Enforcement of credit contracts
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Under section 88 of the NCC, the credit provider cannot issue legal proceedings or repossess or take any other enforcement action unless:
the debtor has defaulted (i.e. is behind in payments);
the credit provider has given to the debtor and guarantor, or posted to the debtor’s and guarantor’s last known address, a default notice allowing the debtor a period of at least 30 days to remedy the default (so it is important for this reason to keep the credit provider informed in writing of any change of address);
the account remains in default at the end of the notice period;
in case of a reverse mortgage entered into on or after 1 March 2013, the credit provider has spoken by telephone or in person to either the debtor, a practising lawyer representing the debtor or a person with a power of attorney relating to the debtor’s financial affairs and confirmed with them that the debtor has received the default notice; and
if the debtor or guarantor has given a credit provider a hardship notice under section 72 of the NCC in relation to a contract entered into on or after 1 March 2013 or a postponement request under section 94 of the NCC: the credit provider has also given them notices in response to the requests (NCC ss 89A(2)(a), 94(2)); and
it is more than 14 days since the credit provider gave the notices (NCC ss 89A(2)(b), 94(3)).
The section 88 notice must set out certain information that helps the debtor protect their rights, including:
a. the default;
b. action necessary to remedy the default;
c. information prescribed by the NCCP Regulations about the debtor’s rights to make a hardship application, request to postpone enforcement, make a complaint to a dispute resolution scheme (see ‘Solving disputes with creditors’ in Chapter 5.10: Unauthorised transactions and ePayments Code);
d. that a subsequent default of the same kind that occurs during the notice period may be the subject of enforcement proceedings without further notice if it is not remedied within the period;
e. that, under the Privacy Act 1988 (Cth), the debt may be included in a credit-reporting agency’s credit information file about the debtor if, among other things, the debt remains overdue for 60 days or more; and
f. that repossession and sale of mortgaged property may not extinguish the debtor’s liability.
A credit provider may commence proceedings against a debtor even if a default notice does not comply with section 88 of the NCC if the debtor received sufficient notice of the grace period to remedy the default.
The credit provider commits an offence under the NCC if it fails to provide the debtor with a section 88 notice that does not contain the required information.
The section 88 preconditions to taking enforcement action do not apply if the credit provider proves that there are reasonable grounds for believing:
the credit provider was induced to enter the contract or mortgage by fraud by the debtor;
the goods mortgaged have been or will be concealed, damaged or disposed of;
the credit provider cannot find the debtor despite reasonable efforts; or
a court allows the credit provider to repossess (NCC s 88(5)).
Once the debtor receives the section 88 default notice (or even before), they will have at least one month to consider options such as refinancing, a variation to the contract, some other negotiated resolution or a complaint to a dispute resolution scheme. If the debtor applied for financial hardship or a postponement of enforcement proceedings, they may have even more time to consider their options as the notice periods required in relation to applications for hardship (s 89A) and postponement of enforcement proceeding (s 94) may end before, at the same time or after the end of the period for remedying the default specified in the section 88 default notice.
The NCC contains similar provisions for enforcement in relation to consumer leases (see ‘Consumer leases’, in this chapter).
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Since 1 July 2010, a credit provider has been required to issue the debtor with a special notice within 14 days of the first occasion of default under a direct debit payment system (NCC ss 87(1)–(2)). The notice must be in the form prescribed by the NCCP Regulations (Form 11: Direct Debit Default Notice) (NCC s 87(3); NCCP Regulations reg 85). The notice does not replace or modify any other preconditions for enforcement action under the NCC (NCC s 87(5)).
Repossession
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The credit provider may be entitled to repossess mortgaged goods if the period specified in the default notice has expired and the default has not been remedied.
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In most cases, the amount owing must be more than 25 per cent of the amount of credit provided under the contract, or $10 000 (whichever is less), unless a court otherwise consents (NCC s 91).
The credit provider or its agent cannot enter onto residential premises to repossess mortgaged goods unless a court has authorised entry, or the occupier of the premises has, after being informed in writing about the provisions of section 99 of the NCC (which deals with entry to residential property to take possession of goods), consented in writing to the entry. The NCCP Regulations set out the form of the written consent (Form 13: Consent to Enter Premises) and permitted hours of contact.
The credit provider can seek an order from a court to enter onto residential premises and take possession of mortgaged goods (NCC s 100), or an order that the goods be delivered to the credit provider at a specified time and place (NCC s 101).
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To avoid repossession, a debtor can:
bring the account up to date;
seek the credit provider’s permission to sell the goods privately (this may allow for the goods to be sold at a better price than would be obtained at auction);
seek a postponement of enforcement proceedings (NCC s 94);
seek a hardship variation; or
pay out the net balance due under the contract.
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Within 14 days after repossession the credit provider must give the debtor, or post to the debtor’s last known address, a written notice setting out the estimated value of the goods, the enforcement expenses incurred up to the date of the repossession and the rate (if any) at which they will continue to accrue, and a statement of rights and obligations as required under the NCCP Regulations (Form 14: Notice After Taking Possession of Mortgaged Goods) (NCC s 102). The credit provider cannot sell the goods until 21 days after this notice has been given.
Section 103 of the NCC allows the debtor to nominate in writing a purchaser for the goods within the 21-day period of the Form 14 notice. The purchaser must offer at least the estimated value of the goods. During this period, the debtor may also explore other options, including seeking a hardship variation (see ‘Financial hardship’, in this chapter).
The credit provider must offer to sell the goods to the nominated purchaser for the estimated value of the goods or, if there is a written offer to buy the goods for a greater amount, that amount (NCC s 103(2)).
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If payment is not made within 21 days of the Form 14 notice, the credit provider must sell the goods:
to the nominated purchaser as soon as reasonably practicable or at a time agreed between the credit provider and mortgagor; or
if there is no nominated purchaser or the nominated purchaser does not buy the goods, for the best price reasonably obtainable (NCC s 104(1)).
If the price received for the goods is less than the net balance due to the credit provider, the debtor can be sued for the difference (NCC s 104).
It is possible for goods to be sold at a fraction of their real value and for the credit provider to sue the debtor for money still owing after the sale. It is important to seek legal advice if the credit provider demands money after selling repossessed goods.
The debtor can apply to a court for a determination about whether the credit provider exercised its power of sale in accordance with section 104(1) of the NCC. The court can award the debtor compensation if it is not satisfied that the credit provider sold the goods as soon as reasonably practical, or at a time the mortgagor had agreed to, for the best price reasonably obtainable. However, it has been held that sale by public auction will in most cases constitute a sufficient attempt by the credit provider to receive the best price reasonably obtainable.
The credit provider can sue up to six years after the sale of repossessed goods. If payments are made later, the credit provider can sue up to six years after the last payment (Limitation of Actions Act 1958 (Vic)).
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Division 6 of Part 5 of the NCC allows a debtor to apply to a court for orders that a credit provider return repossessed goods where the credit provider has failed to comply with Part 5–2 (see ‘Restrictions on the right to repossess’, above) and 5–4 (see ‘Sale of repossessed goods’, above) of the NCC. Such a remedy may be available even where the secured credit contract remains in default.
Enforcement of credit contracts
Chapter: 5.8: Mortgages, consumer leases and other finance products
Contributor: Teresa Gray, Lawyer, Consumer Action Law Centre
Current as of: 1 September 2024
Law Handbook Page: 388
Next Section: Consumer leases
