Our client ‘Jake’ had taken out credit and finance deals before, without experiencing any issues. His motor vehicle finance deals proved unaffordable, however, and when he took action with Barings Law’s help he was made two compensation awards for more than £22,000.
Jake visited his local dealership in February 2019 and took the keys to a BMW 5 Series after agreeing a hire purchase package in which he’d pay £28,975 for the vehicle, the cash price for which was £19,000.
The electrician’s outgoings included rent and a number of repayments including loan and credit card debts, though he wasn’t in arrears with these. Jake had no recollection of the dealership carrying out any credit checks, or even verifying his income with payslips and bank statements. He was told he would be able to take the car on finance, with an interest rate of 7.5% and the APR set at 14.3%. This meant that the total cost of his credit would be £7,975.
He entered a five-year agreement with the lender and in 2024, he made the last of his monthly payments of £481 to complete the purchase. He told us that his circumstances didn’t change during those five years and that two or three of his monthly payments were either missed or were late.
Jake admits he found it a struggle to meet his loan commitment and, while he never had to resort to borrowing money from family and friends – or other credit providers – he had to use his personal savings for some of the instalments.
The stress and worry of having to pay £481 each month had a negative effect on Jake’s well-being, particularly as the loan company pursued him relentlessly in the event of a missed or late payment.
He contacted Barings Law’s affordability team to see if he had a case for making a claim against his finance provider. Our experts looked at the circumstances of the sale and whether he should have been allowed to take out the finance.
We contacted Jake’s finance provider to state his case. We put it to them that their failure to carry out adequate affordability checks meant that no reasonable steps were taken to ensure Jake could sustain the repayments. This meant that an unfair relationship had been created between lender and customer.
We looked at whether Jake could have afforded to meet the payments:
• without having to borrow money from elsewhere;
• without failing to meet his other financial commitments; and
• without suffering a significant adverse impact on his financial situation.
Our suggested remedy to the lender included a refund to Jake of the sums he had paid for the car, plus repayment of the interest under the finance agreement and any deposit he had paid at the outset, plus simple interest.
The lender upheld the complaint, conceding that it was irresponsible to accept Jake’s application for credit. The lender proposed making a payment of £6,404.48, which represented a refund of the interest that Jake had paid. With the addition of simple interest at 8% (minus a 20% deduction for income tax) the total that the lender agreed to refund to Jake was £8,507.82.
Jake had previously used our services in respect of another claim, to great effect. On that occasion, Jake had used finance to help him pay for a Renault Trafic van, valued at £22,000. He used a different finance provider for this vehicle and he paid more than £5,000 as a deposit. With both the interest rate and APR set at 29.9%, Jake’s repayments for the van were set at £515 per month for five years, making the total amount payable slightly more than £35,500.
Once again, the dealership didn’t – as far as he could remember – undertake a credit check on Jake, nor did they verify his income. There was, Jake says, no attempt to understand his financial circumstances. Instead, he recalls feeling pressured to sign the paperwork there and then.
Jake was self-employed at that time and he ran into difficulties keeping up with the repayments as his work could, at times, be sporadic. His situation was worsened by the effects of COVID, which caused him to accumulate a number of debts. As a result, he struggled to find the money to pay the instalments and his account fell into arrears after he missed six or seven payments. Jake was still within his repayment term, and was more than £1,000 in arrears, when he sought Barings Law’s help.
As with the later BMW deal, Jake believed that the finance for the van might have been mis-sold on grounds of unaffordability. He had also felt the stress of paying for that vehicle and had used up his personal savings as he tried to keep up the repayments.
Our motor vehicle finance experts prepared Jake’s claim and approached the lender on his behalf, arguing that this finance agreement had been mis-sold.
This finance provider agreed that the lending was not suitable for Jake and agreed to make a payment to him to redress the balance.
The finance provider’s remedy involved making a refund to Jake of £12,470.03, which was the total sum Jake had paid for the van (including interest), minus the original screen price of the vehicle. Applying 8% simple interest for the period that he was without that money added £1,230.10 after a statutory tax deduction. That meant that the total refund paid to Jake was £13,700.13.
Together, the compensation amount totalled more than £22,200 for Jake. Both lenders also agreed to remove any negative information resulting from the finance agreements from Jake’s credit file.
*Amounts are before fees and disbursements
