Dealers arranging loans for people to buy cars will face much tougher regulations by the autumn.

Implementation of the EU Consumer Credit Directive will enable a buyer to withdraw from a credit agreement within 14 days if they change their mind.

The directive says someone requesting a loan must be given a verbal explanation of its main features, the costs and what happens if the loan is not repaid.

The process of checking an applicant’s credit worthiness will also be tightened.

This spring the Finance and Leasing Association is running three workshops for members to ensure all aspects of the new regulations are understood.

Training will also be organised for dealer staff.

Paul Harrison, FLA head of motor finance, said there was concern over last year’s draft regulations and what happened if a customer cancelled a finance agreement.

The regulation now states an agreement to supply both the finance and the vehicle.

“If a customer withdraws within 14 days we needed to make sure the title to the vehicle would not pass to the customer,” said Harrison.

“The regulations now treat the finance agreement as if it were never entered into.

“The customer has to arrange alternative means to pay for the vehicle with the dealer. Some lenders will release the vehicle within the 14 days because the chance of withdrawal may be small. Others may not chance it.”

Harrison said UK lenders were well placed to meet the new requirements: “We already have one of the strongest credit regulatory regimes, as well as extensive consumer protection measures.”

The Office of Fair Trading will oversee compliance. For minor grievances, consumers will be able to complain to the lender. In an extreme case the OFT could withdraw a lender’s licence.