Concern about the cost to consumers of cancelling car contracts
Upcoming changes to pre-estimated liquidated damages
From 1 January 2022, the maximum amount of pre-estimated liquidated damages that a dealer may charge will reduce from 15 per cent to five per cent.
Consumer Protection is concerned about reports of significant charges being imposed by dealers on WA consumers who cancel motor vehicle purchase contracts.
Under the Motor Vehicle Dealers Act, the seller is allowed to charge an amount up to a maximum of 15 per cent of the contract’s value as “pre-estimated liquidated damages”. However, there appears to be a practice within some sections of the industry to use this maximum rate as a “flat rate”.
Commissioner for Consumer Protection David Hillyard said the amount charged needs to be a realistic reflection of the actual losses incurred by the dealership as a direct result of the contract being cancelled.
“Charging the maximum rate as an automatic default amount is not in keeping with the law and dealers should not be charging any more than the actual cost to the business as can be reasonably estimated,” Mr Hillyard said.
“This charge should vary from case to case and represent the true 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 and, if found to be unreasonable, they leave themselves open to being in breach of the law.
“I would appeal to consumers to query excessive “damages” charges being imposed and, if the explanation is unsatisfactory, demand the charge be waived or is at least reduced. If the dealer refuses, lodge a complaint with Consumer Protection and we can conduct an independent assessment and attempt to resolve the matter.”
During the last three financial years (1 July 2015 – 30 June 2018) Consumer Protection received 119 complaints relating to dealers holding deposits or claiming liquidated damages amounting to $82,428. In resolving the complaints, Consumer Protection managed to get redress amounting to $51,776 for 51 consumers.
“This issue highlights the need for buyers not to be pressured into signing a purchase contract as it’s a legally binding commitment and it may be expensive to cancel the contract if there is a change of mind or a change in circumstances afterwards,” the Commissioner said.
“When determining a realistic amount to charge for consumer cancellations, dealers must be able to demonstrate what they are likely to be out of pocket as a result of the cancellation. We would expect them to show things like vehicle licensing costs, special accessories that may have been fitted and demonstrable administration costs.”
Media Contact: Alan Hynd, (08) 6552 9248 / 0429 078 791 / email@example.com
Share this page: