In January 2019, our client ‘Hayley’ entered into a Hire Purchase (HP) agreement to buy a car, a Lexus CT, priced at £8,795.
Her HP deal was agreed with an interest rate of 22% and APR set at 42.21%. Over the 57-month term of the agreement, the total payable for the vehicle was £18,486.25.
She was mis-sold her finance deal as the company providing her with finance did not adequately assess whether their customer could afford the deal. Their failure to do so means that the HP package was unfairly sold on grounds of affordability, and Hayley sought the help of Barings Law’s motor vehicle finance team.
Hayley told us didn’t recall any affordability checks being carried out at the point of sale, meaning that little or no effort was made to establish that she could afford the payments. In addition, the lender did not verify her income and expenditure or make any attempt to examine her financial circumstances or creditworthiness. Her main expenditure was her rent and outstanding credit payments that she was making, neither of which she was in arrears with.
Hayley recalls feeling pressured into accepting the finance and signing the agreement, and she wasn’t told that the agreement contained an arrears policy, meaning the interest rate would rise in the event of her missing any of her monthly payments.
In fact, the agreement left Hayley – who was also caring for and providing for her two young children –struggling to pay for all her outgoings and on two occasions she failed to make the monthly payments on the vehicle, which led to the rate being increased. Hayley was forced to use what savings she had, and at times borrow from friends and family or seek credit elsewhere, to meet the payments.
She admitted to Barings Law that the quality of life for her and her family had been negatively impacted by the unaffordable finance she had been persuaded to enter into. She believes that her mental health was also affected by the stress of struggling to get by for the near five-year duration of the term, worrying about the car being repossessed and suffering continued anxiety about being able to sustain regular repayments under the agreement.
Our legal experts examined Hayley’s finance documents and it became clear that there had been a failure to comply with the relevant statutory and regulatory obligations, which created an unfair relationship between customer and lender.
We contacted Hayley’s lender on her behalf, informing them that she had suffered damages which we believed they were liable for. We also argued that no reasonable steps were taken to establish whether the deal was suitable for her needs and circumstances. The lender’s negligence resulted in financial hardship for Hayley.
A lender is required to ensure that any financial product they sell to a customer should not put them in hardship, and they should not have to borrow from elsewhere or fail to meet their other financial obligations in order to make the payments. They should also not have a significant adverse effect on their situation, or wellbeing.
The lender insisted that the finance package had been entered into after they had adequately assessed her circumstances and that it was reasonable and affordable. We therefore escalated Hayley’s complaint to the Financial Ombudsman Service (FOS). They looked at whether the lender’s credit checks, using information from the credit file and Office of National Statistics (ONS) data, were sufficient in determining their customer’s affordability. Hayley’s credit report showed that she owed nearly £20,000 and had a number of defaults on her record.
Summarising the findings, the FOS investigator said: “I’m not satisfied that the checks were proportionate. It would have been prudent to have carried out a borrower-focused affordability assessment and reviewed her actual expenditure rather than relying on ONS data. Looking at the overall picture I’m satisfied that, if reasonable and proportionate checks had been carried out, it would more likely than not have shown that the agreement wasn’t affordable and sustainable.
“Checks should be proportionate to the amount being borrowed and the term. But I think it would have been reasonable for [the lender] to have found out more about the committed expenditure.
“Considering the historic information about [Hayley] as well as evidence that she owed £19,813 in total and had several defaulted accounts at the time, I’m not satisfied that the checks were proportionate.”
Hayley’s lender was instructed to refund any payments Hayley made in excess of the original cash price of the car, adding 8% simple interest per year from the date of each overpayment to the date of settlement. They were also told they should remove any adverse information related to the case that was recorded on her credit file.
The FOS upheld Hayley’s complaint and she was offered a settlement of £ 11,183.28*, which she accepted.
* Amount is before deductions for fees and disbursements