Small Print, Heavy Consequences
By Ronen Atzmon, Solicitor
Introductory Note from Steve King, President of CHERPA:
This article details some public legal proceedings against industry members which originated from alleged breaches in 2020 or earlier. Since then, I wish to note that we have strengthened relations in particular with Rent4Keeps and have hopes of ongoing friendly cooperation between us. We nevertheless warn all industry members to take Ronen’s article seriously as any improper industry activities, or even allegations of improper activities, are unlikely to go unnoticed by ASIC.
Please read on.
Summary: The terms of your consumer lease agreements matter – violations of the National Credit Code can happen easily and land your company in hot water. Recent legal proceedings remind us that ASIC is monitoring the industry closely. Get advice if you are uncertain of what to do.
As you no doubt have heard, ASIC commenced proceedings against Rent4Keeps and Darranda (a credit licensee owned by the owners of the Rent4Keeps), and against Layaway Depot (Proceeding).
The nature of the Proceedings are different and the documents to the Proceedings can be found by conducting a Google search.
The Proceeding against Layaway Depot is a reminder that credit activities must not be conducted unless the operator holds a credit licence or is authorised as a credit representative of a credit licensee. Layaway Depot conducted a payment by instalment facility and because the total price paid under the agreement exceeded the cash retail price, they required a credit licence which they did not hold.
The Proceeding against Rent4Keeps is more complex and involved the transfer of ownership of the leased goods. More specifically to the Proceeding, CHERPA members will note from ASIC’s statement of claim that there are a number of alleged defects in the Rent4Keeps and Darranda contracts.
Firstly, there is an apparent inconsistency between the gifting provisions which are subject to the lessor’s discretion (5.1) and other provisions in the credit contract (5.2) which state that if the lessee complies with the contract, the ownership is transferred automatically.
Secondly, ASIC intends to demonstrate that Rent4Keeps and Darranda never had an intention to implement the gifting program and that the gifting provisions are a sham to hide the fact that the lessee will own the goods at the end of the lease term and that the lessor always intended for the lessee to own the goods.
If the prosecution is successful then Section 169 of the National Credit Code has been breached, and if that is the case then by virtue of Section 9 of the National Credit Code, the consumer lease will be classified as a sale of goods by instalment credit contract to which the National Credit Code provisions, other than Part 11 Consumer Leases, apply to.
In most cases, when a consumer lease is reclassified as a sale of goods by instalment, there are bound to be Code violations such as failure to disclose retail cash price of the goods, failing to adhere to the 48% interest rate cap and misleading information in relation to ownership, as under a sale of goods by instalments (as a credit contract) the ownership to the goods passes to the consumer on entering into the contract (see Section (3)(d) of the Code).
This Proceeding reminds us all that ASIC is watching and monitoring the industry and will take enforcement action when it comes to consumer protection. Whilst ASIC is the regulator under the NCCP Act, ASIC champions itself as a consumer protector and hence, when there is a perceived harm to consumers, ASIC will take action.
It is also a reminder to CHERPA members to ensure that the transfer of ownership provisions in their consumer lease are clear and not ambiguous. Please seek legal advice if for any reason you are uncertain of what to do.
If any CHERPA member requires consultation, I will gladly provide them with assistance.
Ronen Atzmon, Solicitor