coming to UK car finance agreements by 2010. Yet the latest word
from the Department of Business Enterprise & Regulatory Reform
(BERR) leaves it unclear what the implications will be, if
any.
A consultative paper issued by BERR in September reveals that UK
officials are still wrestling with the interpretation of the EU
Consumer Credit Directive (CCD) adopted earlier this year. There
are three areas where UK laws on point-of-sale finance will or may
have to change, if it is finally decided that hire purchase (HP)
and conditional sale agreements are within the scope of the
CCD.
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The CCD gives a 14-day cooling-off period during which a
customer can cancel a new credit agreement. However, it does not
require a corresponding cancellation right for goods purchased on
credit. BERR has now proposed that if the cancellation right has to
be enacted for point-of-sale finance, the legislation will specify
that customers exercising the right cannot cancel their purchases,
and must therefore find alternative sources of finance. This will
be welcomed by all in the motor finance trade.
More problematic is a requirement for lenders and intermediaries
to provide customers with more pre-contract information, including
advice about alternative sources of finance that may suit them
better. This could be burdensome to dealers as well as finance
companies.
Voluntary terminations
A more welcome, but even more uncertain, possible effect of the
CCD concerns voluntary terminations (VTs). Alone among European
countries, UK law (Section 99 Consumer Credit Act (CCA) 1974)
allows all consumers to return the car and cancel their remaining
credit obligations after half of the repayments have been met.
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By GlobalDataThis has caused lenders a lot of concern with the recent
weakness in the used car market. The FLA has now expressed new
concern about VTs being exercised on recently-ordered luxury cars,
since the removal of the former £25,000 limit (via CCA 2006) came
into force in April this year.
The CCD requires full convergence of national laws on the
matters within its scope. Yet divergent national rules can be
retained or introduced for credit agreements outside the CCD’s
scope.
The CCD includes provisions on early settlement of agreements.
This clearly includes the consumer’s right to pay up a contract
early, with a discount on the future repayments, while retaining
the goods. The UK law on that is already compliant with the CCD.
The open question is whether VTs fall within the definition of
“settlement”, in which case the CCD might require their
abolition.
BERR’s latest document makes no mention of VTs, implying that
that they are considered outside the scope of the CCD. However,
many legal experts would disagree.
The wider question of whether any of the main types of
point-of-sale finance are within the CCD revolves around its own
wording on scope. Article 2 (2) (d) excludes “hiring or leasing
agreements where an obligation to purchase [the goods] is not laid
down…” This clearly excludes HP contracts like PCP plans.
However, most lawyers find it hard to see how conditional sale
agreements could be outside the CCD’s scope.
If BERR has to legislate for conditional sale, it is likely to
include HP in the same provisions. It would obviously be anomalous
to open up regulatory differences between the two.
Surprisingly, BERR is still unsure about the correct
interpretation. “Our initial view was that…conditional sale [was]
probably excluded. This is an issue we are re-visiting,” it
states.
BERR will consider comments on its latest note. It has set
itself a deadline of March 2009 to come off the fence with draft
legislation, with a further three-month consultation period.
