Buying on Credit (No. 246)

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Many people can’t pay cash for consumer goods like a new car or a major appliance. They get a loan or use a credit card so they can buy now and pay later. But if they can’t make their payments, they face legal problems and their credit rating is often affected. People also worry if their credit card is lost or stolen and used by others. This script discusses these issues.

Buying goods on credit

What is buying on credit?

Buying on credit means you pay for what you buy over time, not when you buy it. Say you want to buy a piano, so you agree with the seller to pay for it over two years, with interest. You get the piano immediately, but the seller still owns the piano until you make all the payments. Or say that you want to buy a new car, but the dealer won’t finance it or you want to deal with your own bank. So you apply for a bank loan and sign an agreement where the bank pays the dealer for the car, and you pay the bank back for the cost of the car, plus interest, over a certain number of months. In both cases, you are buying something on credit.

When you buy something on credit, you typically sign a security agreement

The agreement may be called several things, like a conditional sales agreement, a “chattel mortgage”, or a lease with an option to purchase. But the type and name of agreement aren’t important because they all work in a similar way. Basically, the agreement will say that you give the seller or lender a security interest in the goods as security for what you still owe—like when you give the bank a mortgage on your house.

The only exception is if you have a true lease, usually for a car or a large piece of equipment, where you pay monthly for the right to use it. In this case, you have no ownership rights in the item at all, and under the lease agreement, you would have no right to buy the item at the end of the term, although you do have the right to use the car during the lease term.

What rights does the seller or lender have under a security agreement?

Generally, lenders can take back the secured item, sell it, and still be paid for any amount still owing. But consumer goods are different. Consumer goods are things bought mainly for personal, family or household use. If you default (or stop making payments) on a security agreement for consumer goods, the seller or lender must choose to seize (take) the goods or sue you for what you owe. They can’t do both. And they can seize goods only if they have a written agreement with you.

What happens if you make a late payment?

Credit, lease, and other types of security agreements must show what fees and interest charges you will have to pay if you make late or only partial payments. If a lender accepts late or partial payments, it’s not a new offer of credit. You will still have to pay compound interest and sometimes other default fees.

What can the seller or lender do if you’ve paid most of your debt and then default?

For consumer goods, once you have paid back two-thirds of the loan (excluding a mortgage), the lender or creditor cannot seize the item without going to court to get a court order.

What happens if the seller or lender seizes the goods?

Consider the piano example, where you’ve agreed to pay for the piano over two years. After one year, your employer lays you off and you can’t make the payments. The security agreement lets the seller come to your home and seize the piano. The seller chooses to seize the piano but, by law, cannot sell it until giving you 20 days “notice of disposition” and waiting until the end of the 20 days. Section 59 of BC’s Personal Property Security Act lists all the information the seller must give you in the notice.

For consumer goods, you can bring your account up to date, or “reinstate” the security agreement, by paying, within 20 days, the amount in arrears plus the seller’s or lender’s reasonable costs of seizure. If you reinstate the security agreement, you get the piano back. You can also pay the rest of your full debt to get the piano back.

But if you don’t pay the amount due in the seller’s notice within 20 days, the seller can either sell the piano or keep it.

If they sell the piano, they must use commercially reasonable means to get a reasonable price for it. This doesn’t mean they must advertise in every paper from here to Calgary, but they must use reasonable efforts to get a fair market price. After the sale, the seller must pay you any amount left over after they have been fully paid.

Four important points about seizures

  • If you’ve paid at least two-thirds of the total price, a seller needs a court order before seizing the property.
  • Sellers who seize property must give you a “notice of proposal” if they plan to keep it. You then have 15 days to give them a “notice of objection” if you don’t want them to keep the property, and they must then sell it.
  • A seller who seizes and sells the property but doesn’t recover the full amount you owe, cannot sue you for the rest of what you owe (if the goods are consumer goods).
  • From the sale money, the seller can keep the amount you owe, plus reasonable costs to seize, store and sell the property, but must then pay you (or in some cases, your other creditors) any money left over.

Credit cards

What is the difference between buying on credit and buying with a credit card?

Generally, when you buy goods with a credit card, the bank does not have a security interest, and it cannot seize the goods if you don’t make a credit-card payment. So if you buy a piano with your credit card, you own the piano at the time you buy it, but you owe the money plus interest to the credit-card company.

What law deals with credit cards?

BC’s Business Practices and Consumer Protection Act protects the public in two ways. The Act controls unsolicited credit cards—the ones sent to people who didn’t apply for them—and it also limits the responsibility of people whose cards are lost or stolen.

You don’t have to accept credit cards you never asked for

If you get this type of card, you don’t have to accept it, and if you don’t, you aren’t responsible for it. However, if you use an unsolicited credit card, you are telling the sender that you’re accepting it, and you’re then responsible for what you buy with it.

What happens if you lose your credit card or it’s stolen?

The Business Practices and Consumer Protection Act says that you don’t have to pay for anything bought with your lost or stolen credit card after you tell the card issuer, such as VISA or MasterCard, that it’s lost or stolen. You can tell the issuer by phone or by registered mail. If someone uses your card before you report it lost or stolen, the Act limits your liability to $50—even if your agreement with the credit card issuer says differently. In cases of theft, many card issuers don’t even charge the $50, in the interest of good customer relations.

What if you let someone use your credit card?

If you let someone use your card, then later change your mind and say they can’t use it, things are different. For example, say you give your card and personal identification number or PIN to a friend or relative to pay your bill at a bank machine. Later, without your authorization, that person uses your credit card and PIN to get cash advances from a bank machine. You’re responsible for this debt.

Bank and debit cards are treated differently from credit cards

Bank and debit cards aren’t covered by the Business Practices and Consumer Protection Act. So you’re not protected by the $50 limit if someone steals your bank or debit card and PIN and uses them to get money from your account.

Credit bureaus

What law deal with credit reporting agencies (sometimes called credit bureaus)?

BC has two laws that regulate the use of personal credit information. Both the Business Practices and Consumer Protection Act and the Personal Information Protection Act control how credit bureaus handle personal credit information (such as your marital status, approximate income, and assets and debts owing). They also protect your privacy by controlling access to that information.

No one can ask for a personal credit report on you without your consent

Normally, when you seek credit, you agree that the lender can get your credit report—even if you don’t realize you’re agreeing to this. Application forms for loans, credit cards and jobs usually have small print saying that you authorize any credit bureau to give a credit report on you. But there are situations where your credit information can be released to law enforcement agencies, the courts (by court order) or the director of credit reporting without your apparent consent.

Two major credit bureaus in Canada: Equifax and Trans Union Canada

Both these credit bureaus collect personal credit information and sell it to banks, department stores, employers and others, and you have the right to know what information they have on you. Usually, both agencies have similar information, so if you want to check your credit rating and history, you probably need to check the records of just one of them. You can call Equifax toll-free at 1.800.465.7166. Trans Union Canada’s toll-free phone number is 1.800.663.9980.

Some kinds of information can’t be included in a credit report

A credit report can’t show information about:

  • a criminal offence (unless you’ve been convicted of it)
  • a criminal conviction, once six years have passed since the conviction or since your release or parole if you were in prison
  • race, religion, ethnic origin or political affiliation
  • a bankruptcy, if it’s been more than six years since the discharge, unless it’s a second bankruptcy

You can correct any inaccurate information in your credit file

If you think something in your file is wrong, you can send a letter about the error, and the credit reporting agency must take reasonable steps to check the information and respond to you within 30 working days. If you’re right, they must correct it as soon as possible. They must also send a correction to everyone who received a report on you in the past year. If the agency doesn’t make the correction you asked for, they must make a note in your file that you asked for the information to be corrected, so anyone who gets a future report will see this note. Also, if there’s anything in your file that you think should be explained, you have the right to place a statement of up to 100 words on the file, to be given to anyone who obtains a report.

More information

Contact Consumer Protection BC at 1.888.564.9963 toll-free.

[updated October 2017]

The above was last reviewed for accuracy by Wendy Andersen and edited by John Blois.

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