A whitegoods and furniture rental company has repaid more than $100,000 to consumers after the corporate regulator found it failed to meet its lending obligations when writing new contracts for customers after the acquisition of a new business.
The Rental Guys has refunded most of the money the Australian Securities and Investments Commission found had been overpaid by clients of the service, and after July 2017, the remaining funds will be paid to a community organisation. However, clients of the business will still be able to put in a claim for a refund if they feel they have been affected.
ASIC’s concerns about the business were based on the belief that it failed to make proper inquiries and carry out suitability assessments for customers when it entered them into new rental contracts.
In 2013, The Rental Guys acquired a business called Country Rentals, which leased items to consumers on “goods by instalments” contracts, through which a customer would own a product at the end of their payment period.
The Commission found The Rental Guys visited the homes of Country Rentals clients and asked them to sign new contracts, which involved them paying higher rates and removed their ability to own goods at the end of the contract.
ASIC decided this behaviour meant the company failed to undertake required lending assessments for clients that would determine whether the new arrangements were suitable.
ASIC deputy chair Peter Kell said in a statement the responsibility lies with lending companies to ensure their customers have the ability to repay loan terms without issue.
“Customers should be confident that when they take out a lease, the lessor has done the work to ensure it is a lease they can afford,” Kell said in a statement yesterday.
The case continues ASIC’s focus on companies that potentially disadvantage vulnerable consumers, particularly those in indigenous communities, with the Commission putting the spotlight on this issue in April after fining a car yard lender $1.2 million for credit law breaches.
“We will continue to focus on the consumer lease industry, because consumers, particularly vulnerable consumers who use lease essential products, should not be disadvantaged by rental companies’ poor compliance,” Kell said yesterday.
For SMEs that have acquired another business or customer database, it’s important to understand that in general terms, any pre-existing contracts will still stand unless action is taken to change them through offers to clients, says Richard Prangell, a principal at Viridian Lawyers.
“It’s not generally the case that contracts can change off the bat, and fixed term contracts will generally have to see out the whole term,” Prangell tells SmartCompany.
A business might be able to change rolling contracts clients might have after an acquisition, “but they need to be changed with notice,” says Prangell.
However, if a company does want to approach customers to ask if they would like to sign new contracts, or details of new ownership need to be communicated, businesses should think carefully about what details need to be passed on.
Depending on the business that has been purchased, it might also be necessary to let customers know the service they are receiving is now controlled by a new business.
“It depends whether or not the nature of the service provider actually goes to the service or product that is being provided,” says Prangell.
“If [the company’s ownership] is important in terms of the nature of the service in some way, you would need to take pretty extensive steps.”
When a company purchases another business, things tend to run most smoothly when the relationships with clients are disturbed as little as possible, Prangell says.
“I think don’t change anything for a little while [after a purchase], do your best to keep your relationships warm,” he says.
SmartCompany contacted The Rental Guys but was advised nobody was available to comment on the case prior to publication.
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