Our client ‘Adrian’ was awarded nearly £10,000 in compensation by his lender, after his complaint about a vehicle finance agreement was upheld.
Adrian was subject to a County Court Judgment and was in arrears on a loan and credit card repayments when he approached the dealer in 2019. He had also used ‘payday loans’ in a bid to get his finances back on track.
Despite his financial history, Adrian was eligible to drive away in a BMW 3 Series, valued at £34,000. Putting a deposit of £9,000 towards the PCP deal, he agreed to make monthly payments of £820 for five years, meaning the total cost of his finance was £57,300. He told our affordability team that he didn’t recall any credit check being completed, nor was he asked for verification of his income and outgoings. He added that there was no attempt by the dealer to get an understanding of his circumstances, and he felt pressured to sign the agreement without taking the time to consider the deal or explore other financing options.
Adrian completed the repayment term and paid the final ‘balloon’ payment to take ownership of the BMW. He had, however, needed to use his savings – as well as borrowing from family, friends or third parties – to keep up the repayments. The stress of maintaining his payment plan took its toll on his health and caused him relationship issues.
Barings Law contacted Adrian’s lender on his behalf, informing them that their failure to properly examine or understand his financial circumstances created an unfair relationship between them and their customer. We further alleged that the agreement was unsuitable for Adrian and that he suffered financial hardship as a result.
In accordance with the Credit Consumer Sourcebook (CONC) 5.2A.10R, lenders are required to consider a customer’s affordability risk when determining their ability to sustain regular payments. CONC 5.2A12R outlines a lender’s requirement to consider whether the customer can make the repayments:
- Without having to borrow money from elsewhere;
- Without failing to meet their other financial obligations;
- Without the repayments significantly and adversely impacting on their financial situation.
Adrian’s lender responded, and said they did carry out credit checks at the point of sale, but they did uphold his complaint. As they could not satisfy themselves that the lending was suitable for him, they offered a resolution whereby they would:
- Refund nearly £7,500 in overpayments, a figure achieved by deducting the capital price of the car from the total he had paid to them.
- Apply 8% statutory interest to this sum (minus 20% income tax) for the time he was without those funds.
- Remove any negative information from his credit file as a result of the finance agreement.
This meant Adrian was compensated for the financial hardship caused by an unaffordable finance agreement with a total refund of £9,287.02*.
* Amount is before fees and disbursements
