more changes in UK consumer finance agreements. This follows soon
after lenders had to cope with a major round of changes determined
at national level, through the 2006 Consumer Credit Act (CCA) and
new regulations since 2004 in such areas as credit advertising and
early settlement.
A new Consumer Credit Directive (CCD), under preparation since
2002, is now being finalised. The European Union institutions
completed their decision-making processes in January this year,
though formal adoption with a definitive final text will not come
for another two months or so. It will need to be implemented by
national legislation in the member states by October 2010. In the
UK the Department of Business Enterprise and Regulatory Reform
(BERR) is expected to aim for implementation on April 1 2010.
Go deeper with GlobalData
The UK authorities tried to anticipate the new CCD in their last
round of national legislation, and then to resist any further
changes from the directive. Yet they were far from wholly
successful. As Amanda Hulme, partner at law firm Addleshaw Goddard,
explained to a recent Finance & Leasing Association seminar:
“In most of its provisions the new CCD applies ‘maximum
harmonisation’. This means that where it makes specific rules,
member states must adopt these but must go no further. Where it is
silent, member states can adopt or retain whatever national rules
they wish. Its scope is restricted to consumer agreements with
credit values of between €200 and €75,000 [around
£160–£60,000].”
Motor finance fallout
In car finance the main area where the CCD is likely to bring
change is through the introduction of a 14-day “cooling off” period
during which the customer will be able to cancel a new credit
agreement. There are still uncertainties on exactly how the
cancellation right will be fitted into UK credit law, as hire
purchase (HP) contracts are excluded from the scope of the CCD,
while conditional sale (CS) is included. The UK regulatory regime
to date has always treated both types of contract much the same.
The legal difference between them is that under CS the customer is
obliged to complete purchase of the vehicle after making all the
repayments, whereas with HP this is optional. PCP deals, and some
with a contractually required balloon payment, are therefore
structured as HP. For conventional finance agreements with no
balloon, CS or HP (with a nominal purchase option fee) can be used
interchangeably according to the finance company’s
preference.
Most experts anticipate that BERR will enact cancellation rights
for HP point-of-sale agreements, where the CCD leaves freedom for
national rules, as well as for CS ones where it will be required.
Otherwise the industry could sidestep cancellation rights by
switching CS products to HP. The big question for dealers and their
finance companies is whether customers will still be allowed to
drive new cars away after signing up to finance agreements, or if
they will have to wait for the cancellation period to
elapse.
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Thank you!
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form
By GlobalDataHulme noted: “Under the CCD cancellation of the credit does not
give an automatic right for the customer to cancel the sale. This
differs from with the present UK position for the relatively few
HP/CS agreements that already carry cancellation rights, such as
those concluded away from trade premises.” Nevertheless there will
be security issues if the car is released before an irrevocable
payment has been received by the dealer.
Since the CCD deals with early settlements on the basis of
maximum harmonisation, Hulme suggested that the future of UK
customers’ voluntary termination (VT) rights under Section 99 CCA
1974 could be vulnerable. Not all practitioners take this view,
however. Dennis
Rosenthal, partner at Berwin Leighton Paisner, said: “The CCD
deals with early settlements and these involve a full or partial
discharge of the customer’s obligations, and VTs seem to be clearly
differentiated from that.”
There are several other areas where it is either certain or
possible that the CCD will bring changes in the UK rules. “It seems
that the regulatory exemption for agreements with ‘high net worth’
customers under the CCA 2006 will have to be repealed in 2010 for
agreements within the CCD financial limits but it could be retained
for others. On the advertising regulations it is still not clear
whether the UK will be able to keep the rule whereby an APR
advertised as typical must be no lower than that to be paid by at
least 66 per cent of customers,” said Hulme.
Consumer protection worry
A more immediate issue is the Consumer Protection from Unfair
Trading Regulations (CPRs), which will come into effect in May this
year, resulting from a separate EU directive. The CPRs cover a much
wider area than credit agreements, and in the car dealer sector
there are some concerns at the administrative implications, though
not mainly in relation to finance deals.
Lovells partner Emily Reid explained: “Practices that comply
with sector-specific European requirements like the CCDs and the
directive on unfair terms in consumer contracts are deemed
compliant with the CPRs. So in consumer finance it is mainly within
post-contract actions by the lender, where there is relatively less
focus in the laws specific to credit, that there could be issues
under the CPRs.
“Where existing credit portfolios change hands, purchasers may
need to exercise ‘due diligence’ on CPR compliance, and where
possible to look for appropriate representations and warranties
from the originators.”
Motor Finance Issue: 42 – April 08
by Andy Thompson
Published for the web: April 24 08 9:24
Last Updated: April 24 08 13:57
