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Consumer experiences of Avco - 2.3
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Failure to explain loan, mortgage and insurance documents
2.3.1 Consumers are not given information before signing loan contracts
When consumers approach Avco for a loan, Avco’s practice is to take a loan application from the consumer. Typically, no details of the terms on which Avco is prepared to provide finance are offered to the consumer at this stage. Indeed, Avco can be reluctant to provide this information.
A community development student on placement with the Consumer Credit Legal Service (Victoria) undertook a survey to find out what information consumers could obtain when “shopping around” for credit. The student visited five lenders, including banks and finance companies. Four of the lenders provided the information requested, including the interest rate and the total cost of a specific loan.
Avco refused to provide any information unless the student completed and signed a loan application form. |
If Avco approves the loan application, an appointment is made for the consumer to attend the Avco office to sign the documents. The consumer is then handed copies of the contracts. For many consumers this if the first time they have seen the contract that they are being asked to sign.
Many consumers report that very little explanation of the terms of the loan contract was given to them when they signed the contract. Other consumers say that although some explanation was given to them, they were unable to fully appreciate the terms of the contract given the short time available.
| Case study 20
The borrower needed about $2,000 to pay some overdue bills. He spoke to an Avco manager over the phone requesting the loan and also mentioned that he required house and contents insurance. No other insurance was discussed. The Avco manager said that someone would sort out a “package deal” and that the borrower could come in when the paperwork was ready and he would be given a cheque to pay all his bills. The borrower asked the manager what the interest rate was and was told “not very high”.
The borrower did not read the contracts in detail and did not notice that the interest rate was actually 29.510% at the time he signed the contracts. When he later discovered how high the interest rate was, he contacted Avco for an explanation. He was told that as he had borrowed less that $5,000 the interest rate was higher than the interest rates he had previously been charged. |
If consumers are sold consumer credit insurance and/or if loans are secured, there will be insurance contracts and mortgage documents to sign as well as the loan contract. Consumers may be confronted with as many as four or five contracts to sign. This amount of paperwork can be both confusing and intimidating for consumers and discourages them from asking questions.
2.3.2 Changes to terms on which money is lent
Many consumers complain that the terms and conditions of the loan contract they signed are different from those they discussed when they applied for the loan.
Consumer complaints include:
- premiums for consumer credit insurance policies were included in the amount borrowed from Avco without any request by the consumer. The inclusion of these insurances can increase the amount borrowed significantly. In one example the increase was in the order of 27% of the amount agreed to be lent. This issue is discussed in more detail in Part 2.5.
- they were not adequately informed about the total amount of the debt. This happens when a previous loan with Avco is refinanced (part 2.6), debts are consolidated (part 2.7), upselling occurs or fees and charges are imposed.
- Avco took security over a consumer’s home or car without their knowledge. This is particularly the case with ‘sexually transmitted debt’, where there are two borrowers, one a woman agreeing to help her husband or boyfriend. In these circumstances, one borrower (the man) receives the benefit of the loan while the other (the woman) mortgages her property. The borrower providing security may be unaware of the total amount owing on the loan contract.
Wade v Avco Financial Services Ltd (1991) ASC 56-081
Ms Wade lodged an application with the Commercial Tribunal of New South Wales alleging that a loan contract he had entered into with Avco was unjust. Avco took security by way of a charge over the family home. Ms Wade alleged that she was not informed that the house would be used as security. She gave evidence that she was rung at home by an Avco employee who asked her for the folio number of her house and explained that it was “just to check on your property, that you live there ... and that it really is your property.”
The Tribunal found that Avco did not inform or advise Ms Wade of the fact that the loan contract, which had an interest rate of 27.692%, included a charge over the family home. It found that the contract was therefore unjust and Avco was ordered to remove the caveat it had lodged over the home. |
Case studies 1, 2, 4, 5, 14, 17, 20, 44, and 63 in Appendix A further illustrate the difficulties consumers can face in understanding Avco loan contracts.
2.3.3 Consumer concerns
- One of the major aims of governments in enacting the state Credit Acts and the Consumer Credit Code was to promote “truth in lending” and discourage sharp practices. The intention is to ensure that consumers fully understand the terms of loan contracts before they were asked to sign them. Accordingly, the state Credit Acts [See Credit Act (NSW) 1984 s32; Credit Act (Qld) 1987 s.34; Credit Act (Vic) 1984 s.32; Credit Act (WA) 1984 s.32; Credit Act (ACT) 1985 s.32.] and the Consumer Credit Code [See section 14]. require credit providers to give consumers a written statement of the terms of a loan contract before the consumer signs the contract. Avco’s practice, and the practice of many other credit providers, of providing consumers with a copy of the documents only minutes before signing it may technically comply with these provisions. However, it clearly defeats the legislative purpose of ensuring consumers can consider the terms of the credit contract in a meaningful way before they sign it.
- The failure to explain the terms of a contract or to inform the consumer of any changes to the contract or to misrepresent the terms of a contract can lead to consumers entering into unconscionable or unjust loan contracts. [See Contracts Review Act (NSW) 1980; Credit Act (NSW) 1984 s146; Credit Act (Qld) 1987 s.149; Credit Act (Vic) 1984 s.146, Lending of Money Act (Tas) 1915 s.2; Consumer Credit Act (SA) 1972 s.46; Credit Act (WA) 1984 s.146; Credit Act (ACT) 1985 s.146; Consumer Credit Code s.70.]
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