Consumer advocate warns of a rise in dodgy vendor finance arrangements

A real estate agent providing vendor finance arrangements for property sales, Again Investments, has been accused of unconscionable conduct and misleading and deceptive conduct over a "rent to buy" contract involving a Centrelink client.

The Consumer Action Law Centre, which is representing the complainant in the Victorian Civil and Administrative Tribunal, is concerned that the use of rent to buy and other vendor finance arrangements is on the increase in the property market and presents a serious risk for vulnerable consumers.

In the case before VCAT, Fiona Ralph, a single mother whose only income is Centrelink benefits, signed a A$309,000 contract that involved renting a property for three years, after which she would have to secure finance to complete the purchase.

The Consumer Action Law Centre case alleges that Again Investments engaged in misleading and deceptive conduct by telling Ralph that she would be able to secure finance to complete the purchase, when it was clear that Ralph's circumstances were such that she had no chance of securing finance.

CALC also accuses Again Investments of unconscionable conduct because it knew Ralph was vulnerable but went ahead with the transaction to profit from the situation.

CALC chief executive Gerard Brody said: "You'd only need a quick look at our client's income and expenses to know that no responsible lender would lend her the $289,975 that she needed to buy the house. Ralph was shut out of mainstream credit and it's not surprising that she's jumped at the chance to own her own home. But the deal she was talked into had no basis in reality."

Brody said vendor finance, also know as terms sale finance, has been around for a long time, although its popularity has waxed and waned. He said there were currently a number of spruikers offering it as a way for low-income earners to get into the hot property market.

Brody said many contracts using vendor finance would be covered by the responsible lending provisions of the National Consumer Credit Protection Act, but not all.

"In some cases the contract is structured as a lease with an option to buy. Such an arrangement would not be covered by NCCP," he said.

"In other cases, vendors argue that their use of such arrangement is a one-off or occasional arrangement and no credit licence is required.

"We think this market is growing," Brody said.