Tied credit contracts

Additional remedies may be available to a consumer who has entered into a “tied credit contract” in relation to a sales agreement. This is particularly relevant when a person buys a car at a car yard, and enters into a loan there, rather than dealing with a credit provider directly. A tied credit contract is a credit contract where:

the credit provider knows or ought reasonably to know that the debtor enters into the contract wholly or partly for the purposes of payment for goods or services supplied by a supplier;

at the time the contract is entered into, the credit provider is a “linked credit provider” of the supplier (s 127(3) NCC).

A linked credit provider includes a lender (s 127(1) NCC):

a with whom the supplier has “a contract, arrangement or understanding” relating to the provision of credit in respect of payment for the goods or services that the supplier supplies;

b to whom the supplier, by “arrangement” with the lender, regularly refers people for the purpose of obtaining credit;

c whose credit applications are made available to persons by the supplier; or

d with whom the supplier has a contract, arrangement or understanding under which its credit applications may be signed by persons at the premises of the supplier.

Importantly, where the consumer suffers loss or damage as a result of misrepresentation, breach of contract, or failure of consideration in relation to a sale contract related to a tied credit contract, the supplier and the linked credit provider are jointly and severally liable for that loss (s 129 NCC; see also ss 130–133). Further, if a related sale contract to a tied credit contract is rescinded or discharged (under the NCC, because the goods or services are defective, or otherwise), the consumer is entitled to terminate that credit contract (s 135(1)). The credit provider is entitled to recover from the consumer any part of the amount of credit that has not been paid to the supplier and the consumer is entitled to recover from the credit provider any interest charges or other amounts paid under the credit contract (s 135(3)).

Where a linked credit provider arrangement exists, the supplier may be exempted from the requirement to hold a credit licence (pt 24 NCCP Regulations).