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Defaults and hidden costs

Consumer Council Of Fiji
Saturday, December 01, 2012

DID you know that your hire-purchase (HP) company gains even when you default?

Defaults in payment attract penalty interests and charges, which are very common in the HP industry.

The Council's report, Hire Purchase Industry in Fiji, launched in July this year states that a total of 33 per cent of the HP consumers have defaulted in payments to the extent of receiving default notices. But the awareness on key aspects of defaults has been generally lacking.

Sixty per cent of the consumers did not know that there is a default penalty that the seller charges for each default.

While 43 per cent of the consumers knew that if they default, the dealer will charge for every letter and every call that it made to them, 80 per cent didn't know that the phone call charges billed are above the normal call rates.

For those who default, dealers earn an estimated gross revenue of $0.6 million per annum through sending default notices alone.

Case study

Mrs Prasad, a machinist, bought a twin-tub washing machine from a HP company.

When she entered into the credit contract with the company, she was not informed about any hidden fees and charges attached to the contract. Mrs Prasad took the washing machine home.

She made her payments on time until her husband, who was a temporary staff in a factory, lost his job.

Because of financial hardship, she missed two months payment after which she received a couple of phone calls and a default notice.

Mrs Prasad noted a significant sum added to her account.

This was an amount other than what she owed to the hire-purchase company for two months of payment.

She was charged for the two telephone calls made to her to remind her of the payment (total of $4.40, which is more than $2 per call), the default document posted to her was charged at $3, and a late penalty fee of $10.

Variation of payments also includes paying off the total sum due earlier than the scheduled payment date.

Twenty six per cent of all HP consumers discussed their intention of paying off the total sum due early.

Of these, 57 per cent actually paid off the sum early.

Seventy four per cent of those who enquired about early payments were shown calculations that showed early payments to be beneficial to the consumer, while a quarter saw no benefit of paying off the sum early.

On variation of the credit contract, 8 per cent of the consumers advised that they tried to return the goods to the seller.

Only 56 per cent of these consumers succeeded, but 90 per cent did not get any money back for the goods returned.

The only benefit that these consumers had from the goods that they were paying for was for the brief period that they had the goods with them before their return.

Council advice

You must be mindful that there are only more losses once you default.

To avoid payment of all unnecessary hidden charges, make your payments on time.

Talk to your HP company if you are in a tight financial situation.

Do not sit with the problem thinking it will go away because it will only bring you more financial burden.

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