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Consumers - Consumer contracts

Payment plans

Under certain sales contracts, you can buy a product and pay for it over several months. This can be a very tempting option, as it allows you to use a product immediately without having to pay the whole price all at once. However, keep in mind that payment plans (called “instalment sales” in the Consumer Protection Act) involve legal consequences which you should know about before signing such a contract!

In this Infosheet, Éducaloi explains instalment sales as well as the legal consequences they may have.

What is an instalment sale?

It is a sales contract involving credit. In this type of contract, you are in possession of the good. However, the merchant is considered the owner of the good until you have finished paying what you owe him.

For example, six months ago, Ben bought a vacuum cleaner at a department store. He is paying for the vacuum over a period of one year, so he must make twelve monthly payments of $24.95. Even though Ben has had the vacuum for almost six months, he does not yet own it. In fact, if Ben fails to make his payments, the department store can retake possession of the vacuum.

Because the merchant retains ownership until you have paid for it in full, the merchant assumes the risk of loss or damage by fortuitous event. For example, Anthony bought a couch under a contract of instalment sale. During delivery, the truck driver had an accident, and the couch was completely destroyed. Since the merchant still owns the good, he is responsible for the costs resulting from the loss.

What information should an installment sale contract include?

Like all contracts of credit, an instalment sale contract must be made in writing and include 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 good;
  
• the cash price, including installation, delivery, and other fees;
  
• the amount of the down payment;
  
• the balance to pay in net capital;
  
• the insurance premium, if any;
  
• the total amount of credit charges for the duration of the contract;
  
• the date of the first payment;
  
• the consumer’s total obligation (down payment + periodic payments + interest and credit charges);
  
• the credit rate expressed as a percentage;
  
• the amount of your periodic payments, the number of payments, and the dates on which you must make the payments;
  
• the date on which the good was delivered or will be delivered;
  
• a statement that the merchant remains the owner of the good and the date on which the transfer of ownership will take place.

The merchant cannot include a clause in the contract preventing you from moving the good within Quebec without his consent.

A consumer can ask the court to annul his contract with the merchant if the contract does not contain the information required by law and if this lack of information has actually harmed him.

What is my relationship to the financial institution financing the instalment sale?

Most of the time, merchants deal with financial institutions to finance their customers’ instalment sales. The Consumer Protection Act states that these financial institutions have the same obligations as the merchants with whom they do business.

This means that if a merchant fails to respect an obligation, not only can you take action against the merchant, but you can also pursue his financial institution. For example, Mary was never delivered the Italian kitchen table she purchased from a Montreal-based merchant. The merchant refuses to reimburse the $1,000 down payment made when she signed the contract. In addition to taking action against the merchant, Mary can also pursue the financial institution involved.

This recourse is especially useful when it turns out that the merchant is insolvent (unable to pay).

If the merchant fails to deliver the good, do I still have to make my payment?

If the merchant fails to deliver the good within seven (7) days after you have signed the contract, you don’t need to pay. The merchant cannot make you pay or charge any credit against you until he has fulfilled his obligation.

What are the terms of payment?

By law, payments must be of equal amounts (except the last payment, which can be a smaller amount). You cannot be required to make more than one payment per period. Also, payment periods cannot exceed 35 days.

For example, the law would allow a contract stipulating 36 payments of $50 (equal amounts) to be made every 30 days (less than 35 days). However, the law would not allow a contract involving a monthly payment of $40 followed by a monthly payment of $60 (unequal amounts). A merchant cannot require you to make two payments within the same period. Nor can he require you to make payments every two, three, or six months, because this exceeds the 35-day limit.

Do I have to pay interest on a purchase where I “buy now and pay later”?

It’s up to you and the merchant to negotiate the date of your first payment. If you are making your first payment more than 35 days after signing the contract, the merchant cannot oblige you to pay interest for the period between signing the contract and the start of your payments. Here’s an example: Jackie bought a stove in June 2003. The merchant confirms she has no instalments to pay before January 2004. The merchant cannot claim interest payments between June 2003 and December 2003.

It may be tempting to enter into this kind of contract, but be careful. Make sure that you’ll actually have the money to pay for the good as soon as the payments become due!

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

No. A merchant cannot require you to use an insurer of his choice. However, a merchant is allowed to insist that you have insurance before concluding an instalment sale contract with you. After all, the merchant still owns the good and may want to protect it against theft, for example. You may be able to satisfy this obligation with a policy you already hold. For example, check to see if your household insurance policy can be extended to include the new sound system you purchased through an instalment sale.

Useful Links :

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