Browsing the car comparison website Carwow, I came across an article on hire purchase. The writer points out that with an HP agreement, the finance company will step in to help out in a dispute between the consumer and the dealer. They go on to make the statement that "in all honesty, manufacturers and dealers will take a lot more notice of a major finance company than they will of individual consumers".
The obvious inference in that statement is that finance companies hold a certain amount of power over dealers and are not afraid to use it.
But at what cost to dealers?
Now I have no issue with consumers having rights or finance companies providing high levels of customer service, but why should either be offered at the expense of car dealers. At Lawgistics we represent over 1,000 dealers and every week we are asked to cast our legal eye over new terms and conditions which finance companies are issuing to dealers. The main issue of concern is that of indemnity in the case of consumer complaints.
Following the introduction of the Consumer Rights Act 2015 in October last year, consumer rights were further separated from those available to a party involved in a business-to-business transaction. This led to the possibility of a consumer being entitled to redress from the finance company under the Act, but the finance company, as a business, not necessarily having the same level of redress against the selling dealer.
New terms and conditions
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To combat this potential statutory inequity, some finance companies issued new terms and conditions in an effort to legally contract dealers to indemnify them against any consumer payouts.
Many seem fair and reasonable and take on board that the consumer is not always right or genuinely entitled. In these contracts we see terms such as "if the parties dispute whether a vehicle complies with the terms of this agreement and/or the relevant consumer law, either party may refer the matter to an expert for determination" or we see references to dealers needing to "respond adequately to reasonable complaints which are reasonably considered well-founded". However, we’re beginning to see a trend whereby some finance companies are attempting to contractually oblige dealers to indemnify them for any payout they make to a consumer. Terms we have seen include "the finance company shall at its sole discretion determine how much to refund to the customer" and "the dealer obligations in this contract apply in addition to any rights the consumer has under the Act".
The latter terms remove any sense of reasonableness from the equation and given that reasonableness is a concept much used in law for good reason, they leave not only a bitter taste but leave dealers is in a position whereby they have fully investigated and considered a complaint, reached the conclusion that there’s no liability but are still required to pay out when the finance company take a different view. Quite often these different views are made without ever having seen the car or read a report other than perhaps a few words from a local Halfords or an AA breakdown report.
This leads to us to regularly defending clients who have legitimately rejected a complaint from a consumer only to find that the finance company has decided to gift the consumer money for their repair or even a full refund of the purchase price. In these circumstances, the finance companies subsequently write to the dealer to ask them to indemnify their loss. Some ask under Section 75(2) of the Consumer Credit Act 1974, but in my view that is more appropriate for credit card transactions, but that’s a discussion for another day. However, when the dealer stands up and says "hang on, we inspected the car and there was no fault" or "there was a fault but it did not make the car not of satisfactory quality", court proceedings are threatened.
In many cases we are finding that finance companies have a different view on what is a fault. Under the Consumer Rights Act 2015 a fault needs to be something which makes the vehicle not of satisfactory quality or not fit for purpose or not as described. Satisfactory quality is covered in Section 9 of the Act. In that Section it makes clear that all relevant circumstances must be taken into account when considering satisfactory quality. For used cars this means its age, mileage and price paid are all relevant.
As Lord Denning, every law student’s favourite judge, declared in the case of Bartlett v Sidney Marcus Ltd: "On the sale of a second-hand car, it is merchantable (now known as satisfactory quality) if it is in a useable condition, even if not perfect…A buyer should realise that when he buys a second-hand car defects may appears sooner or later and, in the absence of an express warranty otherwise, he has no redress."
So without a warranty, again another subject for another day, consumer rights when buying a used vehicle are very different to rights of consumers buying a new car or even a kettle or a toaster.
We have seen cases where full refunds (with no deduction at all for usage) have been given by finance companies after almost a year due to issues of wear and tear. We have seen a case where the finance company, until we got involved and insisted on an independent report, were about to issue a refund based on an AA breakdown roadside report which drew no real conclusion. The result of the report? The customer had put petrol in the car instead of diesel. A more common issue is disproportionate main dealer repair bills for items merely marked in amber on a vehicle health check. As a quick aside, why do consumers choose to buy from an independent dealer at an independent price but feel entitled to a main dealer repair? Anyway I digress.
In summary, we do understand that finance companies are under pressure to avoid investigation fees which are generated when a customer complains upwards to the Financial Ombudsman Service.
And we know, not least from the outcomes of the many spurious PPI claims we look after for our members, that FOS outcomes can be quite random. But, there has to be a better balance.
Consumers have never had it so good. Do we really need to be gifting them cash at the expense of dealers?
Nona Bowkis is a solicitor at Lawgistics