In whose interest? Avco lending practices exposed This report was first published in July 1997. Copyright Legal Aid NSW and Consumers Federation of Australia 1997 This report is copyright. Non profit community groups have permission to reproduce parts of the report as long as the original meaning is retained and proper acknowledgment is given. All other persons and organisations wanting to reproduce material from the report should first obtain permission from the publishers. [Publications Manager, Legal Aid NSW PO Box K847 Haymarket 1238] Contents Summary of consumer concerns 1. Introduction 2. Consumer experiences of Avco 2.1. Advertising and marketing 2.2. Interest rates 2.3. Failure to explain loan, mortgage and insurance documents 2.4. Lending guidelines 2.5. Selling of insurance 2.6. Refinancing 2.7. Consolidation 2.8. Debt collection practices 3. Avco - a history of consumer dispute 3.1. The Avco license case 3.2. The civil penalty cases 3.3. Avco’s reluctance to change practices 4. Consumer demands Appendix A: Case studies Summary of consumer concerns and demands Consumer concerns Legal Aid Commissions, Community Legal Centres, financial counsellors, social workers and other community workers across Australia have received complaints from consumers about Avco Financial Services Limited (“Avco”) for many years. With the help of these professionals, some consumers have successfully taken legal action against Avco. Many other consumers have lodged complaints with government consumer protection agencies. However, despite the efforts of these consumers and their advisers consumers throughout Australia continue to complain about their experiences with Avco. Further, the complaints continue to raise the same issues that have arisen in relation to Avco’s practices for years. This report extracts an array of consumer concerns about the lending practices of Avco from 70 detailed case studies. The case studies are from around Australia. They are stories of the experiences of ordinary Australians in their dealings with Avco as told to the community professionals to whom they have gone to for help. The report does not allege that every consumer with an Avco loan is unhappy, nor that every dealing that Avco has with consumers is worthy of criticism. The report seeks to identify the major systemic concerns that community workers believe that consumers have with Avco’s lending practices in the hope that the company will take notice and change its practices. A summary of the concerns follows. Advertising and marketing Consumers often do not appreciate the cost of loans from Avco, particularly where they are encouraged to borrow impulsively. The laws regulating door-to-door sales do not protect vulnerable consumers from purchasing products that they have no need for or which are over-priced. Avco’s marketing strategy of sending “pre-approved” loan offers encourages consumers to enter into loan contracts that they do not need and cannot afford. Accordingly, Avco should be required to clearly state the interest rate, or range of interest rates, at which it is prepared to lend money when it sends “pre-approved” loan offers to consumers. Interest rates When compared with interest rates charged by other credit providers Avco’s interest rates are very high. Consumers should be offered a reduction in the interest rate charged where consumer credit insurance is taken out by the consumer, given that Avco’s risk of not receiving payment is thereby diminished. Consumers should be offered a reduced interest rate where the loan is secured. Failure to explain loan, mortgage and insurance documents Avco’s practice of providing consumers with a copy of the documents only minutes before signing it, although technically complying with the disclosure provisions of the Credit Acts and the Consumer Credit Code, clearly defeats the legislative purpose of ensuring that 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. Lending guidelines The provision of credit by Avco to people who have already been refused credit can cause great hardship to consumers and their families. This hardship is increased where the loan is secured by the consumers’ car or home. Asset based lending may constitute reckless overcommitment within the meaning of 70 of the Consumer Credit Code resulting in consumers entering into unjust loan contracts. Selling of insurance Avco’s conduct may lead consumers to believing that they are required to purchase consumer credit insurance from a particular company or companies in breach of section 47 Trade Practices Act, provisions of a number of the state Credit Acts and the Consumer Credit Code. Avco often fails to ensure that consumers understand the nature of the insurance that they are purchasing and the company does little or nothing to ensure that consumers are sold insurance which is appropriate to their needs. Refinancing Although refinancing can provide some benefit to consumers by reducing monthly repayments on a loan, refinancing an existing credit contract is often expensive. Avco often does not provide the consumer with a comparison of the different costs of the different methods of structuring the transaction and accordingly, consumers cannot make an informed decision about whether to refinance or to have two loan contracts running side by side. The failure to explain the costs and benefits of refinancing an existing loan contract can lead to consumers entering into unconscionable or unjust loan contracts. Consolidation Avco often does not fully explain to the consumer the full financial consequences of consolidating loans with other credit providers with Avco. The failure to explain the costs and benefits of refinancing an existing loan contract can lead to consumers entering into unconscionable or unjust loan contracts. Debt collection practices Some of the tactics used by Avco to collect debts may amount to “undue harassment”. in contravention of section 60 of the Trade Practices Act (Cth) 1974. Consumer demands Legal Aid NSW and Consumers’ Federation of Australia have noted the concerns expressed and call on Avco and responsible Ministers for Consumer Affairs or Fair Trading to take action to ensure that future consumers do not have such reason to complain. The following is a list of demands: That Avco adopt more responsible and fair sales practices, including: providing clear and accessible information about annual percentage rates charged; providing a statement of the interest rate or range of interest rates at which Avco is prepared to provide credit when it sends out a “pre-approved” loan offer; providing consumers with copies of loan contracts a reasonable time before they are required to sign them ensuring its lending guidelines are responsible and are based on the consumer’s capacity to pay and not whether loans are secured by the consumer’s goods and home. ensuring that consumers understand the nature of the insurance that they are purchasing, and ensuring that consumers are sold insurance which is appropriate to their needs. These procedures should include a requirement that the salesperson complete a “needs analysis”. providing consumers with calculations showing the comparative costs of refinancing an existing Avco contract, compared with the cost of having two loans running concurrently; providing consumers with calculations showing the interest payable to Avco where an existing credit contract with a third party is consolidated compared with the amount payable under that contract to the third party. ensuring that its conduct in collecting debts does not frighten, intimidate or harass consumers. That government regulatory bodies investigate the practices of Avco and in particular the selling of insurance products and the level of interest rates charged. That Avco report penetration rates on the sale of insurance policies to the Ministers for Consumer Affairs. That the General Insurance Claims Review Panel be given jurisdiction to hear complaints in respect of the unfair or forced sale of consumer credit insurance policies. That Avco become a member of an alternative dispute resolution scheme.

---

You are Required to Read the Copyright Notice & Disclaimer | Webmaster | Feedback

---

The information contained on this page is not legal advice. If you have a legal problem you should talk to a lawyer before making a decision about what to do. The information on this page is written for people resident in, or affected by, the laws of New South Wales, Australia only.