The European Consumer Credit Directive (CCD), finalised in April
this year, will force some changes in UK credit regulations over
the next two years. Yet it is still not clear exactly how car
finance will be affected. There is at least a possibility of change
in the voluntary termination (VT) regime for hire purchase (HP) and
conditional sale contracts under Sections 99-100 of the 1974
Consumer Credit Act, which presently allows customers to return a
car to the finance company with no further commitment, after more
than half the repayments have been made.
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Other possible changes would be less welcome to finance
companies, including the introduction of a 14-day cooling-off
period during which a customer could cancel a new credit contract.
The major concern for lenders at present, however, is the
continuing uncertainties as the implementation timetable looms.
The CCD is a “maximum harmonisation” instrument. Within the
specific areas it covers, EU member states will have to align their
laws fully with the directive, and cannot keep national rules that
give customers any more or less protection. For matters outside the
CCD’s scope, however, member states can retain or adopt divergent
regulations.
VTs: Under threat?
The CCD will bring some change in the early settlement rules for
credit agreements within its scope. Some legal advisers consider
that because of the maximum harmonisation principle, this could
prevent the UK retaining its unique VT regime. Others disagree,
however, regarding VTs as distinct from the CCD’s definition of
settlements and therefore outside its scope.
Among the contracts which the CCD excludes from its scope are
“hiring or leasing agreements where an obligation to purchase [the
goods] is not laid down…”. HP agreements like PCP deals are
therefore excluded. However, conditional sale agreements, which are
used interchangeably with HP in consumer car loans other than PCPs,
would not seem to be within the exclusion.
If the CCD forces legislative change on conditional sale, the UK
authorities are likely to adopt similar changes for HP contracts,
although not actually required to do so. Otherwise loopholes would
be opened up through divergent regulations for two similar contract
types.
The Department of Business Enterprise and Regulatory Reform
(BERR) wants to retain VTs, and at one time it suggested that
conditional sale as well as HP could be regarded as outside the
scope of the CCD. However, it now seems to be having second
thoughts.
Cooling-off periods would allow customers to cancel the finance
agreement but not the related sale of the car. Michael Kilbee,
consultant at Salans, suggested that the impact would be limited:
“A customer exercising cancellation would have to repay the credit.
It could happen, if a car buyer finds it convenient to take finance
at the point of sale but can then get a lower APR from another
source of finance. Yet almost the same thing can happen under the
existing early settlement rules.”
The CCD has to be implemented no later than October 2010, and
BERR is targeting a date of June 2010. Further consultations on the
details are awaited.
Andy Thompson
