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Consumers - Consumer contracts

Payment plans: Your rights and obligations

In legal language, a purchase with a payment plan attached to it is called an instalment sale. If you choose to purchase an item this way, your main obligation as a buyer is to make a predetermined monthly payment to the merchant. If you fail to do so, the merchant – who still owns the item – has several options, including taking the property back.

In this Infosheet, Éducaloi explains the rights and obligations of the buyer and seller in an instalment sale.

Can I get a statement of account from the merchant?

Yes. You have the right to receive a monthly statement of account for free. Sometimes you have to ask to receive a monthly statement, because not all merchants do this automatically. The merchant must send you the statement within ten (10) days of the date on which he received your request. A statement of account helps you keep track of the financial details of your payment plan (the amount paid, amount owed, interest, etc.).

What can I do if an error appears on the statement of account?

If an error appears on your statement of account, you should immediately send the merchant a written notice that includes the following information:

• your name;
  
• a description of the error and the amount of money involved;
  
• your reasons for believing an error was made.

After receiving your notification, the merchant has sixty (60) days to correct the error or to explain why he will not correct the error. A merchant who refuses to correct the situation must send you copies of any proof that the account statement is accurate. If the merchant fails to respond within sixty (60) days, he is assumed to accept responsibility for the mistake; he cannot charge you for the incorrect amount, or impose any credit charges related to this amount.

What can the merchant do if I fail to make my payments?

If you default on your payments (stop paying), the merchant has three (3) options for action:

• he can demand payment of the instalments owing;
  
• if the contract contains a clause of forfeiture of benefit of the term, he can demand payment of the balance of the debt;
  
• he can take back the item sold.

If the merchant chooses the first solution, you need only pay the instalments that you owe. The other two options are much more complicated and unpleasant for the buyer!

What’s a clause of forfeiture of benefit of the term?

A clause of forfeiture of benefit of the term is a clause in a payment plan that benefits the merchant. It states that if a buyer defaults on payments, the merchant can require the buyer to pay the balance of the debt in full. In this way, the purchaser loses the privilege of paying for the good over several months (the benefit of the term). He must pay for it right away.

A merchant can only benefit from this type of clause if it appears in the sales contract. If he decides to use this clause, the merchant must send you a written notice containing the following information:

• the date on which the notice was sent;
  
• the merchant’s name, address, and telephone number;
  
• your name and address;
  
• a statement that you are in default of payment;
  
• a reference to the clause in the contract that you failed to honour;
  
• the payments you failed to make, the dates on which they were due, and the total amount owed;
  
• a statement explaining that the total balance of your purchase will be due within thirty (30) days unless you honour the missed payments;
  
• a statement informing you that you can ask the court to intervene.

The merchant must attach a statement of account to the notice. If you have not made your payments within thirty (30) days of receiving the notice and the statement of account, you must pay the merchant the total amount he is owed.

If you receive a notice of forfeiture of benefit of the term, you have thirty (30) days to ask the court to change your terms of payment or to simply authorize you to return the good to the merchant.

What must a merchant do to retake possession of a good?

If you default on your payments, a merchant may choose to retake possession of the good (take it back). First, the merchant will ask you to return the good. If you fail to do so, the merchant can seize the good. Before retaking possession of a good, the merchant must send you a Notice of Repossession, which indicates:

• the date on which the notice was sent;
  
• the merchant’s name, address, and telephone number;
  
• your name and address;
  
• a statement that you are in default of payment;
  
• the number of the contract clause concerned;
  
• the payments you missed, the dates on which they were due, and the total amount owed;
  
• a statement explaining that the merchant will seize the good at your expense unless you honour your payments within thirty (30) days or unless you return the good to the merchant;
  
• a statement indicating that if the consumer has paid one-half or more of the total amount, the merchant must obtain permission from the court to repossess the good;
  
• a statement that the voluntary return of the good extinguishes the contract (both parties are freed from their obligations).

Therefore, if you paid 50% or more of a debt owed to the merchant, including credit charges, the merchant must get permission from the court to repossess the good.

If you return the good or if the merchant seizes it, you will not be reimbursed for the payments you made.

Can I cancel an instalment sale contract (payment plan)?

You can cancel a sales contract within two (2) days of receiving your copy of the contract. To do so, you must return the good to the merchant within these same two (2) days. If you do not yet have possession of the good, you must notify the merchant in writing of your intention to cancel the contract. This too must be done within the two-day time limit. It’s a good idea to send your notice by registered mail.

There are two (2) exceptions where a contract cannot be cancelled.

• if you purchased a new car and you already took possession of it;
  
• if, because of your own fault, you cannot return the good in the state in which it was received.

After this two-day limit, you can no longer cancel an instalment sale contract. It is therefore important to think carefully about entering into this type of contract.

For more information on payment plan contracts, you can consult the Infosheet entitled Instalment sales.

Useful Links :

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