Pending finalisation of the UK regulations arising
from the EU Consumer Credit Directive (CCD), one issue remains a
particular concern in point-of-sale finance.
This is a new requirement for customers to receive
oral explanations of contracts before they are signed up.
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The UK credit industry asked for dealers to be kept
out of the definition of “intermediaries” for the purpose of these
regulations, so that telephone helplines to the lender could be the
sole or main point of oral explanation.
The Department for Business, Innovation and Skills
did not accept this, but there is still some uncertainty about how
the rules will work.
It could therefore become more important than ever
for dealers’ sales staff to be fully trained on all the finance
products to which they introduce customers.
David Philpott, deputy director for consumer credit
at the Office of Fair Trading (OFT) has spoken frankly about the
resulting challenges for lenders.
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By GlobalDataAt a recent Callcredit seminar (see page
17), Philpott said: “In framing our credit licensing
guidelines on irresponsible lending, we have tried to follow what
the CCD says about oral explanation.
“However, your big problem as lenders will not be
the licensing issues. It will be the law affecting the
enforceability of contracts, if it is deemed that the oral
explanation requirement has not been met.”
On the other hand, the draft regulations, now in
near-final form, do not specifically state that non-compliance with
the oral explanation rule will affect the affordability of
regulated agreements.
Some practitioners feel that in these circumstances
compliance may be enforceable only through licensing and other OFT
regulatory powers, rather than having contractual consequences.
Philpott acknowledged that lenders face difficult
problems with this issue.
He added: “I have spoken to the Financial Ombudsman
Service and they seem to take a reasonable view of this. However,
lenders will need to have an ‘audit trail’ to confirm what dealers
have done to ensure compliance.
“Referring customers to phone helplines can be part
of the solution. It is permissible to ask customers to sign a
specific statement confirming that the finance product was
explained to them. However, they should not be expected to state
that the explanation was adequate. Disclaimers have no legal effect
if unsupported by other evidence.”
Finance & Leasing Association head of
communication Russell Hamblin-Boone said: “We continue to have
concerns about the oral explanation requirement.
“However, it may be rather less of a problem
in motor finance compared with other point-of-sale finance sectors,
as car sales personnel have to spend some time with each individual
customer.”
