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    R0b's Avatar

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    Sep 2015
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    Default 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.

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    1. Introduction
    2. Voluntary surrender vs. voluntary termination vs. early settlement
    3. What type of finance agreement do I have?
    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
    8. Complaining to the Financial Ombudsman

    9. Received a letter before claim?
    10. Help, I've received a claim form!

    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.

    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

    Timestamp App for Android

    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. Furthermore, the agreement must also state your right to terminate and include the right to terminate once you have met the 50% mark.

    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.

    Excess Mileage Charges
    Lenders charging for excess mileage is one of the hottest topics at the moment. Strictly speaking, the CCA says (as per the provisions above) that your liability is limited to one half of the total price payable plus any overdue instalments. However lenders will argue that despite this being set out in the CCA, they can still recover the excess mileage charges because its in the contract. Put simply, it is well settled that if there is a conflict between common law contract and legislation, then the legislation will prevail. This is also explained at section 173 of the CCA, that you disapply the provisions of the CCA.

    There is also a number of authorities which confirm the hirer's liability is capped. Below is an extract from Consumer Credit: Law, Practice and Precedents written by Russell Kelsall, a respected financial litigation partner who also advises the Financial & Leasing Association.

    8. Complaining to the Financial Ombudsman (FOS)

    If you are still not satisfied with the response given by the finance company and they have sent you a final decision or it has been 8 weeks since your first complaint, you have the right to ask the FOS to investigate your complaint.

    What powers does the Ombudsman have?
    If the FOS upholds your complaint against the finance company, it can make a monetary award as it sees fit and/or a direction for the finance company to take certain actions or steps. Examples of a direction may include:

    1. The removal of any adverse credit information on your credit file
    2. Amend the terms of the agreement
    3. Make the finance company give an apology

    Do I have to accept the Ombudsman’s decision?
    Whatever the Ombudsman’s decision, they will write to you explaining their reasons as to how they have come to their decision. If they agree with you and uphold your complaint, you can accept their decision and this will becoming binding on both yourself and the finance company. If the finance company refuses to follow the Ombudsman’s decision then you can apply to the court to enforce the decision. This is simply a formality as the law already states that the decision is legally binding. If they still fault to comply, then you will several methods of enforcement as if you obtained a judgment in the court.

    However, if the decision does not go your way, you are not obliged to accept their findings and you will not be bound by the decision unless you accept it. If you disagree with any of the reasons made by the Ombudsman, you can ask for a further review of the decision and provide them with an answer as to why you disagree. If, after a review of the initial decision your complaint is still not upheld, you can still reject the Ombudsman’s decision. At this point the finance company will need to bring a claim against you in court for the recovery of the outstanding balance (for more information on whether a finance company will take you to court, see the FAQs above).

    How do I make a complaint to the Ombudsman?
    First you will need to download the complaint form from their website. You can do this by clicking on the following link:

    Next you will need to complete all the relevant information so make sure that you have all your paperwork to hand before writing your complaint. If you are missing anything that you feel is relevant to your complaint which the finance company has, you can request that information to be provided to you. Some of the information that you will require when filling out your complaint will include:

    1. A copy of the agreement and the date which you entered into it
    2. Photographic evidence of the vehicle
    3. The relevant provisions of the Consumer Credit Act
    4. The final decision letter from the finance company

    How successful will my complaint be?
    Going from previous experience on this forum, it would appear that there is little to no success in the Ombudsman finding in favour of the consumer when it comes to disputing excess mileage. Their general reasons are that the excess mileage beyond the agreed mileage in the contract means the car must be in an unreasonable condition, despite lenders not offering up no evidence that the car is in fact not mechanically sound.

    This of course is disappointing however the Ombudsman will only look at what is fair and reasonable and will not carry out a detailed analysis of the CCA, as that is the role of the court. Furthermore, you are not obliged to accept the Ombudsman's decision and it would still be up to the lender to pursue any alleged debt through the court system. My general recommendation is that pursuing any dispute through the Ombudsman for excess mileage would not be worth the time and effort, until there is a legally binding decision from the court.
    Last edited by R0b; 9th November 2017 at 15:58:PM.

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