|Article - Consumer Law|
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:
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
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:
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.
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  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.
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  2 All ER 250 to give you extra time to pay.
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).
Article First Published: 14 May 2007
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