SMMT strongly recommends an end to voluntary termination provisions, calling the credit rules outdated and open to abuse.
Responding to a DTI consultation on voluntary terminations of hire purchase and conditional sale agreements, SMMT has called for a level playing field for all forms of lending and a system which offers more protection for vulnerable consumers.
The abuse of the current voluntary termination costs the industry around £80 million which has subsequently increased the cost of providing this type of finance to the consumer.
In addition, as the number of voluntary terminations increase, the residual values of all vehicles decreases, reducing vehicle equity for all owners.
The voluntary termination provisions are taken from an old piece of legislation which was set up to protect the consumer from unfair contract terms. The Consumer Credit Act 1974 permits a customer who has purchased goods on hire purchase or conditional sale agreements to hand back the goods to the finance company, without further liability, providing that 50 per cent of the total amount has been paid.
However, the credit market is now remarkably different and SMMT believes that the current voluntary termination provisions are no longer necessary and play no effective role in consumer protection law.
A major review of consumer credit legislation, undertaken by DTI, will change the framework within which voluntary terminations operate and provide more explicit and effective consumer protection.
These measures include greater transparency in advertising, agreements and in the provision of information, as well as to make early settlements fairer. It also stipulates a reform in the licensing regime and enforcement powers of the OFT and an improvement in consumer redress by introducing an alternative dispute resolution mechanism.
In response to the consultation, Christopher Macgowan, chief executive of SMMT said, ” The do nothing option in the DTI”s consultation is not feasible in a modern, fair and efficient credit market. To increase the remaining recovery amount to 75 per cent is merely replacing one set of arbitrary values with another. The removal of voluntary termination provisions is the only solution with viable benefits to the consumer and the industry.”