If you have ever bought goods or services using credit from a third party, you may have been a party to a linked credit contract (LCC). An LCC sets out an arrangement between a:

  • supplier of goods or services;
  • linked credit provider (LCP), i.e. a third party that pays the supplier upfront on behalf of the customer; and
  • customer.

This article will set out how an LCC works and what steps you can take to resolve a dispute.

How Does a Linked Credit Contract Work?

Under an LCC, the customer can ‘shop now and pay later’ for goods or services. 

This arrangement is becoming an increasingly popular way for suppliers to increase sales. For customers, an LCP provides a way to purchase products or services that they might otherwise be unable to afford.

For example, it is likely that you have been a party to an LCC if you have: 

  • purchased a car using finance from a third party but had the loan finalised at the car yard or dealership;
  • bought furniture from a department store using an interest-free finance deal; or
  • used a service such as Afterpay to pay for goods or services.

Typically, LCPs profit from:

  • late payment of instalments; or
  • payments declining on a customer’s nominated card.

Some LCPs also charge interest on the purchase price, but most are interest-free and rely on fees and interest from late or declined payments.

What Rights Do I Have Against a Linked Credit Provider?

If you encounter issues with the supplier of goods purchased through an LCC, you may be able to take legal action against both the supplier and the credit provider. A business has rights against an LCP relating to the:

  • LCP’s obligations to the business; and
  • supplier’s obligations.

Your business’ contract with an LCP will state the rights and obligations of:

  • you, as the consumer; and
  • the LCP, as the credit provider.

For example, your LCC may state that:

  • the LCP will provide your business with the exact amount of finance requested;
  • you will make repayments to the LCP on particular terms (such as in regular instalments);
  • the LCP has a claim to property that they finance if you fail to make your repayments;
  • you are liable to pay a specified interest rate if you fail to make repayments on the due date;
  • if the parties wish to change the terms of the credit arrangement, the changes must be put in writing and signed by both parties; and
  • the parties must follow a specified dispute resolution process if a dispute arises.

Due to the three-way commercial relationship in an LCC between an LCP, a supplier and a consumer, you may be legally protected as the consumer by both the:

  • LCP’s obligations to you as a consumer; and
  • supplier’s obligations to you as a consumer.

As a consumer, you may also be able to hold an LCP liable for:

  • the misrepresentations of a supplier (for example, if a supplier promised that a ute could carry a particular weight in its tray but upon loading the tray with that weight, part of the tray broke);
  • a supplier breaching a contract with a consumer; and
  • a supplier failing to fulfil part of the contract (for example, if a furniture supplier provided you with an incorrect item of furniture or a key component was missing).

How Can a Business Enforce Its Rights Against a Linked Credit Provider?

If you have concerns about a contract your business has with an LCP, first consider the terms of the contract. Many service providers’ contracts state that if a dispute arises, the parties must follow an internal dispute resolution process.

Typically, a dispute resolution clause will require you to make a written complaint to the organisation. The organisation will then investigate and attempt to resolve the complaint within a set period. This period may range from several business days to over a month.

What if I Am Unhappy With the Outcome of the Internal Dispute Resolution Process?

If you are not satisfied with the outcome of the internal dispute resolution, you may need to approach the financial ombudsman services (FOS). FOS offers free assistance to consumers who are unable to resolve their disputes using a member financial services organisation’s internal dispute resolution process. FOS has broad powers to resolve disputes, such as ordering that:

  • a sum of money be repaid or a debt forgiven;
  • security be released;
  • fees be varied, repaid or waived; or
  • a contract be reinstated or rectified.

It is important to note that you must follow and complete an organisation’s internal dispute resolution process before approaching FOS

Because the financial service providers are paying members, FOS is free for you as the consumer. This is a compelling commercial reason to engage FOS before you commence any court proceedings, which can quickly become very expensive.

Even if FOS is unable to resolve the dispute and your matter does require court proceedings, having followed FOS’ process can help your case. Typically, a court will require that you have first attempted to settle the matter before it takes your case. Often mediation must take place before a hearing. A court is likely to view following the FOS dispute resolution process as a good faith attempt to settle your dispute with an LCP.

Key Takeaways

If an LCP has breached your contract, consider whether you have rights under the law as well as those set out in your contract. Whether you have other legal rights depends on whether you are a party to an LCP. If you are a party to an LCP, you may also have rights against the LCP in relation to the supplier.

Even if you do have legal rights, it is advisable to take a commercial approach to settling the dispute. Resolving a dispute typically starts with the supplier or LCP’s internal dispute resolution process, which your written contract is likely to set out. However, you may need to engage FOS for further assistance and maybe even proceed to Court.

If you have any questions about a linked credit contract, please contact LegalVision’s contract lawyers on 1300 544 755 or fill out the form on this page.

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