She lost her business due to the COVID pandemic, and our client ‘Megan’ also fell into severe difficulties with her vehicle finance agreement.
Signing up to an unaffordable hire purchase deal in June 2018 sparked a series of struggles for Megan, whose repayment term was ended abruptly when her car, a Vauxhall GTC Coupe, was stolen. The entire saga left her struggling with her physical and mental health, as the stress of maintaining the payments caused several painful flare-ups of her disability fibromyalgia.
Megan had visited her dealer and agreed to make 60 monthly repayments of £357.52 for the car, which had a cash price of £12,495. With the interest rate and APR both set at 31.3%, Megan would have been paying a total of £22,093.68 for the vehicle. At the time she was running a business but did have outstanding debts. Her monthly outgoings included rent and credit payments plus finance for furniture, for which she was in arrears. She also had a County Court Judgment against her for a catalogue debt.
Megan was asked for proof to verify her income and expenditure but doesn’t recall a credit check being carried out and, if one had taken place, she wasn’t told the outcome. She didn’t feel that the salesperson had, at any stage, looked to get a clear picture of her financial circumstances, instead pressuring her to sign the five-year agreement there and then.
Before she got the keys to the car, Megan pointed out some superficial damage to the alloys and paintwork and was told they would be remedied before she took possession of the vehicle. The dealership didn’t do so, but spray-painted the wheels and used polish to (unsuccessfully) try to mask the scratches.
In December 2020, two years into her repayment term, Megan lost her beauty therapy business, as many company owners did in the wake of the pandemic. She contacted her finance provider with a view to restructuring her payments, or taking a short-term payment break.
The lender refused on both counts.
As a result, Megan – by now living on benefits with no other source of income – was unable to make her payments in full and on time, decimating what savings she had and having to borrow from family and friends to meet all of her financial commitments. The stress and anxiety caused by the closure of her business, coupled with her lender’s refusal to accept her offer of lower payments and the fear that the car would be repossessed, led to her undergoing a number of fibromyalgia flare-ups.
Having almost reached the end of her repayment term, Megan’s luck worsened further when the car was stolen. She informed the lender who contacted her insurance company with a figure they required to settle the finance. This, Megan says, was more than she owed on the vehicle.
Megan relayed all the information about the sale of the car to Barings Law’s legal team and they prepared her case to be presented to the finance provider.
Our argument centred around unsatisfactory creditworthiness and affordability risk assessments, which created an unfair relationship between them and their customer. The Credit Consumer Sourcebook (CONC) rule 5.2A.4R states that a thorough assessment should have been carried out and, in Megan’s case, this didn’t occur. As a result of their negligence, she experienced financial hardship, leading to continuing health issues. CONC guidelines also state that lenders are required to consider their customer’s ability to make the repayments without having to borrow more money, without failing to make any other repayments they are obliged to make, and without the repayments significantly impacting on their financial situation.
In addition, where there is a reasonable likelihood of the customer experiencing a reduction in their income, the lender must take reasonable steps to treat their customers with due consideration in the event of them experiencing a reduction in their income. Remedies they could have applied include suspending, reducing, waiving or cancelling interest or charges and giving the customer reasonable time and opportunity to repay the debt.
The lender’s failure to do so, after creating an unfair relationship in the first instance, meant they could be considered liable for Megan’s loss and damages, and were at least partly responsible for her financial hardship.
The lender responded, claiming that they carried out a full credit search and verified Megan’s income. They did, however, accept liability as they were unable to satisfy themselves that the lending was suitable for their customer.
Their remedy, intended to restore Megan to the financial position she would have been in had she not taken out the finance, was calculated by:
• Deducting the capital price of the vehicle from the total sum she had paid them, an overpayment of £9,723.68 in interest, which they would refund.
• Applying statutory interest of 8% to this sum (minus income tax at 20%).
This resulted in the lender refunding £10,411.19* to Megan, with no further liability to them. She accepted the settlement and brought her harrowing ordeal to a close.
*Amount is before fees and disbursements
