The government has rejected the credit
industry’s claim that the new EU Consumer Credit Directive (CCD)
could enforce the removal of consumers’ voluntary termination (VT)
rights under Section 99 of the Consumer Credit Act 1974.

The VT provisions are unique to the UK. They allow
the customer in a regulated hire purchase (HP) or conditional sale
(CS) agreement to return the goods and walk away from the contract
after half the payments have been met.

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The CCD is a maximum harmonisation directive. It
prevents EU member states from diverging from the required
legislation in any areas that it covers.

Within the directive’s scope is early settlements
and withdrawal rights at the start of a contract.

The CCD applies to CS contracts; and though it does
not apply to HP, the UK authorities have decided to keep the CS and
HP rules in line by including both in the implementing
legislation.

The Department for Business Innovation & Skills
(BIS) has now confirmed that it sees no need to remove VTs.

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It stated: “The government does not believe that
the VT provisions […] are incompatible with rights to settle
early and rights of withdrawal in the CCD.

“Early repayment is about early performance of the
contract rather than termination, while the exercise of the right
of withdrawal can be most correctly described as cancellation of
the agreement.

“We do not believe the area of maximum
harmonisation of the CCD extends to all situations in which the
contract might come to an end.”

The Finance & Leasing Association last year
obtained a counsel’s opinion that takes the opposite
interpretation.

The only prospect now for the industry to press its
case would seem to be judicial review proceedings against BIS by
individual lenders.

This could conceivably arise where losses are
suffered through the exercise of VT rights on a CS contract after
the deadline for legislation to implement the CCD in June this
year.

Andy Thompson