Consumer Credit Act 1974 have long been a concern in motor
purchase (HP) or conditional sale (CS) customers who have met half
their repayments on time can return a car to the finance company
with no further commitment.
This has brought losses for many financiers
during the past ten years, when residual values are weak.
Now the FLA feels that VT rights could be
vulnerable to legal challenge.
A new EU Consumer Credit Directive (CCD)
requires full harmonisation of member states' laws on
defined aspects of specified credit agreements, including
“settlements” on CS deals. It makes no mention of VTs, which are
unique to the UK.
The question is therefore whether or not VTs –
as well as conventional early settlements, where the customer keeps
possession and takes title for a lump sum payment – are within the
definition of settlements.
Ministers believe that VTs can be
In a few areas they propose to amend the law
in the light of the CCD. These will extend to HP as well as CS,
since there is no desire in any quarter to open up regulatory
differences between the two. Yet these promised changes will have
little impact on car finance.
The FLA will shortly be commissioning a
counsel's opinion on that point from a leading QC.