The Society of Motor Manufacturers and Traders (SMMT) and the Finance and Leasing Association (FLA) have vowed to fight on to get the voluntary termination provision scrapped from hire purchase agreements.

The Consumer Credit Act 1974 set up VTs to allow people struggling to meet repayments to hand back a car after paying only half of the borrowed finance.

Vehicle manufacturers and finance houses have argued for years that this consumer protection clause is open to abuse and should, at the very least, be amended.

The FLA says the practice costs the industry an estimated £83m a year – an average of £1,500 for each returned car. AM has also received details of cases where unscrupulous traders have encouraged finance customers to walk away from deals, therefore dumping the cars on finance providers, and then taking out a new contract for a replacement vehicle.

But any chances of revision looked scuppered when Parliamentary Under-Secretary of State for Trade and Industry Gerry Sutcliffe described VTs as “an essential provision of HP” earlier this year. And during the second reading of the Consumer Credit Bill last month, he confirmed the safeguard is to be unaltered.

“For most consumers, credit is a useful tool,” he told the House of Commons. “However, unfair lending and ill-informed borrowing decisions can cause real problems for some people. Many of us will know from our constituency postbags the misery that can be caused by unscrupulous lenders who coerce people into credit agreements they neither need nor understand.”

No direct reference was made to motor finance, despite a background of intense lobbying from the SMMT and FLA.

Ashley Holmes, the FLA’s head of legal affairs and policy development, says: “FLA is continuing to lobby hard for modernization of this antiquated law, which is urgently needed. It sets a statutory 50% cap on liability at the termination of Hire Purchase loans, which leads to massive and unpredictable losses for HP providers.”

A spokesman for the SMMT says: “We haven’t given up on this. There’s now no chance of addressing this through the Consumer Credit Bill, but we will be considering the voluntary termination issue when we look at hire purchase as a whole.”