quality or misrepresentation complaints to the supplier and returning goods does not cancel a credit agreement unless proper legal steps are taken. As for credit providers, they should clearly state in contracts that they do not guarantee the goods and that defect claims go to the supplier.