Solving Financial Difficulties under the Consumer Credit Act 1974

If you have recently acquired a motor vehicle under a hire purchase or conditional sale agreement, it may be regulated by the Consumer Credit Act 1974 ('the 1974 Act').  The easiest way to find out is to dig-out your agreement and look in the top left hand corner.  If it says "regulated by the Consumer Credit Act 1974" then your agreement is 'regulated'.  If it does not say so but if you are an individual and your total amount of credit is less than £25,000 then the agreement should be regulated by the 1974 Act.  If it doesn't say it is, then take advice as soon as possible!

So, if your agreement is regulated by the 1974 Act what happens if you fall in to arrears?  There are three options:

1. the creditor (i.e the person who you make your payments to) can send you a default notice under section 87 of the 1974 Act;

2. you can give written notice at any time before the 'expiry' of a default notice to terminate the agreement, return the motor vehicle and pay the difference between what you have paid and one half of the total amount payable under the agreement; or

3. you can apply for a 'time order' under section 129 of the 1974 Act which, if your financial difficulties are short term, may give you more time to pay the instalments and stop the creditor from ending the agreement and recovering the motor vehicle

Default Notices

Section 87(1) of the 1974 Act allows the creditor to send you a default notice giving you fourteen days from the date you receive it to pay the arrears.  The default notice must contain all of the necessary information under the Consumer Credit (Enforcement, Default and Termination Notices) Regulations 1983 ('the 1983 Regulations'), which includes

1. a statement saying the notice is a default notice served under section 87(1) of the 1974 Act

2. a description of the agreement

3. the name and address of both the debtor and the creditor

4. details of the breach (i.e. late payment) and, if the breach can be remedied, the date by which it must be remedied or, if the breach is not capable of remedy, the amount required to be paid after the expiry of the specified date;

5. a statement saying:  if the action required by this notice is taken before the date shown no further enforcement action will be taken in respect of that breach

6. a statement saying:  if you do not take the action required by this notice before the date shown then the further action set out below may be taken against you

7. a clear and unambiguous statement saying that if the action is not taken by the date specified, what it will do (for example, if will it terminate the agreement and recovery possession of the motor vehicle)

8. if the agreement is one of hire purchase or conditional sale, a statement saying:  but if you have paid at least one third of the total amount payable under the agreement set out below (or any installation charge plus one third of the rest of the amount payable).  The creditor may not take back the goods against your wishes unless he gets a court order.  (In Scotland, he may need to get a court order at any time.)  If he does take them back without your consent or a court order, you have the right to get back all of the money you have paid under the agreement set out below

9. if an amount of money is required to be paid, the amount before deducting any rebate on early settlement

10. statements saying:

    if you have difficulty in paying any sum owing under the agreement or taking any other action required by this notice, you can apply to the court which may make an order allowing you more time

    if you are not sure what to do, you should get help as soon as possible.  For example you should contact a solicitor, your local trading standards department or your nearest citizens' advice bureau

    important - you should read this carefully

Under Regulations 33 of the Consumer Credit (Information Requirements and Duration of Licenses and Charges) Regulations 2007 the default notice must from 1 October 2008 also include the following statement:

You have the right to end this agreement at any time before the final payment falls due.  Note that this right may be lost if you do not act before the date shown (after which we may take action).  If the date for final payment has not passed and you wish to end this agreement, you should write to the person to whom you make your payments. You will need to pay £                    if you wish to end this agreement by the date shown and we will be entitled to the return of the goods. You will also be liable for costs if you have not taken reasonable care of the goods.

If the default notice fails to include all of the necessary information, it is likely to be ineffective and will not allow the creditor to recovery the motor vehicle unless you give your consent to the recovery.  So, what can you do if it is recovered against your wishes?  The answer depends on how much you have paid to the creditor.

If you have paid more than one third of the total amount payable, section 90 of the 1974 Act states that the motor vehicle is 'protected' from repossession.  So, if the motor vehicle is recovered then, under section 91 of the 1974 Act you are entitled to a return of all of the money you have paid to the creditor, regardless of how long you have had the motor vehicle.

If you have paid less than one third of the total amount payable, the motor vehicle is not protected from repossession.  Instead, if it is recovered you can say that the creditor has wrongfully interfered with your right to possession of the motor vehicle.  The Court cleared-up what this meant in Chartered Trust plc v King (2001) WL 172107 and decided that the debtor (i.e. you) are entitled to a return of all of the money paid to the creditor.  Again, it is irrelevant how long you have had the motor vehicle.

Debtor's Termination

Under section 99 of the 1974 Act a debtor under a hire purchase or conditional sale agreement can, at any time before the agreement has ended, give written notice to the creditor to end the agreement.  Once the agreement has ended, you have to return to the motor vehicle in a reasonable condition and, if you have paid less than a half of the total amount payable, you must pay the creditor the difference between one half of the agreement and what you have paid.  If you have paid more than one half, you only have to return the motor vehicle and pay the arrears at the date of your letter.

It is important to remember that you can exercise your right under section 99 of the 1974 Act even if you have received a default notice as long as the date in that notice has not passed.  In First Response Finance Limited v Donnelly [2006] GCCR 5901 the Court considered whether a debtor's termination after the date specified in the default notice would limit the amount payable to the creditor to the difference between one half of the agreement and what had been paid.  It decided that it did not and the debtor was liable for the total amount payable under the agreement minus the amount paid by the debtor and the motor vehicle's net sale proceeds.

Time Order

Before you can apply to the Court for a time order, you must be served with a default notice or, when they become required by law, an arrears notice.  Normally, the Court only has the power to give you extra time to pay the arrears but if the agreement is one of hire purchase or conditional sale, it can make an order under section 130(2) of the 1974 Act to effectively re-write the agreement.

The Court will consider your financial position.  It is therefore vital that you send to the Court and the creditor as much information as possible about your financial position and explain, with evidence, how it will get better.  If there is little prospect of it doing so, the Court is unlikely after the decision in First National Bank plc v Syed [1991] 2 All ER 250 to give you extra time to pay.

Summary

If you run into financial difficulties under a regulated hire purchase or conditional sale agreement, the first question to ask is whether you want to keep the motor vehicle.  If so, your only real option is to contact the creditor and negotiate a payment plan.  If it is unwilling to do so, you can apply for a time order under section 129 of the 1974 Act if you receive a default notice or, in the future, if you receive an arrears letter.  However, your application is unlikely to be successful if you cannot show your financial problems are temporary.  If you do not want to keep the motor car then you should consider whether it would be cheaper to terminate the agreement under section 99 of the 1974 Act.  If so, send your letter by recorded delivery to the creditor's registered office and make sure you keep a copy.  Then try to negotiate a way to pay the balance outstanding (if anything).