Mel Chell, partner and head of asset-based lending recoveries at Shoosmiths, discusses a point of case law that could affect funders and OEMs over the consumer’s right to reject a faulty vehicle.
Since October 2015, motor finance houses have been applying the new rights and remedies for faulty goods as set out in the Consumer Right Act (CRA).
The CRA was said to be the biggest shake-up of consumer law in a generation, and yet there have been very few reportable decisions in relation to the construction of the Act. This is probably because the Act “lifted and shifted” the existing law in relation to what constitutes satisfactory quality and fitness for purpose and description. Further, the new remedies in the CRA, such as the short-term right to reject, are actually very clear and leave little room for interpretation.
Against this backdrop, I was interested to read the published decision of William Van Gordon v Volkswagen Financial Services (UK) Ltd  which deals with the question of agency and the one chance to repair.
The claimant agreed to purchase a new Audi A8 motor vehicle from a dealer using a VWFS hire-purchase agreement.
The dealer sold the vehicle to VWFS who hired it to the claimant in the usual way. Very quickly, the claimant became aware of a loud vibrating and rattling noise and, as is usually the case, corresponded with the dealer directly regarding the noise. The dealer attempted to repair the vehicle on several occasions.
Eventually, the claimant decided he would exercise his right to reject based on the failed repairs. The dealer was not willing to assist, so the claimant wrote to VWFS rejecting the vehicle. The acknowledgement letter, in response, advised that technical issues regarding the vehicle should be referred to Audi UK customer care and the dealer.
Eventually, the claimant stopped making his contractual payments and then, subsequently, issued a court claim seeking a declaration of his right to reject and claiming damages.
The court held that:
- The vehicle was not of satisfactory quality – a reasonable person would not expect a £50,000 prestige car to have a notable, irritating and distracting rattle;
- There was a right to reject under s24(5) CRA because the trader had failed to repair or replace within a reasonable time and without causing significant inconvenience to the customer; and
- VWFS claimed that the dealer was not acting as its agent for the purpose of repairing the vehicle. Consequently, it argued it had not exercised its one chance to repair and so the claimant could not reject. The Court found that at all times, the dealer had been acting as agent on behalf of VWFS in relation to handling defects and managing repairs. This was supported (among other things) by the acknowledgement letter referring the claimant to the dealer and also by certain terms and conditions in the HP agreement.
Advice for Lenders
The CRA does give the trader (the finance company is the trader) one chance to repair before a customer can reject (after 30 days). In practice, this is a very useful right. The finance house often knows nothing of any issue until the customer stops making payments, or becomes so exasperated that they call the finance company, and at this point you will want a chance to put things right.
You will want to avoid a situation where that right is lost because the dealer has already tried and failed to fix the issue and the trader acted as your agent when attempting repair.
In my view, finance houses should exercise caution when liaising with dealers and customers to arrange repairs in complaints cases. Consider the following steps to ensure the dealer is not acting as your agent, and please note that there will often be cases where you do knowingly authorise the dealer to carry out repairs:
- Avoid referring customers routinely back to a dealer for repairs to take place before you have acknowledged and considered the complaint;
- Avoid any standard wording in policies or standard letters referring customers to the dealer;
- Ensure that your terms and conditions do not direct a customer routinely back to the dealer, and
- Ensure all complaints staff are fully trained in relation to the one chance to repair and CRA remedies – for example we often see a lack of understanding around warranties.
In our experience, the Financial Ombudsman will often look very broadly at what has been done to assist the customer, and will not simply consider a strict interpretation of the CRA. Always make sure you are treating customers fairly, and if in doubt, take advice!
by Mel Chell