Being unable to work during the pandemic left our client ‘Susannah’ frantic with worry about her motor vehicle finance.
After enlisting Barings Law’s services to make a claim for compensation for mis-sold finance on affordability grounds, she was awarded more than £8,000.
When she took out the Hire Purchase agreement in August 2019 she had no outstanding debts or credit ‘red flags’ such as court judgments or voluntary debt arrangements. As such, she was told she ‘passed’ the credit check that the dealer carried out when she was purchasing her new car, a Ford Kuga valued at £14,500. She provided proof of her income and expenditure when making the application for credit and, though she didn’t feel that the salesperson was pressuring her to sign up immediately, she felt there was no attempt on the dealer’s part to get an understanding of her financial circumstances.
Susannah’s interest rate was set at 18% and the APR on the agreement was 33%. Over the course of the five-year deal, she agreed to make monthly payments of £443, making a total of £27,200.
Though she was debt-free when she applied for the finance, the sales consultant’s circumstances were badly hit by COVID. Lockdowns imposed by the government left her unable to work as normal and she found herself struggling to find the money to make her monthly payments.
The worry of keeping up with her payments left Susannah constantly stressed, which was escalated by a stream of letters she was receiving, demanding payments and threatening to repossess the vehicle.
She found making her instalments a real struggle and missed, or was late with, half a dozen payments altogether. Susannah hadn’t been made aware of the lender’s arrears policy or interest rise for missing instalments but her missed payments meant she was forced to pay more in the long run. Without any savings to fall back on, she also had to borrow money from elsewhere at times, so that she could keep hold of the car and make her other monthly outgoings.
Susannah contacted Barings Law and our motor vehicle finance team looked at the circumstances of the sale of credit and whether it was affordable for her.
We contacted Susannah’s lender on her behalf, alleging that the failure to carry out adequate affordability assessments meant that the relationship between lender and customer was unfair, and that their negligence caused their customer financial hardship.
Guidance from the Credit Consumer Sourcebook requires lenders to consider their customer’s ability to make repayments under a credit agreement:
- Without having to borrow money from elsewhere
- Without failing to meet their other financial obligations
- Without the repayments having a significant and adverse effect on their financial situation.
We also made clear that trying to make the repayments – failing to do so on time on several occasions – had an adverse effect on Susannah’s mental health due to the stress it caused. The lender also failed to show consideration to the customer when they are in arrears with, or default on, their payments. No measures – such as suspending, reducing or waiving the interest or charges – were considered, measures which would have helped her to alleviate her difficulties.
The lender investigated the circumstances of the sale and concluded that they could have done more to confirm Susannah’s financial situation. They therefore upheld her complaint and proposed the following remedy:
- Writing off the outstanding balance that she owed to them
- Refunding the interest she had paid them, a total of £6,394.46
- Applying 8% simple interest (deducting 20% income tax to that interest) to that amount, which added £1,815.26 to the award
- Removing any negative information relating to the agreement from Susannah’s credit file.
This meant that the lender made a compensation payment of £8,209.72* to close the claim, with nothing further for her to pay them.
* Amount is before fees and disbursements.
