Debt Advice Handbook (13th edition)Chapter 5: Types of debt Credit sale agreement
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Credit sale agreement
Goods bought on credit sale are owned immediately by the client. Regular payments are due in accordance with the agreement. The creditor is often the supplier of the goods and this type of credit is used extensively to sell furniture and cars.
**Alert: See Credit card for further details of FCA guidance to creditors on providing ‘tailored support’ to clients who face financial difficulties as a result of the coronavirus pandemic. The current version of the guidance is available at: fca.org.uk/publication/finalised-guidance/consumer-credit-coronavirus-tailored-support-guidance.pdf
The legal position
The agreement is a regulated credit agreement provided the credit is for £25,000 or less (if made before 6 April 2008) or £15,000 (if made before 1 May 1998). If the agreement was made on or after 6 April 2008, the agreement is regulated regardless of the amount, unless it is exempt (see here).
Special features
The creditor has no rights over the goods. The client simply takes the goods, signs the agreement, and starts to make payments. Sometimes interest-free credit (see here) is given in the form of a credit sale agreement.
Some credit sale agreements (particularly for cars) provide that:
    •the client must not sell the goods during the lifetime of the agreement; and
    •if the client does sell the goods, s/he must pay the proceeds to the creditor.
It is arguable that this restriction on the sale of the goods is an unfair contract term, which means a client is probably not in breach of it if s/he does sell the goods. However, it is not unfair for the creditor to require payment of the proceeds, although the creditor must serve the client with a notice under section 76 of the Consumer Credit Act 1974 before being entitled to take action to enforce such a term.1A creditor is required to give seven days’ notice of its intention to enforce a term of the agreement allowing it to demand early payment of any sum in cases where this right arises, even though the client is not in default If the client is unable to comply with such a notice, s/he is then in default. For a fuller discussion of unfair contract terms, see here.
 
1     A creditor is required to give seven days’ notice of its intention to enforce a term of the agreement allowing it to demand early payment of any sum in cases where this right arises, even though the client is not in default »
Checklist for action
Advisers should take the following action.
    •Check liability, including the enforceability of the agreement under the Consumer Credit Act 1974.
    •Check that the goods purchased were as described and of satisfactory quality (see here).
    •Assist the client to choose a strategy from Chapter 9, as this is not a priority debt.