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consumer

Layby sales: Consumer rights and cancellation fees

Key Takeaway

In New Zealand, layby sales are governed primarily by the Fair Trading Act 1986. Consumers have a right to cancel a layby agreement, but may be subject to a reasonable cancellation charge. This charge must be specified in the agreement and cannot exceed the supplier's actual loss, excluding profit, or the amount paid by the consumer. The Consumer Guarantees Act 1993 ensures goods supplied via layby are of acceptable quality.

Layby Sales: Consumer Rights and Cancellation Fees in New Zealand

A layby sale is a consumer transaction where a consumer agrees to purchase goods by making instalment payments, with the supplier retaining possession of the goods until the full purchase price is paid. The consumer does not take immediate possession of the goods [Source: Fair Trading Act 1986, s 46P]. This arrangement is subject to specific rules under New Zealand consumer law, primarily the Fair Trading Act 1986.

Key Legislation: Fair Trading Act 1986 (FTA)

The Fair Trading Act 1986 (FTA) contains specific provisions relating to layby sales, which outline the rights and obligations of both consumers and suppliers.

Required Information in a Layby Agreement

A supplier entering into a layby agreement with a consumer must ensure the agreement is in writing and contains specific information. This information includes:

  • A clear description of the goods [Source: Fair Trading Act 1986, s 46Q(1)(a)].
  • The total price of the goods [Source: Fair Trading Act 1986, s 46Q(1)(b)].
  • The amount of any deposit paid [Source: Fair Trading Act 1986, s 46Q(1)(c)].
  • The amount of each instalment and the date by which each instalment must be paid [Source: Fair Trading Act 1986, s 46Q(1)(d)].
  • The date by which the total price must be paid [Source: Fair Trading Act 1986, s 46Q(1)(e)].
  • The date on which the goods will be delivered to the consumer, or become available for collection [Source: Fair Trading Act 1986, s 46Q(1)(f)].
  • A statement of the consumer's right to cancel the agreement and any cancellation charge that may be imposed [Source: Fair Trading Act 1986, s 46Q(1)(g)].
  • The supplier's name, street address, and contact details [Source: Fair Trading Act 1986, s 46Q(1)(h)].

Consumer's Right to Cancel

A consumer has the right to cancel a layby agreement at any time before taking possession of the goods [Source: Fair Trading Act 1986, s 46R(1)]. This cancellation can be communicated to the supplier verbally or in writing [Source: Fair Trading Act 1986, s 46R(2)].

When a consumer cancels a layby agreement, the supplier must refund all money paid by the consumer, minus any permissible cancellation charge [Source: Fair Trading Act 1986, s 46T(1)]. This refund must be made promptly [Source: Fair Trading Act 1986, s 46T(2)].

Supplier's Right to Cancel

Suppliers also have a right to cancel a layby agreement, but only under specific circumstances, such as:

  • If the consumer breaches a term of the agreement, for example, by failing to make payments as agreed [Source: Fair Trading Act 1986, s 46S(1)(a)].
  • If the goods are no longer available due to unforeseen circumstances beyond the supplier's control [Source: Fair Trading Act 1986, s 46S(1)(b)].
  • If the supplier ceases to trade [Source: Fair Trading Act 1986, s 46S(1)(c)].

If a supplier cancels a layby agreement, they must refund all money paid by the consumer [Source: Fair Trading Act 1986, s 46U(1)]. In this situation, the supplier cannot impose a cancellation charge [Source: Fair Trading Act 1986, s 46U(2)].

Cancellation Charges

If a consumer cancels a layby agreement, the supplier may impose a cancellation charge. However, this charge is subject to strict rules:

  • Reasonable estimate of loss: The cancellation charge must be a reasonable estimate of the supplier's actual loss resulting from the cancellation. This loss may include administrative costs or losses incurred on the sale of the goods to another consumer [Source: Fair Trading Act 1986, s 46V(1)].
  • Exclusion of profit: The cancellation charge cannot include any loss of profit by the supplier [Source: Fair Trading Act 1986, s 46V(2)].
  • Limit on charge: The cancellation charge cannot exceed the total amount already paid by the consumer [Source: Fair Trading Act 1986, s 46V(3)].
  • Disclosure required: If the layby agreement does not specify a cancellation charge or how it is to be calculated, the supplier cannot impose any cancellation charge [Source: Fair Trading Act 1986, s 46V(4)].

Unfair Contract Terms (General FTA Application)

Beyond the specific layby provisions, the FTA also contains general provisions regarding unfair contract terms in standard form consumer contracts. A term in a standard form consumer contract may be declared unfair if it causes a significant imbalance in the parties' rights and obligations, is not reasonably necessary to protect legitimate business interests, and would cause detriment to a party if applied or relied on [Source: Fair Trading Act 1986, s 46L]. If a cancellation fee in a layby agreement were deemed an unfair contract term, it could be unenforceable.

Consumer Guarantees Act 1993 (CGA) and Layby

The Consumer Guarantees Act 1993 (CGA) provides guarantees for goods purchased by consumers. While the consumer does not have possession of the goods during the layby period, the guarantees still apply to the goods once they are supplied or made available for supply. This means that the goods must be of acceptable quality, fit for purpose, match their description, and comply with any sample or demonstration model [Source: Consumer Guarantees Act 1993, s 6, s 7, s 8, s 9]. If the goods are found to be faulty or do not meet these guarantees once the consumer takes possession, the consumer has rights under the CGA, regardless of the layby payment method.

When to Seek Independent Legal Advice

For specific legal concerns related to layby agreements, consumer rights, or cancellation fees, individuals may seek clarification from official consumer protection bodies such as Consumer Protection NZ, or consult with a legal professional. Community Law Centres (https://communitylaw.org.nz/) offer free legal advice services across New Zealand.

Key Resources