Misleading hire purchase agreements
September 10, 2018
The large number of traders offering products on Hire Purchase (HP) has allowed many consumers the chance to own goods they would otherwise have had to save up for.
This convenient means of purchasing items has been utilized by many consumers. Different traders offer better terms on hire purchase deals in the hope of getting consumers to choose them over their competitors.
These deals include interest holidays, zero deposit, warranties, insurance and others. Consumers are aware of these deals. They are savvy with the manner in which they make payments choosing sometimes to overpay their installments to clear their debts earlier and avoid interest payments.
However, there are instances where consumers are lured by these Hire Purchase promotions only to find that they have been misled. This was the case with one consumer complaint made to the Council. Katarina bought a 55” Television from Vinod Patel on Hire Purchase with a term of 36months. At the time of the purchase, Vinod Patel were offering a 12-month interest-free promotion.
The cash price of the TV was $2,299.00 the total interest payments would have amounted to $827.06. The complainant wanted to take advantage of the promotion. She assumed that if she paid the television off within 12 months, she would not be charged any interest.
She diligently made numerous overpayments on the HP account and paid off the TV within 10 months. However, after checking her accounts she noticed that she had also paid interest on the item.
This surprised her as she expected there to be no interest pursuant to the promotion. This frustrated Katarina who felt that she kept her end of the Hire Purchase agreement and the trader had taken advantage of her.
She contacted the Council for assistanceThe Consumer Council intervened. It was interested to comprehend as to why interest was charged despite the promotion.
The hire purchase company replied that the interest was dependent on the payment option that Katarina chose. Katarina had chosen a three year plan where she would pay $83.43 monthly for 36 months.
For those 36 months, 12 months would be interest free and Katarina would be charged 24 months interest. However, the trader had calculated that in 24 months, the total interest payable was $827.06 and this amount was to be paid over 36 months of payments.
This meant that Katarina was misled. She was actually paying interest from her first payment as opposed to her expectations that there would be no payment of interest for the first 12months.
Due to the application of the Rule of 78, a rule of accounting used by the company, a greater portion of interest had been paid in the earlier part of the loan cycle. So instead of having a rebate of about $827.06, Katarina was only eligible for a rebate of about $504.18.
By the time the Council met with HP Company, Katarina had accepted their explanation and received the refund. The Consumer Council of Fiji advises hire purchase companies not to have misleading advertisements, and consumers must be sure of the terms and the conditions they are signing.
With each passing year, the issues pertaining to hire purchase transactions seem to be escalating. And whilst the Council unfailingly calls on consumers to read and understand the terms and conditions in their HP Agreements prior to committing to such agreements, it is important that traders are transparent about their promotions as well.
In the case of Katarina, the trader needed to explicitly state that the interest payments for 24 months would be paid over 36 months and that a larger portion of interest would be paid in the earlier months of the Hire Purchase agreement.
Consumers need to know each and every detail of the HP Promotion and traders should not include hidden clauses or fine prints in the promotions.
Consumers are urged to tread carefully in such matters in order to ensure that they are not being tricked by promotional sales gimmicks.