After paying almost double the cash price for her Renault Clio, ‘Veronica’ turned to Barings Law for help and won more than £8,000 in compensation.
Veronica, who works as a carer, signed up to a Hire Purchase (HP) agreement in June 2018. The cash value of the Clio was £7,699 and she was told the interest rate and APR would be 35.7%. This meant that, at the end of the five-year term, she would pay a total of £15,001.75 for the car.
When entering into the HP agreement, Veronica was in arrears with her credit card repayments, and had mortgage commitments and her regular living expenses to meet.
She provided proof of her income and outgoings as requested by the dealer but Veronica told us the finance provider showed little or no regard for her circumstances, or whether she could afford the monthly payments in addition to her existing outgoings. In fact, she recalled feeling pressured to sign up immediately by the salesperson.
Veronica was able to make all the payments on time and without relying on her own savings or assistance from friends, family or other loan providers. However, upon completing the HP purchase she began to wonder if she had been mis-sold the finance.
After all, she did not remember any credit check or affordability assessment being carried out. She was only asked rudimentary questions regarding her income and outgoings.
In addition, Veronica was never made aware that if she were to miss any payments, or they were made later than the agreed date, she would have had financial penalties, such as a rise in the interest rate, imposed upon her.
Veronica contacted Barings Law and our PCP experts examined the circumstances behind the sale of the HP agreement. We contacted the finance provider on her behalf and made her case for claiming compensation.
We alleged that our client suffered loss and damages because adequate creditworthiness checks weren’t carried out, meaning that the agreement was unsuitable for her. Failing to ensure that a finance plan is affordable for a customer creates an unfair relationship and, after consideration of her needs and circumstances, we believed that such a relationship existed.
Guidelines in the Credit Consumer Sourcebook state that finance providers such as brokers, lenders and dealers must consider a customer’s ability to meet the repayments (and their other commitments) without having to borrow money from elsewhere or suffering a significant impact on their finances. Veronica had mortgage and credit card repayments to make and, during her HP repayment term, did default on some of her existing commitments.
As we considered that Veronica had been mis-sold her HP agreement on grounds of unaffordability we put forward a remedy in which her lender repaid the money she paid under the agreement, including any deposit paid at the outset, plus the balance of interest paid and simple interest for the time that she was without access to those funds.
The lender upheld the complaint. They agreed to refund the money that Veronica had overpaid, calculated by deducting the capital price of the car from the total sum she had paid. Adding 8% statutory interest (minus tax) to that sum of £7,302.75 left a final balance of £8,404.67*. In addition, the lender agreed to remove any negative information from Veronica’s credit file.
*Amount awarded is before fees and disbursements
