will ensure that customers with a hire purchase (HP) or conditional
sale agreement will be reminded of their right to voluntary
termination (VT).
The Consumer Credit Act 2006 states that from the start of October,
“post-contract transparency requirements” will come into effect,
and will include notification of voluntary termination
rights.
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Under section 99 -100 of the 1974 Consumer Credit Act, customers
are allowed to terminate their HP contract once half the repayments
have been made, and return their vehicle to the finance provider
with no further commitments.
This piece of regulation, of which many consumers are still
unaware, will soon appear on all relevant financial statements
according to the CCA, potentially resulting in an increased volume
of VTs.
Paul Harrison, head of motor finance at the Finance & Leasing
Association (FLA) commented: “The VT clause carries on as it was
before; the rights haven’t changed, just the communication of those
rights to the customer.”
He continued: “The FLA fully supports greater transparency in the
marketplace for our customers and we fully respect the consumer
protection that is offered.”
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By GlobalDataBMW Financial Services outlined its support for the FLA’s position.
A spokesman said: “Whilst we are not currently making any changes
to our strategy, the wider effects of the current economic climate
on the marketplace could see some lenders increasing rates or
charges to compensate for increased losses or a tightening up on
terms to try and bring the half point on a HP agreement nearer to
the vehicle anticipated value.”
Concern over the future of voluntary terminations arose in April
when the European Consumer Credit Directive (CCD) laid down rules
for standardising early settlements. As a “maximum harmonisation”
instrument, the CCD’s new directive has to be followed fully with
no room for movement. If VTs fall within the boundaries of early
settlements, it may face an unsure future.
Customers encouraged to VT by cowboy
brokers
An industry insider has spoken of a worrying trend which could hurt
consumer hire purchase (HP) providers.
He told Motor Finance that certain unscrupulous internet brokers
are advertising longer-term HP deals online – with 60 months a
typical term – then actively telling their customers to exercise
their right to a voluntary termination once the required payments
have been made.
“It’s easy for consumers to walk away from HP deals,” he said.
“Consumers benefit from lower monthly rentals, as it is assumed
they will keep hold of the car for a lengthier period, but then
they apply for a VT – leaving the funder out of pocket.
“It’s an unsustainable business model,” added the insider, “but
these brokers don’t care – they’re happy to rack up the commission
while they can, then just move on.”
He suggested that smaller fleets which fund their vehicles though
HP could also use this tactic.
“Finance houses wouldn’t be too happy if they knew that some of the
brokers they deal with are doing this,” he pointed out.
