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Debt Advice Handbook 15th edition

Bill of sale
A bill of sale is also known as a ’chattel mortgage’ or even more commonly as a ‘logbook loan’. It is a way of raising money by offering an item of personal property (commonly, a car) as security for a loan. The essential feature of a bill of sale is that the mortgaged goods remain in the possession and use of the client, but ownership is transferred to the creditor, so they can be repossessed and sold if the debt is not repaid. Similar arrangements containing some, but not all, of these features are not bills of sale. For example, in the case of pawnbroking (see here), the goods are deposited with the creditor as security, but they remain the property of the client.
Bills of sale can be used to finance the actual purchase of motor vehicles. With hire purchase/conditional sale, the dealer sells the vehicle to the creditor who then lets (hire purchase) or sells (conditional sale) it to the client. With a bill of sale, the dealer sells the car to the client who then enters into a credit agreement with the creditor (likely to be a regulated credit agreement), secured by a bill of sale. A bill of sale gives the creditor all the advantages of hire purchase/conditional sale agreements – ie:
    security for the debt;
    the right to repossess the vehicle if the client defaults;
    provided there is a term in the bill of sale, the right to forcibly enter the client’s property to repossess the goods without a court order.
From the creditor’s point of view, a bill of sale also removes some of the disadvantages of an hire purchase/conditional sale – ie:
    the client has no right to terminate the agreement and limit her/his liability to one-half of the total price;
    the vehicle is not protected from repossession without a court order once the client has paid one-third of the total price;
    a private individual (ie, someone who is not a motor dealer) who purchases the vehicle from the client without knowing it is subject to a bill of sale does not obtain ownership. S/he is, therefore, not protected from having the vehicle repossessed by the creditor, as would be the case if the vehicle were subject to a hire purchases/conditional sale agreement.
The legal position
Bills of sale are regulated by two pieces of nineteenth century legislation which still represent the law: the Bills of Sale Act 1878 and the Bills of Sale (1878) Amendment Act 1882.1See G Skipwith, ‘Bills of Sale (Law Commission report)’, Adviser 178 The formal agreement must be set out in the way specified by these Acts. If the bill of sale secures an agreement regulated by the Consumer Credit Act 1974, there must be a separate agreement, which should comply with the Consumer Credit Act and the regulations. This includes a requirement for the agreement to refer to the bill of sale. If the agreement is improperly executed, the creditor must apply for a court order to enforce its security under the bill of sale. If the agreement is completely unenforceable, the creditor cannot enforce its security.
There are a number of formalities associated with bills of sale and, if the creditor fails to comply with them, the creditor risks it being void and so unenforceable (although this does not necessarily affect the underlying credit agreement, which remains enforceable but as an unsecured debt).
 
1     See G Skipwith, ‘Bills of Sale (Law Commission report)’, Adviser 178 »
Special features
In order to be valid and enforceable, a bill of sale must be registered at the High Court in London within seven days of its being made and then re-registered every five years. A copy of the registered document is forwarded to the local county court. Anyone can search, inspect, make extracts from and obtain copies of the register on payment of the prescribed fee (currently £45), by visiting the court office.
The bill of sale must also contain:
    the date of the bill of sale;
    the names and addresses of the parties;
    the amount paid by the creditor to, or on behalf of, the client, not including any item forming part of the total charge for credit in a regulated agreement secured by the bill;
    the client’s acknowledgment that s/he has received the amount paid. This is obligatory, even though the money is not paid to her/him but to a third party – eg, the supplier of the goods;
    a transfer of ownership of the goods to the creditor as security for the debt;
    a description of the goods in a schedule to the bill (not in the main body of the bill);
    a monetary obligation. This can include an obligation to insure the goods or maintain the security;
    a statement of the sum secured, the rate of interest and the instalments by which repayment is to be made. Interest is an essential part of a bill and must be stated as a rate, even if it is also expressed as a lump sum. This is an area where creditors have frequently gone wrong, as it is not just a question of importing figures directly from the credit agreement. If the interest rate under a regulated agreement is not variable, there was no requirement before 31 May 2005 to include it in the agreement, as opposed to the annual percentage rate (APR). In the case of these agreements, if the bill of sale quotes the APR instead of the interest rate, it is not in the statutory form. Nor is the bill in accordance with the statutory form if the sum stated to be secured includes the interest charged under the credit agreement, because this would involve double charging of interest. Arguably, a bill of sale that refers to the credit agreement for the statement of these terms (or any of them) is not in accordance with the statutory form;1Lee v Barnes [1886] 17 QBD 77
    any terms that are agreed for the ‘maintenance’ or ‘defeasance’ of the security. A ‘defeasance’ is a provision in a document which nullifies it if specified acts are performed. For example, when all sums due under the bill are paid, the security is void – ie, in this context, discharged. ’Maintenance of the security’ means the preservation of the whole security given by the bill of sale in as good a condition as when it was made. The following terms are included:2Re Morritt ex parte Official Receiver [1886] 18 QBD 222
      to insure the goods and produce receipts for premiums;
      to repair the goods and replace worn-out goods;
      to allow entry to inspect the goods;
      to allow the creditor to enter the premises in which the goods are situated in order to seize them (the bill of sale may even permit forcible entry);
    a proviso limiting the grounds of seizure. The bill of sale is void if it contains a power to seize, except in the case of:3s7 Bills of Sale Act (1878) Amendment Act 1882
      default in repayments or in the performance of any terms in the bill of sale necessary to maintain the security;
      the client’s bankruptcy ;
      the fraudulent removal of the goods, or allowing them to be removed, from premises. In the case of a vehicle, this might include selling it without the lender’s consent;
      unreasonably refusing to produce the last receipt for rent, rates or taxes;
      enforcement agents (bailiffs) taking control of goods for any debt. See Chapter 15 for more information on this;
    the client’s signature. A bill need not be sealed;4s1(1)(b) Law of Property (Miscellaneous Provisions) Act 1989
    an attestation clause. This is essential and must be meticulously completed. The security is unenforceable unless the client’s signature is witnessed by at least one person who is not a party to the bill;5Although a party may not attest the bill, a party’s agent, manager or employee may do so; Peace v Brookes [1895] 2 QB 451
    the name, address and description of the witness. The name alone without an address (which may be the business address and not necessarily a private address) and description (ie, the profession, trade or vocation of the witness) is insufficient;
    a schedule, referring to the goods included in the bill of sale. Note: if the bill does not have a schedule, it is void.
Clients often present themselves to advisers with either a hire purchase/conditional sale agreement or an unsecured loan. In these circumstances, if the creditor is threatening to repossess the subject of the agreement (eg, the motor vehicle), you should establish whether the debt is, in fact, secured by a bill of sale. If so, check that the credit agreement is properly executed and that the bill of sale has been validly drawn up and registered. The creditor could be asked to supply a copy of the bill of sale showing the court stamp.
If the agreement secured by the bill of sale is a regulated credit agreement, the creditor must serve a default notice before being entitled to repossess the goods on the grounds that the client has defaulted. Also, if the agreement is irredeemably unenforceable, the bill of sale cannot be enforced. If the agreement can only be enforced with a court order, the bill of sale cannot be enforced until the creditor has obtained an enforcement order.6s113 CCA 1974
Seized goods should not be removed from the premises where they were seized until five clear days have expired.7s13 Bills of Sale Act (1878) Amendment Act 1882 During this period, the client could apply for a time order if appropriate (see here).
If a bill of sale is believed to be invalid and unenforceable but the creditor does not accept this and threatens to go ahead with repossessing the goods, a rarely used procedure known as applying to ’expunge’ (ie, remove) the registration of the bill of sale must be used. This is, in effect, a declaration of unenforceability. As bills of sale are registered in the High Court, the application has to be made to the High Court under Part 8 of the Civil Procedure Rules, even though the bill of sale may be securing a regulated credit agreement. Specialist advice is needed.
If the creditor has already repossessed the goods under an invalid or unregistered bill of sale, the creditor should be challenged and, while the client may still owe the balance outstanding under the loan agreement, it may be possible to persuade the creditor to write off the debt. Specialist advice may be needed.
 
Code of practice
Following concerns about the use of bills of sale secured against vehicles, the industry now operates under a code of practice.8For further discussion of the provisions of the code, see G Skipwith, ‘Bills of Sale: codes of practice’, Adviser 145 This includes the following.
    When providing pre-contract information, the client must also be provided with a copy of the Bill of Sale Borrower Information Sheet (available at ccta.co.uk/consumer/codes-of-practice).
    Clients in arrears can hand over the vehicle in full settlement of the debt and are not liable for any shortfall between the outstanding debt and the value of the vehicle.
    Consumer loans do not provide for ’balloon payments’ – ie, small, initial interest-only payments, with the capital being repaid in a single, final payment.
    Charges imposed on clients in arrears must be disclosed at the pre-contract stage and must only cover the creditor’s costs.
    If a client gets into difficulty, creditors must consider proposals for alternative payment arrangements and should repossess the vehicle only if attempts to arrange alternative ways of repayment fail.
    Creditors should take all reasonable steps to ensure that repossessed vehicles are sold for the highest obtainable market price.
 
1     Lee v Barnes [1886] 17 QBD 77 »
2     Re Morritt ex parte Official Receiver [1886] 18 QBD 222 »
3     s7 Bills of Sale Act (1878) Amendment Act 1882 »
4     s1(1)(b) Law of Property (Miscellaneous Provisions) Act 1989 »
5     Although a party may not attest the bill, a party’s agent, manager or employee may do so; Peace v Brookes [1895] 2 QB 451 »
6     s113 CCA 1974 »
7     s13 Bills of Sale Act (1878) Amendment Act 1882 »
8     For further discussion of the provisions of the code, see G Skipwith, ‘Bills of Sale: codes of practice’, Adviser 145 »
Checklist for action
Advisers should take the following action.
    Consider whether emergency action is necessary. If repossession of goods which are essential to the client is threatened, this is likely to be a priority debt. See Chapter 8.
    Check liability, including not only the validity of the bill of sale but also the enforceability of the agreement under the Consumer Credit Act.
    If the goods have already been repossessed, this is a non-priority debt. Assist the client to choose a strategy from Chapter 9.
Budget account
A budget account is a type of revolving credit (see here) provided by shops. The client can spend up to an agreed credit limit and makes regular repayments.
The legal position
This type of account is a regulated credit agreement, provided the credit is for no more than £25,000 (if the agreement was made before 6 April 2008) or £15,000 (if made before 1 May 1998).1s8 CCA 1974 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).
 
1     s8 CCA 1974 »
Special features
Many large stores offer budget account facilities, which – by requiring clients to pay a monthly amount even when they have not recently purchased anything – can be a powerful incentive to continue shopping at that store. Instant credit is often available, including interest-free credit (see here) on larger purchases.
These debts are non-priority debts (see Chapter 9).
Checklist for action
Advisers should take the following action.
    Check liability, including the enforceability of the agreement under the Consumer Credit Act 1974.
    Check to see if an application for breathing space would be appropriate (see here).
    Assist the client to choose a strategy from Chapter 9, as this is a non-priority debt.
Charge card
A charge card (eg, American Express) is not a credit card. Purchases are made and the amount is charged to the account, but the balance must be cleared in full at the end of each charging period (usually monthly).
The legal position
Agreements for charge cards made before 1 February 2011 are exempt from the Consumer Credit Act 1974 because there is no extended credit. Agreements for charge cards made on or after 1 February 2011 are not exempt unless there are only ’insignificant’ charges for the credit. There is no guidance in the legislation or in the Department for Business, Energy and Industrial Strategy guidance on what is ’significant’ in this context.
Special features
In order to obtain a charge card, it is necessary to pay an annual fee and show proof of a high income.
Checklist for action
Advisers should take the following action.
    Check liability, including whether the Consumer Credit Act 1974 applies and, if so, the enforceability of the agreement.
    Check to see if an application for breathing space would be an appropriate course of action (see here).
    Assist the client to choose a strategy from Chapter 9, as this is a non-priority debt.
Conditional sale agreement
A conditional sale agreement is a sale made on credit subject to conditions that give the client possession of the goods during the repayment period, but the goods only become the client’s property when the last payment has been made. Conditional sale agreements are mostly used for motor vehicles (and are very similar to hire purchase agreements – see here).
The legal position
Agreements are regulated credit agreements, provided the credit is for no more than £25,000 (if the agreement was made before 6 April 2008) or £15,000 (if made before 1 May 1998).1s8 CCA 1974 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).
 
1     s8 CCA 1974 »
Special features
Conditional sale has a number of special features. These are the same as those for hire purchase (see here) and the two types of credit operate in the same way.
Checklist for action
Advisers should take the following action.
    Consider whether emergency action is necessary to prevent repossession of goods (see Chapter 8).
    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 8, if this is a priority debt, or Chapter 9 if the goods are not essential.
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’ on here for 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 FCA has reiterated its expectations of creditors for the treatment of borrowers facing payment difficulties due to coronavirus as set out in the tailored support guidance. For further information, see: fca.org.uk/firms/borrowers-financial-difficulty-project. The FCA has reminded lenders they should provide support for borrowers who are affected by the rising cost of living and struggling with payments. The FCA has stated that the existing tailored coronavirus support guidance is also applicable to the cost of living crisis.
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 to see if an application for breathing space would be an appropriate course of action (see here).
    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.
Hire purchase agreement
A hire purchase agreement hires goods to the client for an agreed period. At the end of this period the client has the option to buy them (usually for a nominal amount). Hire purchase is predominantly used for motor vehicles and household goods. The creditor (who is the hirer) owns the goods, generally having bought them from the supplier who introduced the client to the hirer.
Alert: With effect from 25 November 2020, the FCA has published updated tailored support guidance regarding its expectations of how finance companies should support clients facing payment difficulties due to coronavirus who were not receiving payment deferral(s) under earlier guidance(s), including where they were not, or were no longer eligible for, such payment deferrals.
See ‘Credit card’ on here for details. The current version of the guidance is available at fca.org.uk/publication/finalised-guidance/consumer-credit-coronavirus-tailored-support-guidance.pdf.
Repossession action should not be started until all forbearance options have been considered. The FCA expects finance companies to be mindful of the need for fair and appropriate treatment of clients who may be particularly vulnerable, including as a result of circumstances related to coronavirus. In cases in which repossession of essential goods is threatened and such circumstances exist, you should point these out to the finance company and request that they do not seek repossession at this time.
The FCA has reiterated its expectations of creditors for the treatment of borrowers facing payment difficulties due to coronavirus as set out in the tailored support guidance. For further information, see: fca.org.uk/firms/borrowers-financial-difficulty-project. The FCA has reminded lenders they should provide support to borrowers who are affected by the rising cost of living and struggling with payments. The FCA has stated that the existing tailored coronavirus support guidance is also applicable to the cost of living crisis.
The legal position
Hire purchase agreements for £25,000 or less (if made before 6 April 2008) or £15,000 (if made before 1 May 1998) are regulated credit agreements. 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).
The contract is between the client and the hirer of the goods, rather than the supplier – ie, in the case of a car, between the client and the finance company, rather than with the garage. Therefore the hirer (ie, the finance company) is liable for compensation if there has been misrepresentation (see here) or the goods are faulty. Note: the Consumer Credit Act 1974 treats hire purchase and conditional sale in the same way and so what follows also applies to conditional sale agreements.
Special features
The goods belong to the hirer until the end of the agreement. The client must not sell them during this period without obtaining the hirer’s permission. The client can choose to return the goods to the hirer at any time during the lifetime of the agreement. The client must first give written notice to the hirer of her/his wish to terminate the agreement. So that there is no doubt as to what the client is doing (particularly if the hirer is threatening to repossess the goods), the letter should refer to the client exercising her/his right to terminate the agreement and request instructions from the hirer on returning the goods.
The amount payable (which the client does not have to pay before either the termination of the agreement or the return of the goods) depends on the amount already paid.
    If less than half the total purchase price (as stated on the agreement) has been paid, the client must pay either half the total purchase price minus the payments already made, or any arrears of payments which have become due by the termination date, whichever is greater. In this context, the ’total purchase price’ is the cash price of the goods plus the charges for credit.
    If more than half the total purchase price has already been paid, the client may return the goods and owes nothing further except any arrears on payments due.
    If the client has not taken reasonable care of the goods, s/he is liable to compensate the hirer.
The FCA takes the view that any ‘deferred payments’ are a ‘liability under the agreement which has accrued’ under s99(2) CCA 1974 and should be taken into account when calculating the amount payable by the client following termination. When clients inform hirers that they can no longer afford the repayments and wish to end the agreement, they are often advised to surrender the vehicle voluntarily. A ’voluntary surrender’ is not the same thing as a termination. A voluntary surrender has the same legal consequences as if the hirer had terminated the agreement and repossessed the goods. While hirers are under no duty to inform clients of their rights, they must not mislead them.
Hirers often put obstacles in the way of clients attempting to end their agreements – eg, by claiming that the client cannot end the agreement if it is in arrears or that the sum due on ending the agreement must be paid as a pre-condition of ending it. This is not correct; the right to end the agreement is unconditional. Default notices issued since 1 October 2008 must contain the following statement: ’You will need to pay X if you wish to end this agreement’ (where X is the amount calculated as above). The former Office of Fair Trading agreed that this sum is the amount the hirer is liable to pay if s/he exercises the right to terminate and is not a condition of termination. However, the regulations have still not yet been amended to reflect this.
If the hirer challenges the client’s right to end the agreement, specialist advice should be sought.
The creditor is not responsible for collecting the goods if a client terminates the agreement and, if the creditor has to collect the goods because the client refuses to return them, the client is liable for any charges incurred. On the other hand, if the creditor insists on collecting the goods, the client should challenge any collection charges the creditor seeks to impose.1See P Madge, ‘Take it Back’, Adviser 106
If the client claims to have terminated the agreement, specialist advice should be obtained if the creditor is nevertheless seeking to recover the total balance due under the agreement. The client loses the right to terminate the agreement if the hirer has already done so or called in the balance due under the agreement.
If the client defaults on payments, the hirer can repossess the goods. It must obtain a court order, unless:
    the client gives permission. This must be free and informed – ie, the client has not been misled about her/his rights; or
    less than one-third of the total purchase price has been paid and the goods are not on private premises.
If the hirer repossesses the goods (including in ’voluntary surrender’ cases where the client returns the goods without terminating the agreement in writing), the client is liable for the outstanding balance due under the agreement, less the sale proceeds of the goods.2First Response v Donnelly, Durham County Court, 16 October 2006 (Adviser 122 consumer abstracts). For a discussion on challenging this approach to creditor termination, see C Meehan and P Madge, ‘Letters’, Adviser 125 and 127.
In 2018, BrightHouse (a company that sells domestic items on hire purchase) announced while giving evidence to the Treasury Select Committee that it now has a policy that:
    clients can return goods without incurring any further liability;
    the terms of loans can be extended without clients incurring any further charges;
    where clients do not pay or return the goods, the debt will be written off after 120 days if no contact can be made with the client or no payment arrangement can be made; and
    it no longer repossess goods.3See also
    https://debtcamel.co.uk/brighthouse-never-never
BrightHouse, which is now in administration, has re-opened several of its branches to collect money owed to the company. The administrator has confirmed that clients will not be threatened with repossession of goods. The FCA has said that its Rent to Own guidance (see Alert on here) applies during the coronavirus outbreak notwithstanding that the company is in administration.
Insurance
Many hire purchase/conditional sale agreements also incorporate credit agreements for insurance sold as part of the same transaction – eg:
    payment protection insurance to cover the repayments in the event of the client’s unemployment, sickness, disability or death;
    mechanical breakdown insurance;
    vehicle recovery insurance;
    accident assistance insurance;
    extended warranties or guarantees; and
    guaranteed asset protection, also known as shortfall insurance, which covers any shortfall if, following an accident, the write-off value of the goods is less than the balance owed to the creditor.
A credit agreement for such insurance (known as the ’subsidiary agreement’) is a different, separate agreement to the hire purchase/conditional sale (known as the ’principal agreement’) . However, a subsidiary agreement for such insurance (but not for any other insurance or products) can be included in the same document as the principal agreement containing only the consumer credit heading and signature box for the principal agreement.
    The client does not have the right to terminate the subsidiary agreement and so termination of the principal agreement does not affect her/his liability under the subsidiary agreement. The client must deal with this separately – eg, settle the agreement early, complain about any mis-selling of the insurance or raise any unenforceability issues.
    When calculating whether the client has paid one-third or one-half of the total price in connection with protected goods and termination rights (see above), you should take into account only the payments due or made in relation to the principal agreement. You should check the one-third and one-half figures in the agreement.
    If the client was required to take out payment protection insurance as a condition of making the hire purchase/conditional sale agreement, it may be that both agreements are irredeemably unenforceable and specialist advice should be sought.
Personal contract purchases
Personal contract purchases (also known as ‘contract purchase plans’) are an increasingly popular form of motor vehicle finance. A personal contract purchase is a form of hire purchase agreement, but differs in one important respect: the client does not pay the purchase price of the vehicle (together with interest). Instead, s/he pays the amount the finance company estimates the vehicle will lose in value (ie, the depreciation over the term of the agreement, typically 24 or 36 months) together with interest minus any deposit by monthly instalments. The resulting figure (ie, the purchase price less depreciation) is known as the guaranteed minimum future value (GMFV). The monthly payments are usually less than under a standard hire purchase agreement. At the end of the agreement and assuming the client has made all the payments due, the client has the following options.
    Buy the vehicle. The client can pay a ‘balloon payment’, which is a lump sum representing the difference between the guaranteed minimum future value and the original purchase price together with a nominal fee, in order to own the vehicle. This is likely to be more expensive than taking out a standard hire purchase agreement. For more information, see moneysavingexpert.com/loans/personal-contract-purchase.
    Exchange the old vehicle for a new one under another personal contract purchase. Should the guaranteed minimum future value be more than the actual value of the vehicle, this ‘equity’ can be put towards the deposit on the new vehicle but cannot be taken in cash.
    Return the vehicle. The client has nothing further to pay except possibly:
      any excess mileage charge. This will arise if the vehicle has done more miles than was agreed at the start of the contract. The finance company uses the estimated mileage in the calculation of the guaranteed minimum future value and so the client needs to be realistic in assessing this in order to avoid the risk of having to pay this charge;
      the cost of any damage to the vehicle, other than normal wear and tear (as with a standard hire purchase agreement if the vehicle is returned).
As with other hire purchase agreements, the client can voluntarily terminate the agreement and return the car. The issue might then arise as to whether the finance company can recover any excess mileage charges. It is arguable that the legislation (sections 99(2), 100(1) and 100(4) Consumer Credit Act 1974) makes no provision for the recovery of such charges and, indeed, is inconsistent with the right to do so and, therefore, is void under section 173. Some finance companies have argued that exceeding mileage limits falls under ‘failing to take reasonable care of the goods’ (section 100(4)), as the value of the vehicle will have been reduced, but ‘reasonable care’ in law generally means the duty to avoid causing physical damage, not pure economic loss. There has to date been no decision by any court on this issue.4See G Skipwith, ‘Consultancy corner: PCPs’, Adviser 185
In addition to the FCA guidance on hire purchase agreements (see above), in relation to this type of agreement the FCA has made clear that, when granting a payment deferral or other option to assist clients, finance companies should not recalculate the GMFV based on temporarily depressed market conditions due to the effects of the coronavirus outbreak in an attempt to recover more of the original vehicle value through the periodic payments. Where the agreement comes to an end during the period of the FCA guidance and the client wishes to retain the vehicle but does not have the funds to cover the balloon payment due to financial difficulties related to the coronavirus outbreak, finance companies should work with the client to find an appropriate solution. Where the client wishes to return the vehicle but is unable to do so due to social distancing measures, the finance company should warn the client that s/he should not use the vehicle once the agreement has been terminated or has come to an end.
 
1     See P Madge, ‘Take it Back’, Adviser 106 »
2     First Response v Donnelly, Durham County Court, 16 October 2006 (Adviser 122 consumer abstracts). For a discussion on challenging this approach to creditor termination, see C Meehan and P Madge, ‘Letters’, Adviser 125 and 127. »
4     See G Skipwith, ‘Consultancy corner: PCPs’, Adviser 185 »
Checklist for action
Advisers should take the following action.
    Consider whether emergency action is necessary to prevent repossession of goods (see Chapter 8).
    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 8, if this is a priority debt, or Chapter 9 if the goods are not essential.
Mail order catalogue
Mail order catalogues offer a way of buying goods by post and usually spread payment over a period of weeks by instalments. Payments are sometimes collected by an agent – often a friend or neighbour of the client. The arrangement is usually an ongoing one.
The legal position
Catalogue debts are regulated credit agreements whether or not there is a charge for credit, provided the credit is for no more than £25,000 (if the arrangement began before 6 April 2008) or £15,000 (if before 1 May 1998). If the arrangement began on or after 6 April 2008, the agreement is regulated regardless of the amount, unless it is exempt (see here).
Some mail order companies provide goods on the basis that they are paid for in full on receipt. These agreements are not regulated credit agreements. If in doubt about whether a catalogue debt is regulated, obtain specialist advice.
Special features
Often clients do not receive an agreement to sign. This means that the client’s liability for the debt is enforceable only with a court order if the arrangement began on or after 6 April 2007.1s127(3) CCA 1974 (repealed from 6 April 2008, but not retrospectively, by s15 and Sch 3 para 11 CCA 2006)
Mail order purchases can be cancelled by returning the goods within seven days of receipt.
Catalogues are often particularly important to people on low incomes as the only way of affording essential items such as bedding or clothing.
 
1     s127(3) CCA 1974 (repealed from 6 April 2008, but not retrospectively, by s15 and Sch 3 para 11 CCA 2006) »
Checklist for action
Advisers should take the following action.
    Check liability by asking the creditor to supply a copy of the agreement signed by the client.
    Check to see if an application for breathing space would be an appropriate course of action (see here).
    Check that the goods were of satisfactory quality and as described (see here).
    If the client decides not to challenge liability, assist her/him to choose a strategy from Chapter 9, as this is a non-priority debt unless the use of mail order catalogues is the only way in which s/he can buy essential goods (see here).