The current COVID-19 restrictions mean asset and motor finance lenders are unable to collect vehicles as quickly as they’d like when a customer voluntary terminates a hire purchase or conditional sale agreement under Section 99(1) of the Consumer Credit Act 1974. Can you ask your customer to carry on taking care of the vehicle whilst you make arrangements to collect it?
After an agreement has been voluntarily terminated, the customer is likely to be a gratuitous bailee of the vehicle. This type of bailment is known as a ‘deposit’ because the customer keeps possession of the vehicle without payment.
It’s likely there is two possible types of bailments: (a) involuntary deposit or (b) necessary deposit.
Involuntary deposit – this is where the vehicle is left with the customer against her wishes. In most cases, the customer will need to take reasonable care of the vehicle. But the customer will normally need to make good any damage caused deliberately but not negligently.
Necessary deposit – this is where the vehicle is left with a customer because of a peculiar stress or set of circumstances such as an unforeseen disaster (which the Covid-19 pandemic and lockdown arguably could fall into). The customer is likely to be responsible in negligence or bad faith whilst she has the vehicle.
So how do you protect your position and the vehicle? Talk to your customer. Ask if they’re willing to hold on to the vehicle whilst you make your collection arrangements. And talk to them about insurance, and who is going to pay for it.
To ask the Chancellor of the Exchequer, what steps is he taking to limit enforcement action by debt collection agencies during the COVID019 pandemic.”
HM Treasury’s response is:
“The Government’s priority is to support as many people as possible who have had extreme disruption to their lives as a result of COVID-19. Debt collection firms are regulated by the Financial Conduct Authority (FCA).
The FCA has announced a series of measures to provide consumers with temporary relief if they are facing payment difficulties during the COVID-19 pandemic. This includes requiring firms to provide consumers with 0% interest on the first £500 of an arranged overdraft for three months and allowing consumers either a 3-month payment holiday or to make nominal payments towards credit cards, store cards, catalogue credit and certain personal loan agreements.”
If you’ve spoken to me over the last few weeks, you’ll know much of my working life has been spent thinking about concessions, unilateral variations and modifying agreements (exciting, no?). And some may say that modifying agreements are a little bit like lockdown: you know it’s for the best but it isn’t half frustrating trying to make it work (or maybe I’ve just got lockdown fever…).
I’ve been supporting the Finance & Leasing Association and its lobbying of HM Treasury to help make the modifying agreement provisions easier for lenders to comply with. There’s really good reasons why this should happen (and I’ve just written an update on my commentary on CONC for Issue 111 of Butterworths Financial Regulation Service dealing with this); at the very least, concessions don’t create the best of customer journeys.
The FLA asked me last week whether I could put together some infographics (it seems the recent ones on the FCA’s temporary guidance have gone down well) to help lobby HMT. Now they’ve gone into HMT, I thought I’d share them (and there are four).
Here’s the first: a typical customer journey through a modifying agreement where it will be sent to the customer by post:
And here’s the second: a typical customer journey through a modifying agreement where it will be sent to the customer online:
Here’s the third: some thoughts on the legal requirements for modifying agreements (and the slide is just scratching the surface – there are wonderfully complicated issues including whether there’s a right to cancel under the Financial Services (Distance Marketing) Regulations 2004 or whether a creditworthiness assessment needs to be made under CONC 5.2A):
And here’s the fourth (and final) one: a possible solution for firms if HMT allows a modifying agreement ‘lite’ approach (as I’ve called it; can’t wait for the royalties to roll in….):
It goes without saying that the ‘lite’ approach is plainly easier: the customer knows where she stands instantly and the document provides a clear and simple explanation of the modified agreement’s terms.
Surely HMT cannot say no? Or can they? Time will tell.
– entering into an agreement made under the BBLS is not a regulated activity because such agreements will be exempt credit agreements (but debt-collecting of those agreements will remain a regulated activity);
– there is no requirement to undertake a creditworthiness or affordability search before entering into an agreement under the BBLS;
– the unfair relationship provisions in Sections 140A to 140C of the Consumer Credit Act 1974 are expected to be dis-applied for agreements made under BBLS ; and
– the FCA’s expectations on creditworthiness assessments under the CBILS.
The effect of this Order is to amend Article 60C of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (the RAO) to add a new exemption for credit agreements entered into under the Bounce Back Loan Scheme (but the exemption will not apply to debt-collecting under such agreements).
Interestingly, the explanatory memorandum says this Order is needed to “urgently remove loans made under BBLS from a highly prescriptive consumer credit regulatory regime which is currently inhibiting lenders from granting loans to small businesses”. It remains to be seen whether HM Treasury will have a similar view on the proposed revisions to the modifying agreement provisions.
After the UK Financial Conduct Authority introduced temporary guidance to consumer credit firms dealing with certain customers needing COVID-19 related payment holidays on 14 April 2020 (for more, see our earlier post), I’ve produced a one page summary of tips for consumer communications:
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