issue of so-called ‘innocent private purchasers’ of repossessed
cars who are not what they seem. Jo Tacon reports on a thorny
problem for financiers
A hire purchase customer defaults on a car loan. The finance
company’s arrears management process swings into action; the car is
eventually tracked down and repossessed. But what happens if a
third party unknown to the finance company comes forward clutching
evidence of purchase, claiming he bought the repossessed vehicle in
good faith, and demanding it back?
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So-called ‘innocent private purchasers’ (IPP) are legally
protected under the Hire Purchase Act 1964 (see box), giving an
exception to the otherwise universal rule that “nemo dat quod non
habet” (no-one can pass better title than they have to pass). It is
clear that truly innocent private purchasers should be protected –
but what about those who merely claim to be innocent, when in fact
they are nothing of the kind?
A show of hands at the Finance & Leasing Association’s
recent briefing on IPP motor finance fraud illustrated the scale of
the problem for financiers. Asked what proportion of IPP claims
they thought were genuine – 80 per cent? 50? 20? – the lower end of
the estimates received far more support.
But far from all of these suspected fraudulent claims are pursued,
with no attendees at the briefing claiming to dispute every single
suspicious claim. The cost of solicitors’ fees – not to mention the
galling prospect of paying for the other party’s legal fees if the
finance house loses – is a formidable deterrent to legal action,
unless the case has a strong chance of victory. It is impossible to
put a figure on the scale of losses finance houses suffer from
fraudulent claims to innocent private purchaser status, but it runs
into the millions – and there are signs that it is on the rise in
these credit-crunched times, with the involvement of organised
crime a spectre the industry cannot ignore.
Querying suspicious claims
The speakers at the briefing, Martin Parr, fraud and compliance
manager at BMW Financial Services and Paul Maxted, company
secretary and legal advisor at Mercedes-Benz Financial Services,
both stressed that it was often possible to challenge the innocence
of private purchasers, offering colourful anecdotes from their own
experience.
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By GlobalDataThe wording of the Act gives three grounds of challenge for
finance companies:
If the purchaser was not a bona fide private purchaser, and was
instead a full or part-time motor trader, a garage or a finance
company or bank, he is unable to reclaim the repossessed car.
The purchaser must act in good faith – meaning that if he has paid
well below a reasonable trade price for the vehicle, he is assumed
to have known that there was something irregular about the sale;
from case examples, a surprisingly low figure of 50 per cent of
trade price was seen as the threshold, under which buyers were
assumed to have acted in bad faith, in other words getting a deal
which they knew was ‘too good to be true’. “It’s something lenders
can latch on to as a reasonable test,” Parr said.
Finally, the vehicle must have been purchased without notice of the
outstanding HP agreement; so if a lender can prove a pre-existing
relationship between seller and buyer, IPP status can be
challenged, as the buyer might reasonably be expected to have known
– or been warned – about the finance still due on the car, and the
consequent risk of repossession. “If you can prove there is a
pre-existing relationship, you have good grounds to mount a
challenge,” Parr noted.
Investigation tips
Challenging a claim of IPP requires strong evidence and a
thorough investigation. Checking bank statements for suspicious
cash movements can prove fruitful, as large sums moving in and out
may indicate a supposedly “private” purchaser is in fact a motor
trader. “In one case in Glasgow, a care home worker with an income
of £18,000 had over £250,000-worth of cashflow transactions on her
account – highly unusual for a genuine IPP claim. It turned out she
was linked to a car dealer who also dealt drugs, and she lost the
case,” Parr recalled. Sometimes, he added, as simple an action as
putting a buyer’s mobile phone number into Google will turn up
several advertisements for cars for sale with the same number as a
contact, leading to a rapid dismissal of a claim.
“The ideal approach to an investigation is face to face, but
this is not always possible on a volume basis,” Maxted said. “But
whether investigation is handled in-house or outsourced, you must
be quick off the mark, so you don’t get a long chain of subsequent
sales of the vehicle, which takes even longer to unravel.”
“Trust your gut feeling,” Parr advised. “A genuine innocent
private purchaser will be constantly in contact, looking to get
their car back, and will want to prove their rightful claim as soon
as possible; non-cooperation can be a sign of fraud.
“But watch out – some criminal gangs are aware of this and will
imitate the behaviour of a real claimant. Pay attention to their
use of language – if they employ jargon which the average man on
the street would not know, you may well be dealing with a serial
claimant,” he observed.
The problem of serial fraudsters exercised delegates, who
indicated support for a database of IPP claimants, which finance
companies could use to cross-check names; Paul Harrison of the FLA
indicated this is something the association is looking into – so
there may be a bright spot on the horizon for financiers feeling
the pinch from this pernicious and calculating form of fraud.
HIRE PURCHASE ACT 1964
27. Protection of purchasers of motor vehicles
(1) This section applies where a motor vehicle has been bailed
under a hire-purchase agreement, or has been agreed to be sold
under a conditional sale agreement, and, before the property in the
vehicle has become vested in the debtor, he disposes of the vehicle
to another person.
(2) Where the disposition referred to in subsection (1) is to a
private purchaser, and he is a purchaser of the motor vehicle in
good faith without notice of the hire-purchase or conditional sale
agreement (the “relevant agreement”) that disposition shall have
effect as if the creditor’s title to the vehicle had been vested in
the debtor immediately before that disposition.
