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How to Deal with Hire Purchase Debt
WHAT IS HIRE PURCHASE/CONDITIONAL SALE? Although people often talk about "buying on HP", Hire Purchase Agreements are quite unusual these days. Cars are the most usual goods sold under Hire Purchase or Conditional Sale Agreements. With Hire Purchase and Conditional Sale Agreements, you do not own the goods until you have paid the credit agreement off. This means they are not the same as ordinary credit agreements. This means you cannot sell the goods yourself without the creditor's written permission. If you sell the goods without permission, it can be a criminal offense. On ordinary credit agreements, the goods you buy belong to you from the time you take out the credit. The lender cannot take the goods back. They can only ask you to pay the money you owe under the agreement. WHAT IF I CANNOT AFFORD TO PAY? If you fall behind with your payments on a Hire Purchase or Conditional Sale Agreement, the creditor may be able to repossess the goods. Look at your agreement. There will be a box telling you how much you need to have paid to stop the creditor taking the goods back without a court order. This should be a third of the total amount payable under the agreement. If you have paid a third or more of the total owing, the creditor must go to court to ask for the goods back. They cannot just come round and remove them. Even if you have not paid more than a third of the agreement, the creditor will need an order from the court to remove the goods from "any premises" they are on. This appears to include your garage or drive but not a car park or roadside. If your car is parked on the road, or in a public car park, then it would be at risk. WHAT IS THE PROCEDURE IF THE CREDITOR HAS TO GO TO COURT BEFORE THEY CAN GET THE GOODS BACK? There is still a chance that you can keep hold of the goods, as the court has the power to agree to this as long as you can pay the debt back in reasonable instalments. If you have a third or more of the total payable under the agreement, the creditor will ask the court to send you a Claim Form asking for the goods to be returned. This is called an application for a "Return Order". Notice of a hearing date with a District Judge is included. This hearing should be in your local County Court. There will be form with the Claim that you should fill in and send back to the court within 14 days. You must fill this in if you want the court to suspend the Return of Goods Order and allow you to keep the goods at home. You need to offer to pay the debt back in monthly instalments you can afford. It is important to treat this debt as a priority over ordinary credit debts and offer as much as you can. Send the form back to the court, not the creditor. The court will send a copy of your form to the creditor. If the creditor accepts the offer the hearing will be cancelled. If the creditor does not accept the offer the hearing will go ahead. You must attend the hearing. The court will decide at the hearing whether they will suspend the Return Order and what monthly instalments you should pay from now on. If you do not fill in the admission form there will be a hearing anyway. If you don't go to the hearing the court will probably grant the creditor an order telling you to return the goods. WHAT IF I HAVE PAID LESS THAN A THIRD AND THE CREDITOR WANTS THE GOODS BACK? If you want to keep the goods you should ask the creditor to agree to a payment arrangement with you. The creditor is most likely to accept if you can afford the full monthly instalments plus something towards the arrears. If you can't make the full payments, the creditor may agree to reduce the payments, but usually by a small amount and only for a short time. In certain circumstances you may be able to go to court and ask to pay less than the full monthly instalment and extend the length of the agreement. HOW MUCH WILL I OWE IF THE AGREEMENT ENDS? If you have to decide whether to end a Hire Purchase or Conditional Sale agreement there are two options: * return the goods voluntarily; or * let the creditor end your agreement and repossess the goods. There can be a difference in the amount you end up owing depending upon how the agreement is ended. YOU END THE AGREEMENT You have the right to terminate your agreement under Section 99 of the Consumer Credit Act 1974 If you decide to end the agreement voluntarily and hand back the goods to the creditor, you should only have to pay up to half of the total figure on the original agreement, minus what you have already paid, plus any arrears from missed instalments, and damages to the goods (in certain circumstances). It is very important that you tell your creditor in writing that you are ending your agreement voluntarily. If you do not do this, then your creditor does not have to act on your request. Keep a copy of your letter in case you need proof. We have included a sample letter in Appendi x III, you may want to adapt to send to your creditor when ending the agreement. Warning: If you have a Default Notice sent to you by the creditor because you are behind with the payments on your agreement, this may mean you will have lost the right to end the agreement voluntarily and return the goods yourself. It depends upon your agreement. Your creditor may have called in or "terminated" the agreement when the Default Notice runs out. Some agreements say another notice to terminate the agreement has to be sent to you after the Default Notice has run out. THE CREDITOR ENDS THE AGREEMENT If you fall behind on the agreement, the creditor will terminate the agreement in writing. They must send you a "Default Notice" under the Consumer Credit Act 1974. They will then order you to return the goods. The Default Notice tells you what payments are outstanding and gives you a date by which to make up the arrears. The whole balance may then automatically become payable and the agreement terminated. Some agreements need another notice to be sent to you before the agreement is terminated. You may have to pay the full amount owed on the original agreement, minus what you have paid and minus the amount the creditor gets back from selling the goods. The "option to purchase fee" is also deducted. Most agreements will include a clause telling you that you must take reasonable care of the goods. This means the creditor might argue that there will be an extra charge for damage or unusual wear and tear. It is important to look at any charges to see if they are reasonable. Some creditors try to charge you for collecting the goods after the agreement has been terminated. It appears that this is not allowed under the Consumer Credit Act. If asked to pay an additional charge, you can complain to your Trading Standards Department. Your agreement may say that you have to return the goods to your original supplier or somewhere similar. You should not be asked to return the goods further away than is reasonable on the grounds of cost and distance. WHAT HAPPENS ONCE THE CAR HAS BEEN RETURNED? Once the car has gone back to the creditor, they can try to recover any balance still owed from you. You can treat the debt as an ordinary credit debt and make an offer of payment using the information pack and your personal budget. If the creditor does not accept your offer, they can sue you in the County Court for the balance. If you dispute the balance the creditor says you owe, then it is important to write to the creditor and tell them. This may be because they claim you damaged the goods and you want to dispute this. You may have to put a defence in when they send you the County Court Claim Form. If you put in a defense, there will be a hearing at the County Court where the District Judge will make the decision about how much you owe. They may decide that you owe less than the creditor has claimed. You will then have a County Court Judgment which you can offer to pay in instalments that you can afford. Also the creditor may work out the amount you owe using a different calculation to those shown in Appendix I. The Office of Fair Trading agree with this way of working out the debt owed but creditors often dispute it. APPENDIX 1 EXAMPLE AGREEMENT HOW THE AMOUNT YOU OWE CAN DIFFER: Total price on Hire Purchase Agreement £4,000 Amount you have paid off £1,600 Arrears (unpaid instalments) £200 Damage to goods £250 Value/sale proceeds of goods £900 "Option to Purchase fee" £5 IF YOU END THE AGREEMENT Half the Hire Purchase price £2,000 Amount you have paid off minus £1,600 Equals £400 Damage to goods plus £250 YOU WILL OWE £650 CREDITOR ENDS AGREEMENT Total Hire Purchase price £4,000 Amount you have paid minus £1,600 Sale proceeds minus £900 "Option to purchase fee" minus £5 YOU WILL OWE £1,495 APPENDIX 3 Company's Address Dear Sir/Madam Re: Account Number (Car Make/Model and Registration Number) Voluntary Termination I am/we are writing to notify you that I am/we are exercising my/our right to terminate the above Agreement under Section 99 of the Consumer Credit Act 1974. (Optional - add details of your circumstances and financial situation) I/we understand that I shall/we will be liable to you for the amount calculated under the formula in Section 100 of the Consumer Credit Act 1974. Please send me/us details of how the vehicle can be returned to you. Please confirm receipt of this request by telephone/fax to me/us on (your telephone number or fax number). Yours faithfully Your Name Author
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