rights
In mid-January the European Parliament (EP) is to consider the
draft Consumer Credit Directive. In motor finance the most
significant effect of the draft in its present form would be the
introduction of a 14-day cancellation or cooling-off period after
all consumer credit agreements are signed. During that period
customers could cancel the agreements without penalty. The UK
Consumer Credit Act (CCA) 1974 currently applies such a cooling-off
period to regulated agreements signed at the customer’s premises,
but not to those signed at trade premises as in point of sale
finance.
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There is quite widespread concern over this issue in the
credit industry. The UK government itself opposed extending
cooling-off rights to point of sale agreements. It made no moves in
this direction at national level during the comprehensive review of
credit legislation culminating in the enactment of the CCA 2006.
However, earlier this year it failed to stop the inter-governmental
Council of Ministers from including the proposal in the draft
Directive at that stage.
Though many sectors of the credit market would be affected, Dennis
Rosenthal, partner at Berwin
Leighton Paisner, suggested that the impact would be greatest
in the car market in the light of the amounts typically advanced in
car finance contracts. “Finance companies might be reluctant to let
customers drive away in a new car when the agreement is signed if
cancellation rights are introduced,” he said.
Mike Whytock, Northern regional director of Black
Horse Finance commented: “We would certainly have some concerns
about this, though we have not yet considered it in detail. My
initial thoughts are that we would have to change our practices in
some way if cancellation rights were introduced.
“New cars depreciate sharply at the front end of their lives, so
the car will not be worth so much if the customer returns it nearly
two weeks after starting to use it. There are also security issues
if the customer is allowed to take possession while the agreement
is still cancellable.” The used car supermarkets could be affected
even more than new car dealers, Whytock added: “New car deals often
have a certain lead-in time anyway, but when customers take used
cars on finance they invariably expect to drive the car away on the
day of signing up. That could well change with a cooling-off
period.”
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By GlobalDataPeter Cottle, senior director of Bank of
Scotland Dealer Finance, expressed similar concerns. “We have
been trying to fend off this threat through the Finance
& Leasing Association and Eurofinas.
Even if we had to accept cancellation rights in some form, a period
as long as 14 days is wholly impracticable in car finance.” It
could pose problems for dealers as well as finance companies,
Cottle claimed: “If a customer cancelled the finance agreement
within the cooling-off period, it would not necessarily cancel the
sale. The dealer could be left as an unsecured creditor with the
customer holding legal title to the car as well as
possession.”
It is understood that a number of amendments will be tabled at the
EP session on the draft Directive, and it is at least possible that
the proposal will be modified.
