As a result of the recent EU Consumer
Credit Directive (CCD), customers in regulated point-of-sale
finance will receive a new right of withdrawal of 14 days from
entering the agreement, coming into effect by June 2010.
The CCD is quite clear that this right to withdraw
from the finance does not give a right to withdraw from the sale of
the vehicle (or other goods). Customers exercising the withdrawal
right will have a statutory obligation to make payment for the full
purchase price of the car, plus contractual interest, within 30
days from the original contract.
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However, it is still not clear what will happen to
the legal title to the vehicle where the customer withdraws from
the finance agreement but defaults on his own obligation to come up
with alternative finance.
Joanne Davis, partner and national head of asset
finance and regulation at Shoosmiths, commented on the
consequential issues for finance companies at the conference of the
Consumer Credit Trade Association (CCTA) in 2009.
“The UK regulations to implement the CCD are still
in draft form. The initial draft of the regulations specified that
once the right of withdrawal is exercised, the credit agreement
still remains in force to allow the lender to enforce the agreement
should the customer default on its obligation to pay back the
creditor. Yet the current draft is silent on this point,” Davis
said. “The regulations are also silent on the legal position as to
title, though it is envisaged that title would remain with the
financier where the customer withdraws from the finance agreement
and subsequently defaults on paying back the purchase price.”
Third-party finance companies also have concerns,
including whether they can agree to dealers releasing cars to
customers before the new statutory withdrawal period has passed.
This could become a competitive issue for financiers in the dealer
market. The attraction of point-of-sale finance would be diminished
if the customer could not take possession and drive off after
signing up.
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By GlobalDataPaul Harrison, head of motor finance at the Finance
& Leasing Association, said: “We are pressing the Department
for Business Innovation & Skills to clarify through the
regulations what will happen to the passing of title when the new
withdrawal right is exercised. We have put forward a suggested form
of wording to resolve this issue and provide certainty for finance
companies.”
In its latest response to comments on the draft
regulations, BIS has not heeded lenders’ concerns.
It states: “The government does not see the need
for the implementing legislation to include provisions preventing
customers from keeping both the goods and the money. If the credit
agreement is for the purchase of goods the consumer must still pay
for the goods (or return them if the lender agrees). It is not
necessary for the implementing legislation to make special
provisions [to underpin lenders’ contractual repossession rights or
financial claims].”
Davis said that lenders would need to watch the
possible position where a customer withdrawing from the finance
agreement makes the required cash payment to the dealer, who has
already received payment from the financier.
“Finance companies will need to ensure that their
indemnity agreements with dealers cover this situation,” she
said.
