When he separated from his partner, our client ‘Patrick’ found that meeting the repayments for his car proved a real struggle.
Patrick visited his local dealer in November 2018 and agreed a hire purchase (HP) arrangement with the salesperson. He took the keys to a Volvo S60, valued at £9,864, and signed an agreement to make repayments over the following five years. He wasn’t subject to a County Court Judgment or Individual Voluntary Arrangement and, though his outgoings included a loan he had taken out, he wasn’t in arrears with the repayments.
The dealership verified his income and expenditure with payslips and bank statements. They carried out a credit check and, although details of the outcome weren’t communicated to him, Patrick – a practice manager – was granted the finance for the vehicle. His repayments were set at £313 per month, with the APR and interest rates set at 32.7%. By the end of the HP term, the total payable amount was just short of £18,500.
Patrick recalled being pressured by the salesperson to sign up to the deal he was being offered immediately, and that they didn’t appear to show any understanding of his financial circumstances. He did agree to the finance, however, and took the keys to the Volvo.
His repayment period wasn’t without its troubles, however. In addition to the catastrophic impact of the COVID pandemic, Patrick separated from his partner. Partly due to having sole responsibility for his outgoings, he began to struggle with having to find more than £300 each month. He may not have missed any of his scheduled payments but he admits he found it difficult to make each month’s instalment on time, and he decimated what savings he had to do so.
All of this had a profound effect on Patrick’s mental health and well-being. While eating into what money he’d had saved up he was also in a constant state of worry that his savings would run out and he’d lose the car. His finance provider did grant him a payment holiday and Patrick eventually managed to settle the agreement early. His mental health had clearly suffered, given the anxiety he had endured due to the worry of sustaining regular payments.
Patrick contacted Barings Law to see if the agreement he had been sold could be classed as unaffordable, given that he made all of his payments on time and settled the agreement ahead of schedule.
Our affordability team prepared his claim and approached the lender on Patrick’s behalf.
We alleged that, with only basic questions asked and insufficient credit checks carried out, their creditworthiness assessment would not establish whether the agreement was right for Patrick and that this created an unfair relationship between the lender and their customer.
Our claim referred to the Credit Consumer Sourcebook, which states that lenders must consider their customer’s ability to make repayments:
• Without having to borrow money from elsewhere
• Without failing to meet their other existing financial obligations
• Without the repayments significantly and adversely affecting the customer’s financial situation.
Patrick’s lender investigated the complaint. While they did carry out a credit search and verification of his income and his repayment was termed “largely successful” they could not satisfy themselves that the credit granted to him was suitable for him. They therefore upheld his complaint.
Their proposed remedy was to:
• Refund Patrick £8,350.48, which is the result of subtracting the price of the car from the total amount he had paid.
• Apply statutory interest at 8% for the time he was without those funds, a total of £943.59 (minus £188.72 income tax).
This meant the lender made a compensation settlement of £9,105.35*. The lender also agreed to have any negative information relating to the agreement removed from his credit file.
*Amount is before fees and disbursements.
