Were You Sold a Car on Unaffordable Finance?

Did you drive away with the keys to a new car, only to find the finance was unaffordable from the start?  According to the Financial Conduct Authority (FCA), which regulates car finance lenders, and the Financial Ombudsman Service (FOS):

A loan is only considered affordable if you can make the repayments on time, without experiencing financial hardship, and still meet your other financial commitments.

This means you should be able to cover all your other debts, household bills, and living expenses in addition to the car loan payments.  If you prioritized your car finance to avoid repossession, you might have increased credit card balances, taken out additional loans, or fallen behind on other bills. Even if you managed to keep up with the car payments, the loan may not have been genuinely “affordable.”

In UK law, the situation described above typically falls under the category of “irresponsible lending” or “unaffordable lending.” This refers to situations where a lender fails to properly assess whether a borrower can afford a loan without undue financial hardship, as required by regulations set by the Financial Conduct Authority (FCA).

Key aspects include:

1. Affordability Assessments: Lenders must assess whether the borrower can make repayments without compromising their ability to meet other financial commitments, such as household bills or living expenses.
2. Consumer Credit Act 1974: This law regulates consumer credit agreements, including car finance, and provides protections for borrowers.
3. Breach of FCA Rules: The FCA requires lenders to ensure loans are affordable, and failure to comply can lead to a complaint through the Financial Ombudsman Service (FOS) or legal action.

If a loan is deemed unaffordable, borrowers may be entitled to redress, such as a refund of interest or fees, or adjustments to the terms of the loan.

Victims of unaffordable or irresponsible lending in the UK may be entitled to various forms of redress if a lender is found to have breached its regulatory obligations. Possible remedies include:

1. Refund of Interest and Charges: Borrowers may be refunded the interest, fees, and additional charges paid on the loan, effectively reducing the total cost of the borrowing.

2. Reduction of Outstanding Balance: The lender may be required to adjust or eliminate any remaining balance to reflect what the borrower would owe without the improper charges or interest.

3. Removal of Negative Credit Marks: Any negative information on the borrower’s credit file related to the unaffordable loan could be removed, helping to repair their credit score.

4. Compensation for Distress and Inconvenience: Borrowers may receive additional compensation if the lender’s actions caused significant stress or financial difficulty.

5. Restructuring of Loan Terms: The loan terms may be revised to make repayments more manageable, such as extending the term or reducing the monthly payments.

6. Full Loan Write-Off: In cases of severe breaches, the lender might be required to write off the entire loan balance.

To seek redress, borrowers can:

• Complain to the lender: Requesting redress directly is often the first step.
• Escalate to the Financial Ombudsman Service (FOS): If the lender does not resolve the issue, a formal complaint can be made to the FOS, which will investigate and potentially order redress.
• Pursue legal action: In some cases, victims may take the lender to court to claim compensation for losses.

The exact outcome depends on the circumstances and the findings of any regulatory or legal review.