Our client ‘Rhys’ was paid more than £10,000 in compensation for his mis-sold motor vehicle finance after the lender admitted they sold him an unaffordable deal.
Rhys received a refund of the money he had overpaid, plus interest, after the finance provider conceded that the agreement had been unsuitable for their customer. Rhys, a technician, received a substantial payout to compensate him for his losses due to insufficient creditworthiness checks being carried out.
Visiting a dealership in 2018 he took possession of a Ford Focus, valued at £7,995, on a hire purchase (HP) agreement. With the interest rate and APR both set at 48.9% Rhys would pay a total of £17,737.73 for the car over the five-year repayment term. It was the first time that Rhys had bought anything on finance, and he was surprised that there appeared to be no credit check carried out, and that he wasn’t asked to provide any proof of his income and expenditure. This, he felt, was unusual, particularly as he had a County Court Judgment against him.
The entire purchasing process took no more than an hour, during which time Rhys felt pressured by the salesperson to sign the finance agreement immediately, which he was told was the only finance option available to him.
Rhys didn’t miss any instalments, and was never late making his monthly payment, but he tell our motor finance team that he did have to borrow money from elsewhere, as well as using up what savings he had, to keep up with the finance. This was despite him changing to a better-paid job. Had he missed any payments or been late with a single instalment he would, it transpired, have been hit with an increase in his interest rate, costing him further.
As his repayment term drew to its conclusion, Rhys contacted Barings Law and spoke to a member of our motor vehicle finance team about a potential case of mis-selling. We examined the circumstances of the sale of his finance agreement and whether the deal was both affordable and suitable for his needs.
We contacted Rhys’ lender on his behalf and stated his case; namely that no adequate affordability checks were carried out and so the reasonable steps weren’t taken to consider if the HP agreement was suitable for their customer’s circumstances.
Guidance in the Consumer Credit Sourcebook (CONC) states that lenders are required to fully assess the creditworthiness of a customer before entering into any agreement. We alleged that little to no attempt was made to fairly assess that, creating an unfair relationship between the finance provider and their client.
CONC regulations also state that a lender must consider the customer’s ability to make payments:
- Without them having to borrow to meet their repayments
- Without failing their other financial commitments
- With any negative and significant impact on their financial situation.
The lender responded and agreed to pay compensation to Rhys as they couldn’t satisfy themselves that the lending they granted was suitable for him. In order to resolve the complaint, they agreed to remove any negative information relating to the finance from Rhys’ credit file.
The lender also said they would:
• Deduct the price of the vehicle from the total sum he had paid to calculate his overpayment – a total of £9,742.73.
• Apply 8% statutory interest to the overpayment, applying income tax at 20%.
That meant Rhys’ claim led to a compensation payment of £10,748.06*, with no further financial liability to his lender.
* Amount is before fees and disbursements are applied.
