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A guide to voluntary termination: Your rights

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  • A guide to voluntary termination: Your rights

    THIS GUIDE WAS LAST UPDATED: 3 FEBRUARY 2019

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

    For Sample Template Letters please CLICK HERE

    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.




    1. Introduction
    In this guide I will be discussing voluntary termination, a protected right set out in the Consumer Credit Act 1974. Although voluntary termination applies to any form of goods under a hire-purchase agreement, I will be focusing specifically on this right in relation to vehicle finance. At the end of the guide you should be able to understand:
    Voluntary termination and how it applies;
    • Other ways of ending your agreement;
    • The various types of hire-purchase agreements;
    • Top tips when exercising your right to terminate the agreement;
    • Tricks that finance companies use against you; and
    • How to deal with a finance company who is being difficult.

    2. What is voluntary termination?
    Voluntary termination is a legal right to end a hire-purchase agreement early, subject to certain conditions. This right is set out in Section 99 of the Consumer Credit Act 1974 and it is a statutory right which cannot by excluded or restricted by any terms or conditions set out in the hire-purchase agreement.

    When voluntary termination was first introduced under the CCA 1974, it was aimed at protecting debtors who purchased goods on finance (usually a large sum of money) but were subsequently unable to afford the repayments. However, to ensure that finance companies were not out of pocket, Parliament sought to strike a balance by ensuring that debtors were liable to repay 50% of the total price payable under the agreement.


    3. Voluntary Surrender vs. Voluntary Termination vs. Early Settlement
    Many people are unaware that that voluntary termination is just one way of ending a hire-purchase agreement early. Quite often, debtors will interchange between the words of voluntary termination and other methods of terminating the agreement. This is potentially dangerous as it could affect your rights and liabilities with an entirely different outcome. I’ve set out below different types of terminating an agreement and how they affect your liability.

    Voluntary termination
    As previously mentioned, this right is enshrined in the CCA 1974 and allows you to terminate the agreement at any time during the agreement by giving written notice and provided that the final payment is not due (usually the balloon payment). Upon doing so, your liability will be limited to one half of the total price payable.

    Voluntary surrender
    This method is also known as voluntary repossession or voluntary vehicle surrender. This option is used where you are no able to meet the loan repayments, and it is therefore is mutually agreed between the debtor and the finance company to terminate the agreement and return the vehicle. You will then be liable for the total outstanding amount payable under the agreement less:
    • the proceeds from the sale of the vehicle;
    • the instalments already paid under the agreement; and
    • the option to purchase price (balloon payment).
    Early Settlement
    In effect, early settlement is the right to pay off the remaining amount that is outstanding under the agreement. When you request an early settlement, the finance company will write to you and tell you how much you have to pay to settle the agreement. The offer is generally available for a period of at least 14 days after which it will expire and you may need to seek a revised settlement figure. The settlement figure allows for a rebate of interest on the agreement to take into account the fact that it has been settled early.

    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.


    4. 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. Be aware, you have no voluntary termination rights under PCH agreements.

    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.


    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. How do voluntary terminate my agreement?
    Exercising your voluntary termination right is very simple and straightforward however, do think very carefully that this is the route you want to down because once you have given notice to terminate, it cannot be withdrawn unless the finance company gives their consent. That said, in order to terminate your agreement:

    1. You must give notice of your termination in writing (click here for template letters) and to the finance company's address listed in the agreement. The notice should be sent by first class (recorded delivery is not necessary but optional) post and for evidence purposes, a proof of postage receipt from the post office should be obtained.

    It is also recommended that you send a copy of your letter by email just in case the finance company argues that the letter wasn't received. Look for an email address in the agreement or alternatively, scour the company's website for a customer service or customer relations email address.

    2. Notice of termination must be delivered to the finance company before the final instalment payment becomes due. For example, if your final instalment is due on Friday 25 June, then your notice will need to be delivered before that date i.e. no later than Thursday 24 June.

    What is meant by "in writing"?

    Everyone is likely to be familiar with the phrase "in writing" but in a legal context, there are many words and phrases that have a special legal meaning and are therefore interpreted differently than their ordinary dictionary definition. The CCA 1974 states that notice must be given in writing in order for a valid voluntary termination to have taken effect but there is no specific definition to explain what is meant by "in writing".

    The Interpretation Act 1978 (IA 1978) is an Act of Parliament that was introduced to provide a general definition of words used in legislation where no definition exists in that specific Act. Schedule 1 of the IA 1978 states that "writing" includes:

    "typing, printing, lithography, photography and other modes of representing or reproducing words in a visible form, and expressions referring to writing are construed accordingly."

    In my view, email would be considered to be "in writing" on the basis that it is a mode of representing or reproducing words in a visible form and therefore, is an acceptable method for the purpose of giving notice in writing under Section 99 of the CCA 1974. It would be best practice to send notice of termination by both email and post to avoid any dispute as to whether you validly served notice on the finance company.

    When sending notices by email, you should ideally give notice of termination using the same email address that the finance company has on their systems. If that is not possible, then I would suggest using an email address that is recognisable and authentic. For example, an email address containing your full name i.e. joebloggs@outlook.com is less likely to create confusion / lack of authenticity than an unrecognisable email address like barbiegirl69@outlook.com.


    7. Checklist: What you should do before the vehicle is handed over

    1. Make sure the car is clean. 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. Remember, you have a duty to take reasonable care of the vehicle so that also extends to ensuring it is cleaned and not handed back in a mess. If you do choose to have the car valeted make sure to get a receipt as proof.

    2. Take a photograph of the vehicle documentation, service receipts, MOT keys etc. Ordinarily I wouldn't suggest that you do this however, there has been previous reports of finance companies trying to charge for missing documentation, spare keys or even the space saving wheel in the boot. All of this should have been recorded during the inspection but on occasions, things could get lost or go missing through no fault of your own but nonetheless the finance company puts the blame on you. To avoid this, you should take the cautious approach just in case.

    3. Make sure the vehicle is serviced and up to date. 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.

    4. Photographs, photographs, photographs
    I cannot stress enough about making sure you take plenty of photographs of the car and at every angle including any potential dents, scratches or marks on the car (if you have the opportunity, also take a video or two). This might not sound so obvious but around 80% of the disputes I am aware of, relate to the condition of the vehicle.

    It is possible that, some lenders may argue that the photos are not timestamped and so the authenticity is questionable. To counter this argument, I would suggest you use timestamp capabilities on your phone or, if that is not possible, trying downloading a timestamp app that will enable you to capture the date on the photo itself. Some people have also opted to take a photograph of a newspaper with the date on it as evidence.

    5. You should avoid signing any paperwork from the finance co. or their agent
    It is common for finance companies to send you out their paperwork and ask you to sign and return it. However, the paperwork will usually have been worded to say that you accept and agree to pay for any vehicle damage, excess mileage charges or even collection fees.

    Let me be clear, you are under no legal obligation to sign any of the finance company's paperwork, no matter how aggressive or threatening they become. It is well known on this forum that both lenders and agents who collect the vehicle have been known to pressure debtors into signing the agreement through a number of methods. For example they may tell you that they will:

    (a) not to process the voluntary termination;
    (b) obtain a court order to repossess the vehicle;
    (c) not collect the vehicle and you will incur abandonment costs; and
    (d) expect you to continue the monthly instalments until the paperwork is signed.

    All of the above are a nonsense and unjustified threats. Finance companies have no right to prevent you from exercising your voluntary termination right and at the very least, their conduct and behaviour is likely to amount to aggressive commercial practices, contrary to both the Consumer Protection from Unfair Trading Regulations 2008 and the FCA Rules under the Consumer Credit Handbook (CONC).

    If you experience any of this sort of behaviour either by the finance company or their agent on collection of the vehicle, I would recommend you make formal complaint to the finance company and also a further letter of complaint to the Financial Conduct Authority's enforcement team. The FCA does not look at individual complaints but if enough noise is made, they may very well investigate.

    6. End of contract charges

    Vehicle refurbishment charges.
    Finance companies tend to use third party agents to collect the vehicle who carry out an initial inspection and then a further inspection is carried out prior to the vehicle being auctioned off. Quite often, the refurbishment charges raised on the second inspection tend to be substantially higher than the initial inspection, as much as three or four times higher.

    The inspections are usually carried out according to the BVRLA Fair and Tear Standard which has a strict analysis of what is considered reasonable damage. The finance companies will tend rely on the fact the terms and conditions of the hire-purchase agreement states that an assessment of damage will be determined by the BVRLA Standard.

    I would, however, say that the BVRLA Standard is not the most appropriate method of assessing whether the damage to the vehicle is beyond reasonable wear and tear. This is because:-

    a. The BVRLA standard does not take into account the age of the vehicle. Therefore, the same strict methodology applies to a vehicle that is 12 months old as well as a vehicle that is as old as 5 years or more. It is reasonable to think that the older the vehicle becomes, the more likely a car will sustain some form of minor damage

    b. Whilst the contract may state that the vehicle is assessed according to the BVRLA Standard, the CCA 1974 in fact says that you are only required to take reasonable care of the vehicle. In my view, the BVRLA Standard sets a higher standard than the reasonable care standard (which is a low standard) and according to Section 173, any contractual term that imposes additional liability whether directly or indirectly that conflicts with the CCA 1974 is deemed void. There is case law that does provide a helpful definition of what a hirer might be expected to do in terms of taking care of the vehicle.

    c. Other factors could be taken into account when determining whether the vehicle has been returned in a reasonable condition. For example, where the vehicle is intended to be used as a family car with two or three children, you might expect the vehicle to be in less of a certain condition than someone who is single and drives on their own.Dealing with refurbishment charges can be very subjective as on the one hand, you might consider the damage to be within the realms of reasonable wear and tear whereas the finance company is likely to argue that it isn’t. I would argue that a fairer method of assessing the vehicle damage is to use the CAP HPI Vehicle Conditions. The CAP Conditions categorise vehicles into “Good, Average and Below” and more importantly, the age of the vehicle is taken into account and the tolerance of damage is therefore increased as the vehicle becomes older.

    I’ve noticed recently that some finance companies have started to apply the CAP Conditions but are requiring the vehicle to fall into the “Good” category, otherwise charges will be applied. Again, the CCA 1974 says that the vehicle need only be returned in a reasonable condition so I would say that as long as the vehicle falls into the “Reasonable” category, that would satisfy the requirement of the hirer having taken reasonable care.

    Having said all of the above, I have set out below some steps you may wish to take when disputing vehicle refurbishment charges.

    (Step 1) Have you received a full breakdown of the charges?
    The first thing you need to do before engaging with the finance company, is to verify whether you have received a breakdown of the charges. A lot of the time you end up receiving letter enclosing an invoice demanding a sum of money but no breakdown has been provided nor have they provided the evidence to support the refurbishment charges.
    If you have already received the necessary information then you can continue to step 2. Otherwise, I would suggest you write to the finance company and request that an itemised bill together with any supporting evidence the finance company is relying on to support the charges. This will usually be a copy of the assessment report and photographs of the alleged damage.

    (Step 2) Do you consider any of the charges to be reasonable?
    This might sound an obvious question but as I have already alluded to, reasonable wear and tear is very much subjective depending on who you speak to. First of all, make a note of any vehicle damage that was already on the vehicle at the time you took possession. Whilst you are not liable for any damage prior to the vehicle coming into your hands, finance companies will no doubt try to pin the damage on you. The onus of proof rests on the finance company to show that the damage wasn’t there at the time the agreement was entered into (there is case law authority on this point).
    Once you have noted any damage that wasn’t caused by you, the next step is to ask yourself whether you accept some of all of the charges as being beyond reasonable wear and tear (and be realistic).

    (Step 3) Complete your own damage assessment using the CAP Conditions
    In relation to any damage that is in dispute, you should carry out your own assessment of the damage based on the CAP Conditions. If the vehicle falls in the “Average” category or better, then the car would be considered to be in a reasonable condition, irrespective of what the finance company says (that’s their opinion as is yours). Finance companies are likely to argue that the BVRLA Standard applies but for reasons already mentioned, you should argue that the CAP Conditions are more appropriate.

    (Step 4) Armed with your facts and evidence, respond to the finance company
    Now you have all the relevant information to hand, you can respond to the finance company confirming whether you agree or disagree with their findings. You can use the templates I have provided as a baseline to assist you in your response but you will most likely need to adapt it to suit your current situation. When you are writing to the finance company, always keep it polite and assertive but not overly aggressive nor should you refer to any words that are capitalised, underlined or in bold. Remember, it is possible that third parties such as the Financial Ombudsman or even a judge could read your correspondence and you don’t want to give them a poor impression.

    Link to CAP Vehicle Conditions

    THIS GUIDE WAS LAST UPDATED: 3 FEBRUARY 2019
    Last edited by R0b; 12th February 2019, 08:23:AM.
    LEGAL DISCLAIMER
    Please be aware that this is a public forum and is therefore accessible to anyone. The content I post on this forum is not intended to be legal advice nor does it establish any client-lawyer type relationship between you and me. Some of the content I post may include example wording, letters, or other similar responses but they are intended purely for informational and educational purposes. Using some or all of the content I post may fail to meet your needs that is specific to your situation. Therefore any use of my content is at your own risk and I cannot be held responsible in any way. It is always recommended that you seek independent legal advice and you can do this through the Law Society's Find a Solicitor database, by contacting your local Citizen's Advice Bureau or legal advice centres such as LawWorks. You may also be able to seek legal advice from your local university who may run a free (but limited) legal advice clinic to members of the public.
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    Last edited by R0b; 7th January 2019, 18:58:PM.
    LEGAL DISCLAIMER
    Please be aware that this is a public forum and is therefore accessible to anyone. The content I post on this forum is not intended to be legal advice nor does it establish any client-lawyer type relationship between you and me. Some of the content I post may include example wording, letters, or other similar responses but they are intended purely for informational and educational purposes. Using some or all of the content I post may fail to meet your needs that is specific to your situation. Therefore any use of my content is at your own risk and I cannot be held responsible in any way. It is always recommended that you seek independent legal advice and you can do this through the Law Society's Find a Solicitor database, by contacting your local Citizen's Advice Bureau or legal advice centres such as LawWorks. You may also be able to seek legal advice from your local university who may run a free (but limited) legal advice clinic to members of the public.

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