Commissioner's blog: Cancelling a car contract
Changes to pre-estimated liquidated damages
From 1 January 2022, the maximum amount of pre-estimated liquidated damages that a dealer may charge is five per cent.
Buying a car can be a big expense, so it’s worth knowing that after signing on the dotted line there are costs you could be liable to pay if you change your mind or are unable to go through with the deal.
Under the Motor Vehicle Dealers Act, a dealer is allowed to charge up to a maximum of 15 per cent of the contract’s value as ‘pre-estimated liquidated damages’. The actual amount should represent the true cost of the deal falling through to the business.
Unfortunately though, it appears that sometimes this maximum rate is being used as a ‘flat rate’ in some sections of the industry.
In the past two years, Consumer Protection has received 126 complaints relating to dealers holding deposits or claiming liquidated damages. We were able to resolve more than 80 per cent of those cases, achieving $107,728 in redress for consumers.
Charging the maximum rate as an automatic default amount is not compliant with the law and dealers should not be charging any more than the reasonably estimated actual cost to the business.
When we query the amount of damages being charged, especially after receiving a complaint, the dealer needs to clearly justify how the damages have been calculated, eg. for vehicle licensing costs, special accessories that may have been fitted and demonstrable administration costs.
The issue highlights the need for buyers to avoid being pressured into signing a purchase contract, as it is a legally binding commitment that could be costly if the contract is cancelled due a change of mind or circumstances.
It’s important for consumers to query ‘excessive’ fees being imposed and, if the explanation is unsatisfactory, demand the charge be waived or reduced.
If the dealer refuses, a complaint can be lodged with Consumer Protection so we can independently assess and attempt to resolve the matter.
Commissioner for Consumer Protection
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