Who is responsible for a faulty car bought on finance?

Hire purchase, PCP and conditional sale

The Financial Ombudsman Service says that a finance provider supplying a car under a hire purchase, conditional sale or hire agreement is responsible for the quality of the car it supplies. The reason is the Consumer Rights Act 2015, which implies a term that goods supplied under these agreements are of satisfactory quality; a hire-purchase agreement is one of the contracts the Act covers (section 3).

The same remedies apply as against a dealer, and on hire purchase or a conditional sale the 30 days for the short-term right to reject run from the first day after possession has passed to you, the car has been delivered and any installation has been notified (section 22(3)).

What you can ask for

The Ombudsman says that where a car was not of satisfactory quality it may ask the finance provider to repair it, replace it, reduce the price, or let you give the car back and end the agreement if rejection is reasonable. It may also suggest compensation if you have not had the use of the car or have been caused distress and inconvenience.

Loans and credit cards

If you paid with a credit card or a point-of-sale loan, the quality terms are implied into your purchase contract with the dealership, so the dealer is the one who is liable. The Ombudsman says that because of section 75 of the Consumer Credit Act 1974 it can, subject to criteria, look at complaints against the card or loan provider. The section itself gives you a like claim against the card or loan provider for the dealer’s misrepresentation or breach of contract, but it applies to agreements of a kind it defines and to a single item with a cash price above £100 and up to £30,000 (section 75(1) and (3)). Our answer on section 75 and car finance explains when that applies.

Above £30,000: section 75A

Section 75A of the same Act is a further route, for a claim about the dealer’s breach of contract (it does not mention misrepresentation). It covers a “linked credit agreement”: a regulated consumer credit agreement that serves exclusively to finance the supply of specific goods, where the lender used the dealer’s services in preparing or making the agreement or the goods are explicitly specified in it. You may then pursue the claim against the lender if the dealer cannot be traced, has not responded after you contacted it, is insolvent, or you have taken reasonable steps to pursue the claim without getting satisfaction. Those steps need not include going to court, and accepting a replacement or other compensation from the dealer in settlement counts as satisfaction (section 75A(1) to (5)).

Section 75A does not apply where the cash value of the car is £30,000 or less, where the credit exceeds £60,260, where the agreement is made wholly or predominantly for a business, or where it is secured on land (section 75A(6) and (8)). So for a car with a cash price above £30,000 bought with a linked credit agreement for £60,260 or less, section 75A can be the route to the lender where section 75 is not. Whether your agreement meets the test turns on how it was arranged and what it says.

Do not stop paying

nidirect advises that if goods you are buying with credit are faulty, you should not stop the payments, because you could be breaking your credit agreement and incur other costs, such as penalty charges. Speak to the dealer as soon as you discover the fault and tell the finance company about the problem.

If you reject the car

If a hire purchase or conditional sale agreement is treated as at an end before the whole price has been paid, the refund covers the part of the price you have paid (section 20). Rejecting the car treats the contract as at an end (section 20(4)), so ask the finance company to confirm in writing how the agreement is closed and what you will be refunded.

Complaining

Complain to the finance company first. If it has not sent a final response within eight weeks, or you are unhappy with its response, you can take the complaint to the Financial Ombudsman Service, which is free to use. You have six months from the date on the finance company’s final response to do so, and the Ombudsman usually cannot help after that. The Act extends across the UK, including Northern Ireland.