Is Our Consumer Credit Legislation Fit For Purpose – I Think Not!
Wednesday, 23. January 2019
This year I’m on a campaign to change our consumer credit laws, especially in the areas of motor finance. We have two products that account for the vast majority of new car finance, contract hire and Personal Contract Purchase (PCP). Contract hire accounts for about 85% of company acquisitions whilst Personal Contract Hire (PCH) is now starting to take market share away from PCP which has recently dropped from 85% of consumer new car registrations to 80% in 2018.
However, PCP is now being used by more people to finance used cars, estimated to increase the number of live PCP contracts to around 5 million. The point is that we have two major finance products that are fudged in legal terms. Legally there are no such products as PCP or PCH even though they represent the largest number of agreements.
Take out a Hire Purchase agreement or personal loan agreement and you are pretty much covered for all eventualities by the UK laws that govern them. But take out a PCP or PCH and you are referred to the Consumer Credit Act which was never set up with Contract Hire or Contact Purchase in mind. This means that the providers can pretty much include any terms they like into the contract without fear that they are breaking any laws.
Look at the top of a PCP agreement and it will show it as a Hire Purchase Agreement – which it isn’t, it’s a Hire Purchase agreement with a load of conditions. The same with PCH, it will show it on the documents as a Hire Agreement Regulated by The Consumer Credit Act 1974, at a time when PCH didn’t exist. So each finance providers cave pretty much free reign to include any terms and conditions the see fit to include.
Two examples of confusing situations come to mind which cause all sorts of problems with consumers. The first is one that relates to PCP and what is known as Voluntary Termination (VT) which is the ability under clauses 99 and 100 of the Consumer Credit Act to hand your car back once you have paid 50% of the total owed.
The problem here is that the lenders don’t like it because it can lead to losses, especially if the car has covered very high mileage. As an example say you VT’d the car after 2 years of a three year contract. Your contract mileage was 10,000 per annum so you should have only covered 20,000 after 2 years but let’s say you covered 28,000 miles. Your excess mileage is 10 pence per mile so you should be charged a pro-rata excess mileage figure of 8,000 miles at say 10 pence + VAT = £960.
This is the argument put forward by lenders. In fact this is incorrect and flies in the face of the Consumer Credit Act that was created before such things as excess mileage. So the law states that you can hand the car back to the lender irrespective of the mileage. However, when Renault pushed for payment from a customer and the Financial Ombudsman Service got involved they found in favour of Renault. It would be so easy to include a few changes to current legislation or introduce new legislation that dealt with PCP and set down a rule. It would save lots of confusion.
The issue that comes to mind with PCH is the extension of contracts. Every leasing company that allows for an extension (not all do) have a different way of calculating the lease extension rentals, which is wrong. There should be a standard method to remove confusion and make the extension transparent. I have a case against Mercedes Benz who increased my monthly payments by 20% for an extension even though my mileage was running at much less than my contracted mileage. Laws should make life less complicated – not more!
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By Graham Hill
