Protections at the point of enforcement

Contributed by Elizabeth Samra, Consumer Law Centre of the ACT and current to May 2018

Enforcement

The credit law sets out a process that must be followed before a debt can be enforced. Under s 88 of the NCC, the credit provider cannot commence legal proceedings or take any other enforcement action unless:

• the debtor is in default under the contract (usually behind in payments);
• the credit provider has given to the debtor, and any guarantor, a default notice allowing the debtor a period of at least 30 days from the date of the notice to remedy the default (“s88 notice”); and
• the default has not been remedied in that time.

The prescribed form of the s88 notice is at Schedule 1 of the NCCP Regs.

There are several exceptions to the requirements that credit providers must serve s 88 notices and these are set out at s 88(5) of the NCC.

If a notice has been provided and the debtor, within the 30-day period, does not remedy the default as described in the s88 notice or an arrangement is not reached with the credit provider, the credit provider can commence court proceedings without further notice.

Similar provisions can be found for consumer leases at s 179D of the NCC.

Home repossession

The only procedural protection for mortgagors facing home repossession under the credit law is the s88 notice. The credit law does not prescribe a process for taking possession of real property. It is important to note, however, that court proceedings must be stayed if the mortgagor lodges a complaint at EDR any time before judgment (unless too make steps have been taken in the court proceedings by the mortgagor). For more information on the repossession of mortgaged land see Mortgage Defaults.

Repossession of mortgaged goods

There are certain requirements which need to be met before a credit provider can repossess mortgaged goods.

Section 91(1) of the NCC prohibits a credit provider from taking possession of mortgaged goods without the permission of the court unless the amount owing under the credit contract is at less than 25% of the amount of credit provided under the contract or $10,000, whichever is the lesser amount. There are exceptions to this, namely: the credit provider believes on reasonable grounds that the goods have been, or are about to be, disposed of without the credit provider’s permission; the situation otherwise requires urgent action to protect the goods; or where the contract is a continuing credit contract.

The credit law also imposes a compulsory procedure for dealing with repossessed mortgaged goods (ss 102-105 NCC). The procedure involves the following:

(i) The credit provider has served a s88 notice on the mortgagor and the mortgagor has failed to comply with it, or an arrangement between the parties has not been reached;

(ii) The credit provider takes possession of the goods. Note: 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 consented in writing to the entry (s 99 NCC);

(iii) The credit provider must, within 14 days of taking possession of the mortgaged goods, provide the mortgagor with a written notice detailing the estimated value of the mortgaged goods, the enforcement expenses and a statement of the mortgagor’s rights (s 102(1) NCC);

(iv) The credit provider must not dispose of the goods taken under the mortgage within 21 days after the date of the notice, unless the court authorises it (s 102(2) NCC);

(v) The credit provider must return the mortgaged goods if the arrears (less any accelerated amount) and reasonable enforcement expenses are paid or the contract is paid out during the 21-day notice period (s 102(4) NCC);

(vi) If the mortgagor is unable to pay the arrears and enforcement expenses, then the goods may be sold (s 104 NCC);

(vii) After the goods have been sold, the credit provide must provide the mortgagor with a notice setting out the amount the goods sold for and the amount left to pay (s 104(3) NCC).

A mortgagor can also seek compensation from a credit provider for any loss they suffer as a result of a breach of this procedure or if the goods were not sold for the best price reasonably obtainable (s 106 NCC).

What can be done to avoid repossession?

To avoid repossession, a mortgagor can:

• Pay the arrears;
• Ask permission to sell the goods privately (often at a better price);
• Seek postponement of enforcement proceedings (s 94 NCC);
• Seek a hardship variation;
• Apply to EDR if in financial hardship or if there is a dispute.

Sections 178 – 179 W of the NCC sets out the requirements relating to the repossession of consumer leases.