Calls by the SMMT and the Finance and Leasing Association for the abolition of the clauses have led the Department of Trade and Industry to publish a consultation document on the issue, with a deadline of November 30.
At present, a customer who purchases a vehicle on hire purchase or conditional sale agreements is permitted, under the 1974 Consumer Credit Act, to hand back that vehicle to their finance company, without further liability, provided at least 50% of the total amount due under the contract has been paid.
“The current regime is being abused and does not provide relevant protection to vulnerable consumers,” says Paul Everitt, the SMMT’s head of communications, policy and economics.
“Continuing with it will make hire purchase and conditional sale agreements more expensive and reduce their availability.”
Everitt argues that new consumer credit laws being introduced over next year will mean that purchasers still have the right to settle early, and will only pay charges based on an actuarially based formula.
The changes will also standardise the presentation of key financial information in advertising to make it easier for the consumer to compare the cost of financial agreements, and abolish the present £25,000 ceiling on credit agreements covered by the Consumer Credit Act.
Martin Hall, director general of the Finance and Leasing Association, agrees. “Voluntary termination has no place in modern consumer credit legislation,” he says. “The current law costs the industry and consumers a significant amount and the DTI acknowledges that reform would achieve more of a balance.”
Research by the FLA shows that VTs are having an adverse effect on residual values and increase the cost of hire purchase.
The consultation document, at www.dti.gov.uk/ccp/consultations. htm offers three options: do nothing and retain the right to early termination at no liability; amend the law to allow creditors to recover a higher proportion of the outstanding amount; or remove the clause.