Graham Hill: The Arranger
Following some interesting discussions with
clients, I have found myself questioning the legality of certain
aspects of contract hire and PCP contracts.
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One of my main reasons for concern came about when
a client took on a new contract hire car with me and explained he
was going to voluntarily terminate [VT] his existing
four-wheel-drive in order to take on the new car. His agreement was
a regulated PCP agreement and he had paid over 50 percent.
The leasing company accepted the VT and the car was
returned. However, his return mileage on the car was considerably
higher than the pro rata contract mileage. When he received an
excess mileage charge relating to the excess, he refused to pay as
there was nothing in the Consumer Credit Act that related to the
excess mileage charges when VT-ing a hire purchase or conditional
sale agreement.
When this was pointed out the lessor, under the
threat of having the case referred to the Financial Ombudsman
Service, decided to drop the charges. So, if excess mileage charges
in these circumstances are not enforceable, what is to stop all
lessees on regulated PCP agreements simply handing back their cars
under VT to avoid all end of lease mileage charges?
Wider implications
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By GlobalDataThis case then got me thinking about the legality
of contract hire. Monthly payments are determined by several
factors, but two are critical. The first is the contracted mileage.
If the car is contracted to cover 30,000 miles over the three-year
contract, the final value of the car is calculated on that basis.
If the car is returned with 40,000 miles on the clock it is
reasonable to accept the car will be worth less, and therefore the
lessee is expected to pay an excess mileage charge that should
represent the drop.
But surely if, in opposite circumstances, a car
covers a lower mileage than the contracted amount, and the contract
doesn’t allow for a rebate to be paid, the excess mileage charge
must be construed as a penalty and therefore unenforceable?
In another incident involving a client, he had two
cars on contract hire he took for a specific use. The cars turned
out to be unsuitable: his fault, but it meant the two vehicles were
deployed elsewhere in the business. Two years into his three-year
agreements, he asked to reduce his payments as it was clear the
cars would only cover 20,000 miles in total, as opposed to 20,000
miles per annum, a big difference.
The leasing company refused, which in my opinion
constituted a penalty as they would have quite happily charged an
excess should he have covered more miles than contracted. Could
this be a potential can of worms waiting to be opened?
Maybe our legal experts could provide a view on
this, as it would seem to me that all excess mileage charges and
end-of-contract repair charges could be illegal. It makes me
shudder to think I may be right, especially given the rise of the
specialist advisers using every means possible to extract clients
from credit and credit card contracts. But what do I know – I’m
just a simple broker.
