Our client ‘Kevin’ entered into a Hire Purchase agreement to buy his Ford Fiesta Zetec, valued at £8,997, over a five-year period from March 2019.
The interest rate on the agreement was 18% and the APR was set at 33.5%, which meant that Kevin would pay a total of £16,745 for the vehicle by the end of his agreement.
That agreement, however, would leave him struggling to get by and constantly worrying about his finances.
Kevin’s other monthly outgoings included credit card repayments and other credit. He had a County Court Judgment against him – and had defaulted on the payments initially – but this had been settled at the time he took ownership of the Fiesta.
Believing that he may have been mis-sold his finance agreement, Kevin contacted Barings Law. Our motor vehicle finance experts contacted the lender on his behalf with our allegation that they had mis-sold him credit on the grounds of unaffordability.
Kevin told us that he recalls a credit check being carried out when he entered into the agreement and that he was told he had passed. The dealer did verify Kevin’s income and expenditure via payslips and bank statements but he felt that, at no point, did they try to get an understanding of his financial circumstances. He also felt that he had been pressured into accepting the arrangement and signing the HP agreement rather than being given time to consider his options.
Kevin says that his financial circumstances didn’t change since he took out the agreement and, while he was always on time with his payments, he did struggle to meet the monthly instalments. He was making regular payments to a number of insolvency and debt management companies.
He admitted that the challenges of meeting his HP payments affected his mental wellbeing and quality of life as he was constantly worried about keeping up the payments as well as meeting his existing financial obligations.
Our Motor Vehicle Finance team prepared a case for Kevin and approached the lender on his behalf. Our case rested primarily on the lender failing to ensure that the finance agreement was right for their customer, and that he could afford to make the repayments without struggling to meet his other monthly outgoings.
As a thorough assessment of Kevin’s creditworthiness wasn’t carried out, we argued that an unfair relationship had been created. Our position was solidified by their failure to carry out the sufficient affordability checks to ensure that the agreement was right for the customer’s needs and circumstances.
Guidance from the Credit Consumer Sourcebook says that finance companies or creditors must consider their customers’ ability to meet their repayments:
- Without having to borrow money from elsewhere;
- Without failing to meet their other financial obligations;
- And without the payments having a significant and adverse effect on the customer and their financial situation.
Kevin had suffered financial damage as a result of the lender failing to take due care and consideration. His financial records show that he missed several direct debit payments, before and during the term of the agreement, and his average disposable income was, at one stage, estimated to be minus-£58 per month.
Kevin’s dealer investigated the claim and upheld the complaint, admitting that it was irresponsible to accept his application for credit. They proposed a remedy involving a refund of interest payments made towards the agreement, plus 8% simple interest on all of Kevin’s instalments, a solution which he accepted. After allowing for tax, this refund totalled £10,485.49*.
The finance company also said they would remove any negative information relating to the agreement from Kevin’s credit file.
* Amount is before fees and disbursements
