Some people have been given car finance agreements they could not afford, and seek to gain compensation for the mis-sold finance agreement.
You can make a claim about an unaffordable finance agreement even if you no longer have the car, which was purchased with the finance. Perhaps your finance agreement finished, you’ve sold the car privately or the car was written off in an accident. But there will be people who still have the car, but are perhaps unsure whether or not they should be keeping the vehicle.
This article is aimed at people with these circumstances:
- You have made a claim about unaffordable car finance; and
- You still have the car you bought on finance; and
- You are unsure whether to still keep the car or not.
Whilst Allegiant can advise you about your unaffordable lending claim, we do not give advice on whether someone should keep their car or not. Instead, we will set out a few common scenarios for you, below, to make the decision that is right for you. If you remain unsure what to do, you should seek independent advice.
Receiving an Ombudsman Decision
One possible scenario is that your unaffordable finance claim is assessed by an Ombudsman at the Financial Ombudsman Service. An Ombudsman might tell the lender that they should collect the car from you, as a way of resolving the complaint:
‘Collect the car at no cost to Mr M.’
(https://www.financial-ombudsman.org.uk/decision/DRN-3299692.pdf)
An Ombudsman’s Decision is legally binding, but only if it is accepted by the customer. This means that you could decline the instruction for your car to be collected by the finance company. However, declining an Ombudsman’s Decision will also mean you would forfeit any cash redress the Ombudsman had instructed be paid to you; and you would not be able to pursue the claim for a different outcome in the future.
Voluntary Termination
If your finance agreement is still active, you have a legal right to cancel the finance agreement early and walk away in certain circumstances. It is Section 99 of the Consumer Credit Act which gives you this right, and it might also be written within the terms of the hire purchase agreement. It means that you can end a hire purchase agreement at any time before the final repayment date.
Under Voluntary Termination, you would return the car and you would not have to pay any more than half of the total amount due under the finance agreement. This option will typically be used when the customer no longer needs or wants the car.
Voluntary Surrender
This is a more informal arrangement than Voluntary Termination. It will not always be possible, but you may be able to hand back the car, which will result in you being liable for the full amount outstanding under the finance agreement. Any net proceeds from the subsequent sale of the car may be deducted from the outstanding amount you are due to pay back.
Keeping the car
Having weighed everything up, it would be understandable if you decided to keep your car. Even if you felt strongly that you were given an unaffordable finance agreement, you might think it is important to have transport for you and your family, and for essential trips like travelling to work.
At the time of the lending decision, the lender should have checked that you could afford the monthly repayments on the finance agreement, so whether you subsequently decide to keep the car or not should not be a determining factor in whether or not you are a victim of irresponsible lending – although it could impact on the redress you are awarded.
Some people end up borrowing money from elsewhere to keep up the monthly repayments on the finance agreement to keep the car. Of course, borrowing money from elsewhere does not mean that you can truly afford the finance agreement, so you still may have been mis-sold the finance even if you have made enough payments to keep the car.
It is important to be honest and clear if you are still driving the car you obtained on finance. The Financial Ombudsman Service has been known to calculate ‘fair usage’ of the car, and deduct this from any cash redress awarded. Withholding information could delay the outcome of your claim or a lack of transparency could be held against you.
What could you win if your unaffordable finance claim was successful?
If it is determined that the car finance company irresponsibly lent to you, the precise calculation of the resulting cash award can be quite complex. For this reason, it is hard to second-guess what you are going to receive if your claim is upheld, and is all the more reason for making a careful decision about what to do with your car, which is right for you and your circumstances. The redress may take into account the following factors:
- The amount of deposit you paid
- The calculation for ‘fair usage’ of the car (there is no exact formula for this)
- The amount paid towards the finance agreement compared to the cash price of the car.
We have seen examples of Ombudsman Decisions whereby the customer has returned their car, through Voluntary Termination, but is still awarded their deposit back:
‘As I don’t think Advantage ought to have approved the lending, it should therefore refund all the payments Mr F has made, including any deposit. However, as Advantage have pointed out, Mr F did have considerable use of the car until he voluntarily terminated the agreement’
‘To settle Mr F’s complaint Advantage should do the following:
– Refund the deposit, adding 8% simple interest per year* from the date of payment to the date of settlement.
– Refund all the payments Mr F has made, less £6,210 for fair usage’
(https://www.financial-ombudsman.org.uk/decision/DRN-3330407.pdf)
There will be customers who think they have saved themselves some money on the finance agreement by returning the car before the finance agreement has completed. But there could still be a cash award to be gained from a successful unaffordable lending claim. You could also have negative information from your credit file corrected:
‘All of this means that it is fair and reasonable in all the circumstances of Miss P’s complaint for Audi to put things right in the following way:
– Refund Miss P’s deposit of £3,900 and the additional final payment of £3,750 with interest of 8% simple per year; AND
– Removing any adverse information it has recorded about this agreement on Miss P’s credit file.’
(https://www.financial-ombudsman.org.uk/decision/DRN-2359140.pdf)