In April 2022, ‘Laura’ entered into a 59-month motor finance agreement to finance a 2015 Land Rover Discovery 4 valued at £23,095.
The interest rate for the motor finance agreement was set at 31.9% for the duration of the agreement, resulting in a total payable amount of £41,931.90.
At the time of purchasing the vehicle, Laura felt pressured into accepting the PCP agreement as she was in desperate need of a car to help with transport for her disabled child. Prior to taking out the agreement, Laua was in arrears with rent and credit card repayments. She was also reliant on high-cost lenders, including payday loan providers, however none of this was raised with her after a credit check had been conducted.
During her agreement, Laura’s financial circumstances changed, causing her to rely on the support of her mother and siblings to keep up with payments. Sadly, her mother passed away and Laura was left suffering with declining mental health which was made worse by the pressure of keeping up with the vehicle repayments. At this point, Laura was going without food and heating to ensure her children were cared for and that she would not lose the vehicle she needed.
Barings Law submitted an affordability complaint on Laura’s behalf; however, her finance provider decided not to uphold the initial complaint, as they were satisfied the finance was provided fairly and the agreement was affordable.
In the client’s best interest, Barings Law then issued the complaint to the Financial Ombudsman Service (FOS) to investigate further. FOS responded to the complaint by stating: “Given the amount ‘Laura’ was paying towards existing credit commitments, it wouldn’t have been responsible to lend her even if the repayments were affordable, especially with the adverse information on her credit file leading up to the lending. We therefore think the lender shouldn’t have lent to ‘Laura’ as the evidence available from the time suggests she wouldn’t be able to make repayments in the sustainable way.”
The decision made from FOS was that the finance provider should:
1. End the agreement and collect the vehicle with nothing further to pay.
2. Refund the deposit, adding 8% simple interest per year from the date of payment to the date of settlement.
3. Calculate how much Laura has paid in total and deduct £375 per month for fair usage. If Laura has paid more than the fair usage figure, the finance provider should refund any overpayments, adding 8% simple interest per year from the date of the payment to the date of settlement.
4. Remove any adverse information recorded on Laura’s credit file regarding the agreement.
5. Arrange an affordable repayment plan if there are any arrears after the settlement has been calculated and treat Laura with forbearance and due consideration.
After determining that this decision was fair, Barings Law and Laura accepted FOS’s outlined proposal. Her agreement was terminated, and a settlement was secured for £9,739.76* as a result of overpayments detailed in the FOS report.
*Amount awarded to Laura is before legal fees and disbursements.
