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A guide to voluntary termination: Your rights

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  • A guide to voluntary termination: Your rights

    As a public forum, the content posted by me is intended as guidance in relation to your rights and responsibilities. It does not constitute legal advice or create any kind of special or other relationship. If you follow guidance, advice or other information I publish then you do so at your own risk and cost, and I cannot accept any liability. You should always seek independent legal advice by going to Law Society's Find A Solicitor or contact your local Citizen's Advice Bureau.

    If you have any questions please start a new thread HERE (you will need to register) and tag R0b by using @R0b if you need help

    For Sample Template Letters please CLICK HERE

    Contents
    1. Introduction
    2. Voluntary surrender vs. voluntary termination vs. early settlement
    3. What type of finance agreement do I have?
    4.
    Working out how much you have paid (or need to pay)
    5. The law relating to voluntary termination
    6. Checklist when exercising your voluntary termination right
    7. FAQs



    1. Introduction
    You may have heard of friends or family slinging around the words 'voluntary termination' in relation to your car finance but you are not entirely sure what it means. The purpose of this guide is to give you a basic introduction about voluntary termination, what it is, how it can be used and some common tips and tricks lenders might use when trying to exercise the voluntary termination method.

    I would like to highlight that voluntary termination is a bit of a grey area in terms of your maximum liability (which is further discussed below), particularly surrounding excess mileage charges. What I mean by this is that there is no legally binding case law on this point and it is currently a matter of interpretation on a case by case basis. That being said, (in my view) the law on voluntary termination is quite clear cut, yet sadly, the lenders don't see it that way and will do whatever it takes to recoup as much money from you as they can.

    Before exercising your right to terminate, it is recommended that you should read the whole of this guide so that you can make an informed decision as to whether or not you should voluntarily terminate the agreement.


    2. Voluntary Surrender vs. Voluntary Termination vs. Early Settlement
    I see a lot of people on this forum referencing voluntary surrender as opposed to voluntary termination. Let me be clear from the offset, they are not the same thing and can have two entirely different outcomes in terms of your liability liability!

    Whereas voluntary termination is a indefeasible statutory right under the Consumer Credit Act that allows you to terminate the agreement at any time provided that the final payment is not due (usually the balloon payment), your liability will be limited in accordance with the Consumer Credit Act (50% of the total price payable), voluntary surrender means that you are effectively surrendering the vehicle and allowing the lender to repossess the goods. You will then be liable for the total amount payable under the agreement LESS:

    - the proceeds from the sale of the vehicle;
    - the instalments already paid under the agreement;
    - the option to purchase price (balloon payment)

    Early settlement works in a slightly different way to voluntary termination or volunatry surrender. You can request a quote from the lender to settle the agreement early and in which case, the lender is obliged to send you an early settlement offer in a written format which is usually valid for a short period of time e.g. 14 days should you wish to take them up on it. The offer usually consists of the outstanding balance under the agreement less the interest amount which is calculated on the number of instalments remaining.

    It is usually the case that voluntary termination is the best route to take if you want to limit your liability as much as possible, this is followed by early settlement and then voluntary surrender (which is never recommended unless as a last resort and all else is not an option). Be aware, I have seen some lenders say attempt to bully people into agreeing to voluntarily surrendering their vehicle without knowing the consequences. In other cases, lenders such as Moneybarn ask you if you want to voluntarily surrender or terminate the agreement, or that there is insufficient information (this is not the case if you have used a template from here). Be sure to stick to your guns and if they are making life difficult, put in a formal complaint, they will soon change their mind.

    If you are not comfortable talking to the lender over the phone or you think that they might be using underhand tactics, download a recording app on your phone and record the call so you can use it as evidence as part of a complaint. Provided you only use it for your own domestic affairs, the Data Protection Act does not apply in this case.


    3. What type of finance agreement do I have?

    Hire Purchase Agreement:
    A HP agreement is a type of agreement which the car is hired to you over a fixed period of time. At the end of that fixed period you have the option to purchase the car (though you are not under an obligation to do so) or return it back to the lender. Under a true HP agreement, you are paying both the depreciation and the value of the car, which are likely to be a lot higher than a PCP agreement. HP agreements are useful if you intend on owning the vehicle at the end of the hire period.

    Conditional Sale Agreement
    Conditional sale agreements are almost identical to a hire purchase agreement except for one difference: under a hire purchase agreement, you have the option to purchase the car at the end of the agreement whereas a conditional sale obliges you to purchase the car and make the final payment.

    Personal contract purchase (PCP):
    Similar to conditional sale and hire purchase agreements, PCP agreements tend to have lower monthly instalments because they only cover the depreciation over the term of the agreement, leaving a much larger balloon payment at the end. PCP agreements are becoming increasingly popular with consumers but do be careful if you intend on using the VT process. Because you are only paying off the depreciation only (and not the value too), you are likely to be close to the end of the agreement before you reach the 50% mark.

    Personal Contract Hire (PCH):
    a PCH agreement is essentially a hire agreement over a long period of time, returning it at the end of the agreed term. One thing to note is that there are strict limits on the mileage you can do, and if you go over, you may get stung. Be sure you estimate your annual mileage correctly but as a guide, the average number of miles is around 10-12k per year.

    Fixed Sum Loan Agreement:
    Fixed sum loan agreements are effectively personal loans that you would usually obtain from your bank however the loan can only be used for the purchase of the car where the lender will pay the dealership directly. Ownership of the car will immediately pass to you on entering into the agreement and you repay the monthly instalments in accordance with the terms. Be aware that some finance companies such as Santander and FCA Automotive Services (a subsidiary of Fiat) offer fixed sum loan of agreements.


    4. Working out how much you have paid (or need to pay)
    As already discussed above, you do can terminate the contract at any time and do not need to have paid half of the total amount payable. However, if you want to work out how much you have paid to date then there are two ways in which you can go about it.

    The ‘rough and easy’ way
    In your contract, you should find a clause or heading that says “Termination: Your Rights”, if you can’t find it then that may be an indication that your contract may be a different type of contract (see above to check the type of contract you may have). The statement should tell you how much you need to pay to meet half the total amount payable. Once you have found this, you simply calculate the monthly instalment amount you pay each month with the number of months you have paid so far.
    Example
    The figure in the “Termination: Your Rights” statement says that you must pay £6,217.06 to have met the halfway mark. Your monthly instalments are £236.22 and to date, you have paid 27 instalments. Your calculation would be as follows:
    £236.22 x 27 = £6,377.94
    As you can see, you have paid more than £6,127.06 and so you can terminate the contract without any further liability provided you have no outstanding instalments and the car is in a reasonable condition.


    5. The law relating to voluntary termination
    There are several provisions under the CCA which provides certain rights to a debtor in relation to voluntary termination. I have set out the provisions below and highlighted the key words in each section which are most relevant.


    Section 99: The right to terminate the agreement at any time

    (1) At any time before the final payment by the debtor under a regulated hire-purchase or regulated conditional sale agreement falls due, the debtor shall be entitled to terminate the agreement by giving notice to any person entitled or authorised to receive the sums payable under the agreement.

    (2) Termination of an agreement under subsection (1) does not affect any liability under the agreement which has accrued before the termination.
    Section 100: Liability is restricted to 50%

    (1) Where a regulated hire-purchase or regulated conditional sale agreement is terminated under section 99 the debtor shall be liable, unless the agreement provides for a smaller payment, or does not provide for any payment, to pay to the creditor the amount (if any) by which one-half of the total price exceeds the aggregate of the sums paid and the sums due in respect of the total price immediately before the termination.

    (4) If the debtor has contravened an obligation to take reasonable care of the goods or land, the amount arrived at under subsection (1) shall be increased by the sum required to recompense the creditor for that contravention, and subsection (2) shall have effect accordingly.
    Section 173: Conflicting contractual terms are void and not enforceable

    (1) A term contained in a regulated agreement or linked transaction, or in any other agreement relating to an actual or prospective regulated agreement or linked transaction, is void if, and to the extent that, it is inconsistent with a provision for the protection of the debtor or hirer or his relative or any surety contained in this Act or in any regulation made under this Act.

    (2) Where a provision specifies the duty or liability of the debtor or hirer or his relative or any surety in certain circumstances, a term is inconsistent with that provision if it purports to impose, directly or indirectly, an additional duty or liability on him in those circumstances.
    Section 189: Useful definitions

    “total price” means the total sum payable by the debtor under a hire-purchase agreement or a conditional sale agreement, including any sum payable on the exercise of an option to purchase, but excluding any sum payable as a penalty or as compensation or damages for a breach of the agreement
    6. Checklist when exercising the voluntary termination right

    Cleanliness of the car
    It is not necessary to have the vehicle cleaned professionally however out of courtesy, you should at least give it a clean yourself, both inside and out. If you do choose to have the car valeted make sure to get a receipt as proof.

    Take copies of all of the vehicle documentation
    Recent reports have suggested that some lenders are alleging that certain documentation such as the servicing manual or a valid MOT or even spare keys were not present when the vehicle was collected. Again, this is likely to be another way in which lenders will try to get that little bit extra from you.
    It would be sensible therefore, to take copies of all documentation you have on the vehicle e.g. V5C, MOT, repair receipts, servicing manual, spare keys or tyre etc.

    Do not sign any paperwork you are not comfortable signing
    It is common for lenders to send out some paperwork for you to sign and return but there is no legal obligation for you to oblige. Documentation may include:

    (a) a receipt which states that you agree to pay for any damages upon inspection of the vehicle; and
    (b) you agree to pay any collection charges incurred by the lender.

    The purpose of the documents is an attempt to induce you in waiving any limited liability under the CCA by signing the documents, it will certainly make your life a lot more difficult. If you sign the paperwork regarding collection fees or damages, the lender can argue that you had agreed to pay those charges and it could become an uphill struggle if the matter went to court.

    Some lenders are becoming increasingly aggressive in their ways to pressure debtors to sign the paperwork or they will refuse to accept the voluntary termination. Lenders have no right to refuse the termination (which would have happened anyway when you gave them notice), but their conduct and behaviour could give rise to a claim of undue pressure as well aggressive commercial practices, contrary to the Consumer Protection from Unfair Trading Regulations 2008.

    Your only obligation is to give notice to the lender explaining that you are terminating the contract, so it is therefore advisable that you do not to sign any paperwork.

    Service the vehicle regularly
    You should try and make sure that the car is serviced on a regular basis and where possible, in accordance with the servicing manual. This can help deflect any arguments by the lender that the car has not been returned to them in a reasonable condition, particularly if they are claiming excess mileage charges. By regularly servicing the car, you can show that you took steps to maintain the car in a reasonable condition.

    Photographs, photographs, photographs
    I cannot stress enough about making sure you take plenty of photographs of the car and at every angle (I’ll bet you the lender’s agent will) including any potential dents, scratches or marks on the car. This might not sound so obvious but around 80% of the disputes I am aware of, relate to the condition of the vehicle.

    Lenders have a habit of recovering as much money out of you from the voluntary termination and you do not want to give them any wiggle room. I have also heard that on some occasions, an inspection of the car is not always carried out immediately and may in fact be some weeks after the car has been returned. In between that time there may be scratches or marks that weren’t there at the time of handing it over but nonetheless, the lender will look to you for compensation, not the car auctioneers. Taking photos prior to the handover gives you the opportunity to compare and raise any discrepancies.

    More recently, some lenders have sought to argue that because the photos are not timestamped, the authenticity is questionable (the same could be said about their photographs with no timestamps on). To counter this argument, I would recommend using an app with timestamp capabilities. Below are two apps with these capabilities and which I have used personally and work perfectly well though I cannot attest to any other app with timestamp capabilities.

    Timestamp App for iPhones
    https://itunes.apple.com/gb/app/time...327756085?mt=8

    Timestamp App for Android
    https://play.google.com/store/apps/d...afree&hl=en_GB


    7. FAQs

    Can a lender prevent me from terminating the agreement voluntarily?
    The ability to VT an agreement is set out in law and lenders cannot carve this out of the contract as the right to terminate is an indefeasible one. It is a unilateral right and unconditional meaning that it is not subject to the lender's acceptance or on the condition of signing their paperwork. This is just another blockade they attempt to put in the way all the while trying to suggest that you must carry on paying your monthly instalments until the paperwork is received. Nothing within the wording of the CCA suggests that you have to do anything more other than give the lender notice of termination.

    The lender has sent me a bill relating repairs for damage to the vehicle
    Lenders may charge you for repairs to the vehicle if the car was not returned in a reasonable condition. The CCA does not define what is reasonable however the guidance below may indicate that the vehicle is in a reasonable condition:

    1. Regular servicing
    2. Valid MOT
    3. Small stone chips and scratches resulting from motorway driving
    4. Any minor scratches or dents
    5. Minor scuff marks on alloy wheels

    To reiterate, the above is just a guide and is very much subjective. It is up to you to decide whether the vehicle is deemed to be in a reasonable condition. Most of the time, lenders will sell the vehicle at auction and despite charging for repairs, will not have carried out the repairs and so there has been no loss. In any event, the lender cannot guarantee the vehicle would have sold for more at auction if the repairs were done as the vehicle is being sold at auction and therefore have no control over the selling price.

    Unlike commercial rental vehicles, it is arguable that the vehicle does not need to meet a certain standard as it was intended for private use and so the vehicle is not required to be at a certain standard other than a reasonable condition that is roadworthy. In addition, the lender would need to provide some form of substantial proof of the market value of the vehicle in a reasonable condition and the market value of the vehicle in its current condition. This can be quite difficult for lenders to quantify as many private sellers may charge various prices with little discrepancy between the condition of the vehicles.

    Finally, in order to reclaim any charges for damage to the vehicle, the lender must make an application to the court. For the reasons above, the lender is unlikely to do this as it would not be commercially viable and cost effective as such claims are likely to end up in the small claims court and legal fees are generally not recoverable.

    The lender has referred me to the BVRLA guidelines
    The BVRLA guidelines are a set of conditions generally used in the commercial sector related to the hiring and financing of commercial vehicles. The guidelines are strict in terms of what damage can be accrued whilst it is in your possession. However, the guidelines do make a few assumptions such as the vehicle being brand new so the age is of the vehicle is not taken into account if it is not new. Overall, they seem to produce a much higher standard than what is required under the CCA i.e. reasonable condition. Therefore, the BVRLA guidelines can be argued are not applicable to consumer contracts.

    There are other trade associations who have been out there much longer than the BVRLA which produce their own guidelines on how the vehicle is determined as being reasonable. I would suggest that the more appropriate guidance would be the CAP Vehicle Conditions which offers a clean, average or below average condition (click image below).




    I am being asked by the lender to pay collection charges
    This is another common claim by the lenders and the simple fact is that they cannot charge you to collect the vehicle. The Consumer Credit Act states that once you have invoked your right to terminate under section 99, lender’s cannot impose any further liability which includes charging for collection of the vehicle.

    Although it has been previously mentioned that you need only deliver the vehicle a reasonable distance, I have yet to discover any conclusive evidence that this is obligatory. Therefore, if you wish to deliver the vehicle, it would not be unreasonable to receive reasonable expenses in doing so.

    Does voluntary termination affect my credit file
    No it will not affect your credit rating at all. However, lenders can put a mark on your file to say that you voluntarily terminated the agreement. The effect of this is that it may alert other lenders who run a search on your report that you have not seen your agreement through to the end. This may or may not be a factor in the decision criteria of the lender which could result in being accepted but you are then offered a higher interest rate or the lender may reject you on the basis that you run the risk of terminating early.

    When can I cancel my direct debit?
    You can cancel your direct debit as soon as your agreement is terminated. When your agreement is terminated will be depend on two things: (1) when the lender receives your notice of termination and (2) when you said the agreement will terminate. For example, the template letter stipulates that the agreement will terminate effective immediately, therefore as soon as the lender receives the letter (in accordance with the usual postal rules) the agreement will automatically terminate. Despite lenders who might tell you otherwise, you are not obliged to continue payments until the vehicle has been collected. The CCA only requires you to give notice of termination to the lender and once the agreement is terminated, your obligations under fall away.

    Is it lawful for lenders to charge for excess mileage?
    The issue of excess mileage charges is somewhat a grey area as there is no legally binding authority that gives a definitive answer to this question. There are, however, two sides to the argument. On the one hand, lenders will say generally say that these excess mileage charges are specifically made out in the agreement but also that they should be entitled under section 100(4) of the Consumer Credit Act 1974 by failing to take 'reasonable care of the goods'. It is, in my opinion, that the charges can't be enforced and it all rests on the meaning of 'reasonable care'. I've set out below my reasons why these charges are not recoverable.

    What evidence does the lender have to prove it's case?
    As above, I am unable to find any direct authority from case law to suggest that these charges can be enforced. The lender will generally seek to argue its case on three points: the contractual clause, section 99(2) and section 100(4).

    1. The contractual excess mileage clause
    This argument is relatively easy to refute. When you exercise your right under section 99(1) of the Consumer Credit Act (CCA) to terminate the agreement, section 100(1) is immediately invoked. This provision states "Where a regulated hire-purchase or regulated conditional sale agreement is terminated under section 99 the debtor shall be liable ... one-half of the total price exceeds the aggregate of the sums paid and the sums due in respect of the total price immediately before the termination" (emphasis added). Section 100(1) makes it pretty clear that where termination of the agreement is effected under section 99 (in other words you gave written notice to the lender), then your maximum liability will be 50% total price under the agreement calculated on the sums paid to date and any sums which became due immediately before termination.

    As section 100(1) is a statutory provision, the general rule is that in the event of a conflict between the provisions of the legislation and any contractual term, the legislation will prevail. This is further confirmed in section 173 of the CCA where it also confirms that you cannot contract out of this legislation. The section says the following:

    "(1) A term contained in a regulated agreement or linked transaction, or in any other agreement relating to an actual or prospective regulated agreement or linked transaction, is void if, and to the extent that, it is inconsistent with a provision for the protection of the debtor or hirer or his relative or any surety contained in this Act or in any regulation made under this Act.

    (2) Where a provision specifies the duty or liability of the debtor or hirer or his relative or any surety in certain circumstances, a term is inconsistent with that provision if it purports to impose, directly or indirectly, an additional duty or liability on him in those circumstances."


    As you can see, the excess mileage clause is inconsistent with the provisions of section 100(1) and so by law, it is deemed void and unenforceable. The lender therefore cannot rely on this clause to suggest that it is entitled to the charges.

    2. Section 99(2) - Termination under section 99(1) shall not affect any liability accrued before the agreement was terminated
    There may be three arguments to be made against this point. First of all, the word "accrued" indicates in the past and it is arguable that this provision actually means any sums which have already been paid to the lender before the agreement was terminated cannot be recovered. The purpose of this provision is to prevent the hirer from paying 90% of the total amount and then suddenly recovering 40% as his/her liability is limited under section 100(1) to 50%.

    The second argument is that even if the charges are recoverable under this head, section 100(1) says that only the sums which was due immediately before termination can be recoverable. As the invoice for the excess mileage charges was instituted after termination of the agreement, it is therefore unarguable that those sums did not become due and payable prior to termination. If, for example, the lender came out to inspect the car and issued an invoice before termination, then arguably that invoice for the excess mileage charges could be recoverable (but note the final argument below).

    The final point is the most obvious in that irrespective of whether the excess mileage charges are recoverable, your liability is limited to 50% under section 100(1). In any event, the definition of "total price" excludes the recoverability of compensation, damages for breach or penalty charges as explained in the first point.

    3. The hirer failed to care reasonable care of the car under section 100(4) by exceeding the agreed mileage.
    This is probably the most argued point between the lender and the hirer and what I would consider the "grey area". The lender's argument in truth (including the previous two points) is that it is seeking to recover its loss for "pure economic loss". In other words, financial loss that does not flow from any physical damage rather it is loss to the thing itself i.e. diminution in value. Generally, the courts will not allow claims for pure economic loss except in two instances: (1) where there is a special relationship e.g. employer/employee, solicitor/client etc. or (2) where it is expressly written into the contract. The leading case on this is Murphy v Brentwood DC [1991] 1 AC 398:

    “The infliction of physical injury to the person or property of another universally requires to be justified. The causing of economic loss does not. If it is to be categorised as wrongful it is necessary to find some factor beyond the mere occurrence of the loss and the fact that its occurrence could be foreseen. Thus the categorisation of damage as economic serves at least the useful purpose of indicating that something more is required.” as per Lord Oliver.

    "no duty arises in the acquisition of defective property in the absence of a special relationship of proximity imposing on the tortfeasor a duty of care to safeguard the plaintiff from economic loss" as per Lord Bridge.

    Unfortunately, Parliament did not include a definition of "reasonable care" but it is a familiar phrase heard by the courts and is well established in negligence claims that it means the duty to avoid causing physical damage or injury, but not pure economic loss (as per Murphy above). In the absence of a definition, the court has to determine what Parliament intended "reasonable care" in this context to mean. The court may take into account a wide range of external aids outside of the legislation which might shed light on the meaning of the words used in the Act. For example, in MPloy Group Ltd v Denso Manufacturing UK Ltd [2014] EWHC 2992 (Comm), the High Court held that the Guidance from the Department of Trade and Industry (DTI) was admissible as evidence to interpret the meaning of words in question:

    "I also consider that the DTI Guidance forms a part of the admissible material, or “factual matrix”, against which the APW Contract should be construed."

    In light of the above, there was a consultation carried out in 2004 published by the DTI on the subject of voluntary termination at a point where the government were considering the removal of sections 99 and 100 when implementing the 2006 consumer credit updates (click here to view the consultation paper). You will that section 6 of the consultation (see page 6) sets out the legal framework and understanding of sections 99 and 100. In particular, the fourth bullet point confirms that you must return the car in a reasonable "condition". The Oxford Dictionary defines condition as meaning:

    "the state of something with regard to its appearance, quality, or working order."

    This definition would fit with the understanding in the consultation paper in that the duty to take reasonable care is concerned with the physical damage, not financial loss. Given the lack of evidence and other materials available, the consultation paper should, carry significant weight as to the understanding of "reasonable care".

    Summary
    So, to reiterate the original question, are you liable for excess mileage? The are arguments on both sides but from looking at the above evidence, there seems to be more weighted in favour the negative. The main point is that in the absence of any express wording putting an obligation on the hirer to avoid causing financial loss, any duty to do so would fall outside of the scope. I will however, let you make your own mind up on this.
    Last edited by R0b; 6th February 2018, 07:43:AM.
    DISCLAIMER: ANY CONTENT I POST IS INTENDED FOR EDUCATIONAL AND INFORMATIONAL PURPOSES ONLY AND IS NOT A REPLACEMENT OR SUBSTITUTION FOR LEGAL ADVICE. I MAKE NO REPRESENTATIONS AS TO THE ACCURACY OF MY POSTS NOR DO I ASSUME ANY RESPONSIBILITY. USE OF ANY CONTENT IS SOLELY AT YOUR OWN RISK AND COST AND I ACCEPT NO LIABILITY. YOU SHOULD SEEK INDEPENDENT LEGAL ADVICE BY GOING TO Law Society's Find A Solicitor OR CONTACT YOUR LOCAL Citizen's Advice Bureau.

    Tags: None

  • #2
    (copied from bottom of above post )

    Is it lawful for lenders to charge for excess mileage?
    The issue of excess mileage charges is somewhat a grey area as there is no legally binding authority that gives a definitive answer to this question. There are, however, two sides to the argument. On the one hand, lenders will say generally say that these excess mileage charges are specifically made out in the agreement but also that they should be entitled under section 100(4) of the Consumer Credit Act 1974 by failing to take 'reasonable care of the goods'. It is, in my opinion, that the charges can't be enforced and it all rests on the meaning of 'reasonable care'. I've set out below my reasons why these charges are not recoverable.

    What evidence does the lender have to prove it's case?
    As above, I am unable to find any direct authority from case law to suggest that these charges can be enforced. The lender will generally seek to argue its case on three points: the contractual clause, section 99(2) and section 100(4).

    1. The contractual excess mileage clause
    This argument is relatively easy to refute. When you exercise your right under section 99(1) of the Consumer Credit Act (CCA) to terminate the agreement, section 100(1) is immediately invoked. This provision states "Where a regulated hire-purchase or regulated conditional sale agreement is terminated under section 99 the debtor shall be liable ... one-half of the total price exceeds the aggregate of the sums paid and the sums due in respect of the total price immediately before the termination" (emphasis added). Section 100(1) makes it pretty clear that where termination of the agreement is effected under section 99 (in other words you gave written notice to the lender), then your maximum liability will be 50% total price under the agreement calculated on the sums paid to date and any sums which became due immediately before termination.

    As section 100(1) is a statutory provision, the general rule is that in the event of a conflict between the provisions of the legislation and any contractual term, the legislation will prevail. This is further confirmed in section 173 of the CCA where it also confirms that you cannot contract out of this legislation. The section says the following:

    "(1) A term contained in a regulated agreement or linked transaction, or in any other agreement relating to an actual or prospective regulated agreement or linked transaction, is void if, and to the extent that, it is inconsistent with a provision for the protection of the debtor or hirer or his relative or any surety contained in this Act or in any regulation made under this Act.

    (2) Where a provision specifies the duty or liability of the debtor or hirer or his relative or any surety in certain circumstances, a term is inconsistent with that provision if it purports to impose, directly or indirectly, an additional duty or liability on him in those circumstances."


    As you can see, the excess mileage clause is inconsistent with the provisions of section 100(1) and so by law, it is deemed void and unenforceable. The lender therefore cannot rely on this clause to suggest that it is entitled to the charges.

    2. Section 99(2) - Termination under section 99(1) shall not affect any liability accrued before the agreement was terminated
    There may be three arguments to be made against this point. First of all, the word "accrued" indicates in the past and it is arguable that this provision actually means any sums which have already been paid to the lender before the agreement was terminated cannot be recovered. The purpose of this provision is to prevent the hirer from paying 90% of the total amount and then suddenly recovering 40% as his/her liability is limited under section 100(1) to 50%.

    The second argument is that even if the charges are recoverable under this head, section 100(1) says that only the sums which was due immediately before termination can be recoverable. As the invoice for the excess mileage charges was instituted after termination of the agreement, it is therefore unarguable that those sums did not become due and payable prior to termination. If, for example, the lender came out to inspect the car and issued an invoice before termination, then arguably that invoice for the excess mileage charges could be recoverable (but note the final argument below).

    The final point is the most obvious in that irrespective of whether the excess mileage charges are recoverable, your liability is limited to 50% under section 100(1). In any event, the definition of "total price" excludes the recoverability of compensation, damages for breach or penalty charges as explained in the first point.

    3. The hirer failed to care reasonable care of the car under section 100(4) by exceeding the agreed mileage.
    This is probably the most argued point between the lender and the hirer and what I would consider the "grey area". The lender's argument in truth (including the previous two points) is that it is seeking to recover its loss for "pure economic loss". In other words, financial loss that does not flow from any physical damage rather it is loss to the thing itself i.e. diminution in value. Generally, the courts will not allow claims for pure economic loss except in two instances: (1) where there is a special relationship e.g. employer/employee, solicitor/client etc. or (2) where it is expressly written into the contract. The leading case on this is Murphy v Brentwood DC [1991] 1 AC 398:

    “The infliction of physical injury to the person or property of another universally requires to be justified. The causing of economic loss does not. If it is to be categorised as wrongful it is necessary to find some factor beyond the mere occurrence of the loss and the fact that its occurrence could be foreseen. Thus the categorisation of damage as economic serves at least the useful purpose of indicating that something more is required.” as per Lord Oliver.

    "no duty arises in the acquisition of defective property in the absence of a special relationship of proximity imposing on the tortfeasor a duty of care to safeguard the plaintiff from economic loss" as per Lord Bridge.

    Unfortunately, Parliament did not include a definition of "reasonable care" but it is a familiar phrase heard by the courts and is well established in negligence claims that it means the duty to avoid causing physical damage or injury, but not pure economic loss (as per Murphy above). In the absence of a definition, the court has to determine what Parliament intended "reasonable care" in this context to mean. The court may take into account a wide range of external aids outside of the legislation which might shed light on the meaning of the words used in the Act. For example, in MPloy Group Ltd v Denso Manufacturing UK Ltd [2014] EWHC 2992 (Comm), the High Court held that the Guidance from the Department of Trade and Industry (DTI) was admissible as evidence to interpret the meaning of words in question:

    "I also consider that the DTI Guidance forms a part of the admissible material, or “factual matrix”, against which the APW Contract should be construed."

    In light of the above, there was a consultation carried out in 2004 published by the DTI on the subject of voluntary termination at a point where the government were considering the removal of sections 99 and 100 when implementing the 2006 consumer credit updates (click here to view the consultation paper). You will that section 6 of the consultation (see page 6) sets out the legal framework and understanding of sections 99 and 100. In particular, the fourth bullet point confirms that you must return the car in a reasonable "condition". The Oxford Dictionary defines condition as meaning:

    "the state of something with regard to its appearance, quality, or working order."

    This definition would fit with the understanding in the consultation paper in that the duty to take reasonable care is concerned with the physical damage, not financial loss. Given the lack of evidence and other materials available, the consultation paper should, carry significant weight as to the understanding of "reasonable care".

    Summary
    So, to reiterate the original question, are you liable for excess mileage? The are arguments on both sides but from looking at the above evidence, there seems to be more weighted in favour the negative. The main point is that in the absence of any express wording putting an obligation on the hirer to avoid causing financial loss, any duty to do so would fall outside of the scope. I will however, let you make your own mind up on this.
    DISCLAIMER: ANY CONTENT I POST IS INTENDED FOR EDUCATIONAL AND INFORMATIONAL PURPOSES ONLY AND IS NOT A REPLACEMENT OR SUBSTITUTION FOR LEGAL ADVICE. I MAKE NO REPRESENTATIONS AS TO THE ACCURACY OF MY POSTS NOR DO I ASSUME ANY RESPONSIBILITY. USE OF ANY CONTENT IS SOLELY AT YOUR OWN RISK AND COST AND I ACCEPT NO LIABILITY. YOU SHOULD SEEK INDEPENDENT LEGAL ADVICE BY GOING TO Law Society's Find A Solicitor OR CONTACT YOUR LOCAL Citizen's Advice Bureau.

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