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Buy Now, Pay Later: Instalment Sales

No more procrastinating! Johanna is determined to lose the 50 extra pounds she put on after indulging her sweet tooth a bit too often. Her new motto is “everything in moderation”. To get back into shape, she wants to buy some fitness equipment for her basement.

But Johanna can’t pay the $3,000 purchase price all at once. Since she’s convinced the fitness equipment is her ticket to getting back into shape, she decides to buy it from a store that lets you pay over several months. Johanna is thrilled, but is wondering whether there are any risks to paying this way.

In this Infosheet, Éducaloi explains instalment sales and their legal consequences.

What is an "instalment sale"?

Instalment sales are a kind of sale involving credit. In this kind of sale, a merchant sells you something on credit, letting you pay for it in several payments.

What distinguishes it from other types of sales involving credit is that the merchant remains owner of the thing purchased until you have made part or all of your payments. When you buy something on credit in a furniture or electronics store, most of the time, it is not an instalment sale.

To find out whether your purchase is an instalment sale, you should read the contract to see whether the merchant remains owner of the item purchased. In other words, does the merchant “reserve ownership” of the item.

Here is an example of an instalment sale:

You bought a $300 vacuum cleaner and are paying for it in 12 monthly payments. You are paying $25 per month, plus interest. According to the sales contract, the merchant retains ownership of the vacuum cleaner until you have made 10 of the 12 payments. So even if you use the vacuum cleaner every day, you won’t own it until after the 10th payment.

As owner of your vacuum cleaner, the merchant can demand that you give it back if you miss even 1 of your 12 payments. The merchant won’t have to reimburse what you have already paid.

If the vacuum cleaner is damaged or destroyed because of an unforeseeable event that is not your fault, the merchant will have to pay to repair or replace it. For example, if the vacuum cleaner is destroyed during delivery, the merchant must repair or replace it.

What information must be included in an instalment sale contract?

The law provides that an instalment sale contract must be in writing and include certain specific information. Since this rule is meant to protect you, you can ask a court to cancel the contract if you suffered harm as a result of the missing information.

If you do not want to cancel the contract and the missing information concerns the credit terms themselves (terms and conditions of payment, calculation, charges, credit rate), you can ask a court to eliminate the credit charges (for example, interest, insurance premiums and administrative fees) and order that any charges already paid be reimbursed.

In both these cases, you have 3 years from the signature of the contract to make your request to a court.

An instalment sale contract must contain the following information:

your name and address
the merchant’s name and address
the date and place where the contract was finalized
a description of the thing purchased
the cash price, including any installation and delivery costs, and any other costs
the amount already paid
the balance left to be paid
if you take insurance, the cost of this insurance
the total amount of credit charges for the duration of the contract
the credit rate expressed as a percentage
the date of the first payment
the date and amount of the last payment
the total amount you are responsible for paying
the amount of your periodic payments, the number of payments, and the dates on which you must make the payments
the delivery date
a statement that the merchant remains owner of the goods sold and the date on which you will become owner
an explanation of what happens if you don’t respect the terms of the contract

Finally, you should know that the merchant is not allowed to include a clause in the contract obliging you to get his permission to move the goods within Quebec.

Can a merchant require me to get insurance with the insurer of his choice?

No. But a merchant can insist that you have insurance before signing an instalment sale contract with you. Why? Since the merchant remains owner of the goods until partial or full payment by you, the merchant may want to protect the goods against, for example, theft or damage.

Your home insurance or another insurance policy you already have might be sufficient, depending on what it covers.

Does the merchant have to follow any special rules regarding the payments I have to make?

Yes. The merchant must follow the following rules:

The payments must be of equal amounts, except the last payment, which can be smaller than the others. For example, a contract can provide for 36 payments of $50 to be made every 30 days. But the contract cannot require a first payment of $40, a second one of $60, then a third one of $80.
A merchant can only ask for one payment per period, and each period can be no more than 35 days.

Do I have to pay interest on a purchase when I “buy now, pay later”?

It depends what the contract says. This is why it is important to read the contract. If you do have to pay interest, it will affect the total amount you will end up paying.

However, if you are making your first payment more than 35 days after signing the contract, the merchant cannot ask you to pay credit charges, such as interest, for the period between signing the contract and the first payment.

Here’s an example: Jacqueline bought a stove on June 30, 2009. The merchant said she does not have to pay anything until January 2010. Given that there are more than 35 days between the signature of the contract and the first payment, the merchant cannot charge interest between June 30, 2009 and December 31, 2009.

Yesterday I signed an instalment sale contract. Can I change my mind?

Yes, but you have to act quickly! You have 2 days to cancel the contract from the time you receive a duplicate of the contract.

How do you cancel the contract?

It depends.

If you took delivery of the goods at the same time you and the merchant received a duplicate of the contract, all you have to do is give back the goods to the merchant.
In all other cases, you can either give back the goods or send the merchant a written notice indicating you want to cancel the contract.

After the two-day deadline expires, it is too late to change your mind. It is therefore important to think about your purchase before signing the contract.

Also, you should know that there are 2 situations in which you cannot cancel the contract, even within the two-day time period:

when you buy a new car and it is in your possession
when you are unable to return the goods in the same condition in which you bought them due to something you did that is your fault

If the merchant has not delivered the goods, do I still have to make my payments?

No, if it has been 7 days or more since the contract was signed, you don’t have to pay until the goods are delivered.

Do I have a right to a statement of account showing my payments?

Yes. Upon request, you have a right to a monthly statement of account free of charge. The merchant must send it to you within 10 days of receipt of your request.

A statement of account can help you understand the balance left to be paid after each of your payments.

What can I do if there is a mistake in a statement of account?

If you see a mistake in a statement of account, you should send a written notice to the merchant right away. The notice should include:

your name
the error you noticed and amount of money at stake
the reasons why you think there has been an error

The merchant has 60 days after the notice is sent to either correct the statement of account or explain why he is refusing to correct it. If the merchant refuses to correct it, he must send you a copy of any documents showing why there is no error.

If the merchant has not replied within 60 days, the law provides that you are assumed to be right. The merchant therefore cannot ask you to pay the incorrect amount indicated on the statement of account, nor any credit charges that apply to this amount.

Let’s say that the statement of account indicates that you still have $150 left to pay on a $500 purchase. In fact, you only have $100 left to pay. You send a notice to the merchant indicating that the balance on the statement of account is off by $50, since you have paid $400 so far and not $350. If the merchant does not reply within 60 days, you are not obliged to pay the additional $50, nor the credit charges on this $50.

What can the merchant do if I stop making my payments?

If you stop making your payments, the merchant can ask you to make the payments that should have been made. In other words, he can give you a second chance to do what you should have done.

But the merchant also has 2 other options. Let’s say that you bought $15,000 worth of furniture and appliances, payable in 12 payments. You forget to make the third payment. At that point, you still owe $12,500.

If it is provided for in the contract, the merchant can ask you to immediately pay everything still owing, that is, $12,500 all at once. In legal terms, this is called “forfeiture of benefit of the term”. This is discussed in detail in the question “Just because I missed one payment, can the merchant ask me to make all my payments at once?”
The merchant can also ask you to return the goods without reimbursing you the $2,500 you have already paid. To learn more about this, read the answer to the question “Can the merchant ask me to return what I bought just because I missed a payment?”

Just because I missed one payment, can the merchant ask me to make all my payments at once?

Yes. This is called “forfeiture of benefit of the term”.

Instalment sale contracts usually allow the merchant to declare the forfeiture of benefit of the term if the buyer has not made all the payments correctly. The buyer looses the chance to pay for the goods over several months and must make all the payments in a single payment. But read your contract. It might state that you will only be obliged to make some of the payments all at once.

When the merchant wants to take advantage of the forfeiture of benefit of the term, he must send you a written notice indicating the following:

the date the notice was sent or given to you in person
his name, address and telephone number
your name and address
the number, date and place of signature of the contract
an indication that you have missed one or several of the payments you were obliged to make
an indication of the payment or payments you should have made, when they were due and the total amount owing
an indication that you have 30 days from receipt of the notice to make the payment or payments, failing which you will be obliged to pay all or some of the payments all at once
your right to ask a court to change the terms of payment in the contract or to allow you to return the goods to the merchant

The merchant must attach a statement of account to this notice. A statement of account shows any payments you have or have not made.

When you receive the notice of forfeiture of benefit of the term, you have 30 days to ask a court to change the terms of payment or allow you to return the goods to the merchant.

Can the merchant ask me to return what I bought just because I missed a payment?

Yes, and you must return what you bought. This is what is called “repossession”. If you refuse, the merchant can seize the goods. This means he sends a bailiff to force you to return the goods.

But before taking back the goods, the merchant must sent you a written notice indicating the following:

the date the notice is sent or handed to you in person
his name, address and telephone number
your name and address
the fact that you have not made the payments you are obliged to make
the number, date and place of signature of the contract
the payments you should have made, when they were due and the total amount owing
a mention that you have 30 days from receipt of the notice to make the payments you missed or return the goods
an indication that he is entitled to seize the goods at your expense if you do nothing within 30 days
an indication that he must obtain permission from a judge to take back the goods if you have paid half or more of the total cost
a mention that if you voluntarily return the goods, you will no longer owe each other anything

Let’s say you bought $5,000 worth of furniture. If you stopped making your payments after paying $2,500 plus the credit charges on this amount, the merchant needs permission from a judge to take back the goods.

The merchant does not have to reimburse what you have already paid in order to take back the goods. In other words, he does not have to give you back the $2,500, nor the credit charges.

Useful Links :

Office de la protection du consommateur website [http://www.opc.gouv.qc.ca]