Dealers are being warned that, even if they carry out appropriate checks and take out indemnity insurance, they could still end up in court for selling cars that have outstanding finance.

The problem has come to light after a dealer bought three cars after checking there was no outstanding finance and taking indemnity insurance.

“We HPI checked the vehicles with Experian and they were clear with no finance interest,” explained Daniel Crompton, director of Richmond Car Sales.

“We purchased a 12-month indemnity with Experian for each vehicle.”

The cars were sold on as normal. Months later – after the indemnity insurance had expired – Lombard registered its interest in the cars, despite agreed procedures between the Finance and Leasing Association (FLA) and its members stating that finance providers should register their interest within a day of a finance deal being agreed.

However, the agreement is not legally binding.

“This is an isolated case. We have strict measures in place to ensure all deals are captured on the HPI system.

"Registration with HPI is entirely voluntary, but at Lombard we have an automated system that ensures each deal is captured on the HPI system on a daily basis,” explained a Lombard spokesman.

"Unfortunately in this case the vehicle information originally supplied to us was incorrect.

"Once we understood that an error had taken place we immediately took corrective action.”

The dealer has now settled out of court, for a five-figure sum, despite doing all it could to ensure the cars did not have outstanding finance.

Both Experian and HPI offer insurance to cover dealers in such cases.