Jonathan Hall examines the practical effects of the
14-day withdrawal rule contained in the CCD.
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The Consumer Credit Directive (CCD), which came into effect
in February, puts an obligation on finance providers to give clear
explanations to customers about the cost of the credit, the
consequences of missing payments, and even explaining why a
particular agreement might be not so attractive as the customer
first thought.
This emphasis on not only providing
further information, but also increasing the levels of access to
it, has led to several additional pre-contract documents having to
be drafted, employees being retrained, and a new layer of customer
service being introduced.
With a credit agreement in place,
the rights of the customer were widened. Although the explanation
of the credit agreement was far greater, the customer was also
given the opportunity to withdraw from the agreement for no reason.
Finance providers were now well aware that, within 14 days of the
agreement being completed, they could hear from customers saying
they had changed their minds.
Jumping through hoops is something
that finance providers are only too familiar with and the
implementation of the CCD is no exception. The consensus in the
finance industry is clear enough; the more information
provided to the customer, the better.
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By GlobalDataWith such measures in place, it’s
rare now for customers to challenge the fairness of the agreement
and, if they do, the finance provider is quick to refer the
customer to the documents they have been furnished with. Those
measures are complimented by additional staff training.
Industry sources explain that
employees who take customer calls have a better awareness of the
requirements imposed by the CCD. The emphasis on transparency and
the recognition that customers need careful handling has led to an
increase in the number of
customers satisfied that their enquiries have been dealt with. From
a litigation point of view, the number of customers alleging an
unfair relationship hasn’t increased because of the CCD.
There’s no doubt that the drafting
of new documents in order to give customers the information
required was labour intensive and costly. However, the costs
appear, so far, to have paid off.
Although there is a lot more
information to give to customers, that information, if carefully
drafted, is clear and concise. There is very little room for
confusion, which was arguably a by-product of the documents (or,
perhaps, lack of) provided pre-CCD.
Unfortunately, there’s always room
for at least some ‘confusion’ among customers. There are still
those who are uncertain as to their rights, and that is better
illustrated when we consider the ‘right to withdraw’, as it now
appears in section 66A of the Consumer Credit Act 1974.
This right appears to be
straightforward enough – withdrawal from the agreement within 14
days – but there appears to be a not insignificant number of
customers who are somewhat confused as to how it operates.
The right to withdraw is covered in
the Standard European Consumer Credit Information form, creditor’s
explanation documents, and the agreement itself, but customers
still confuse this with the right to cancel.
Sharon Sturges, collections and
recoveries manager at motor finance provider Moneybarn No 1 Ltd,
explains: “Once we talk to them [customers] and send out our first
letter detailing what they have to pay, they want to change their
mind.”
After careful handling of
customers’ expectations they are left in no uncertainty, and
informed that there is no going back.
As Sturges explains: “There needs
to be consistency and a clear procedure involved as to how we treat
a withdrawal when a customer does not pay – that is not only for
our benefit, but also that of the customer.”
Other sources are unanimous. Before
the CCD came into effect, there was a sniff among those in the
industry that deal with debt recovery that customers would
withdraw, but then not pay what they owed. So far, that hasn’t
happened to the extent that was first feared.
There is also a lack of guidance in
the legislation as to who retains a right of possession in the
vehicle in the event of customers not paying the credit and
interest within 30 days of giving notice of their intention to
withdraw from the agreement.
For an unsecured credit agreement,
s66A is clear that the lender’s right is to sue for a debt if the
credit and interest are not paid. However, for a secured credit
agreement, it’s not clear as to what happens to the vehicle if the
same event occurs. Section 66A is silent on that point.
Among our clients there are very
few cases that are litigated based on a customer’s refusal to pay
back the credit. Although some may need some guidance from the
finance provider when requesting a withdrawal, very few then fail
to fulfil their obligations.
One source revealed that, out of
the several thousand agreements executed since the CCD came into
force, only about 1,400 have been withdrawn and only a couple of
those have been passed on for litigation. So, assuming the
information given to the customer is clear, there doesn’t appear to
be any real difficulty in the finance provider and the customer
going their separate ways.
Conclusion
Compliance is at the forefront of
policies and procedures of any motor finance company – ever too
wary of the potential pitfalls faced if challenged by customers if
there is even a hint of ‘non-compliance’.
The CCD is no different. Motor
finance companies have prepared exceptionally well and have managed
to roll out additional training, new information documents and
guidelines in order to ensure a smooth transition.
The evidence in support is clear
enough – an extremely low percentage of customers have, so far,
sought to challenge motor finance companies on issues directly
relating to the CCD and, of those who have, even less have had to
resort to litigation.
What of the future? There appears
to be no holding back by the government to achieve its goal so far
as consumer credit is concerned. Not content with the CCD, there
are several ‘consultation’ papers out there with a clear theme of
‘reforming the consumer credit regime’. With that in mind, it’s
likely new rules and principles will be introduced in the next few
years, which, as most will agree, will only serve to add to what is
already an over-regulated industry.
The author is a solicitor at
Chafes Solicitors
