New rights and remedies for consumers under hire purchase conditional sale and hire agreements from 1 October 2015
Amongst other things, the Consumer Rights Act 2015 ("the Act") overhauls consumer rights and remedies in relation to defective goods. These were set out in a piecemeal fashion in a variety of laws, some of which implemented remedies created at European level in the late 90s.
On the plus side, from 1 October 2015, the applicable rights and remedies will, at least, be easier to navigate and understand for both consumers and traders. There are, however, some key rights and remedies of which finance providers should be aware, insofar as they are providing finance to consumers who are acting outside the course of business under regulated hire, hire-purchase and conditional sale contracts.
What type of business does the Act apply to?
The Act applies to all "contracts for the transfer of goods" made with consumers acting outside the course of business. "Contracts for the transfer of goods" is defined widely so as to encompass all sales contracts (including conditional sale contracts), hire contracts, hire-purchase contracts as well as any other contracts which involve the transfer of ownership of goods (for example where the consideration is provided otherwise than by paying a price).
New implied term – the goods match the model seen
As before, certain rights will be implied into the contract in relation to the goods financed, including that they are of a satisfactory quality, are fit for purpose, are as described and that they match any sample seen. In addition, a new term will now be implied where a customer has entered into a contract on the basis of a model seen or examined beforehand, which is that the goods delivered will match the model seen, except to the extent that any differences are brought to the consumer's attention before he or she enters into the contract. It is often the case that hire or hire-purchase agreements will be entered into via dealerships on a "model seen" basis, and this new standard makes the conversation that the dealer has with the consumer on delivery of the goods all the more important.
New remedy – the short term right to reject
The role of dealer is also thrown into relief when you consider the new remedy of a short-term right to reject goods where they do not conform to the contract. This remedy will be in place from 1 October and, by way of example, will allow a customer to reject goods obtained via a dealer because they do not match the model seen at the time that the relevant finance agreement was signed.
Spotlight on the role of dealer
Where a consumer has entered into the agreement via a dealership, the likelihood is that he or she will also want to reject the goods by contacting the dealership, so the finance provider has very limited ability to actively mitigate the risk in this area. Interestingly, the Act specifically says that a consumer can exercise his right to reject goods by "indicating" that he is doing so "to the trader" and treating the contract as at an end. A question that therefore arises is whether the finance provider, as "the trader", can require the consumer to exercise this short-term right to reject the goods only by contacting the finance provider.
We would suggest that this is a risky approach: not only does the definition of "trader" in the Act envisage a trader acting broadly "through another person acting in the trader's name or on the trader's behalf", we think it likely that any such restriction would be open to challenge as an unfair term under Part 2 of the Act (see Schedule 2 paragraphs 2 and 20).
Impact on the finance element
Finance providers are rightly concerned about this new remedy. Parallels can be drawn to the impact of cancellation rights on consumer hire contracts. Cancellation rights currently arise in the context of regulated consumer hire agreements:
- where the contract is signed away from the dealer's premises after the dealer has spoken to the consumer in person 1;
- if the contract is entered into exclusively by means of distance communication; or
- if the contract is signed on the dealer's premises but discussions took place between the dealer and the consumer away from the dealer's premises2.
In each of these cases, if the consumer exercises his or her right to cancel the hire contract, the consequence will be that the goods are returned. This creates challenges for finance providers who may not always have specifically agreed with the supplier that the goods can be returned in such circumstances. As a result finance providers will often wait until the expiry of the cancellation period before delivering the goods.
Returning goods to the supplier
Unfortunately finance providers can't take the same approach and wait 30 days for the right to reject to expire before delivering the goods, as the 30 day period only starts to run from delivery. Instead, it will be key for finance providers to agree with the supplier a right to return the goods in the event of rejection, or at least include such a right in their invoice terms, not only in the context of consumer hire but also in the context of hire-purchase and conditional sale contracts. This may already be covered in existing buy-back arrangements.
Consumer's right to a refund
Not only will rejection of the goods result in effective cancellation of the hire, hire-purchase agreement or conditional sale agreement, it will also give rise to a duty on the finance provider to refund the consumer:
- consumers will have this right until 30 days after the goods have been delivered or installed (whichever is later);
- in the case of a hire-purchase or conditional sale agreement, the consumer will be entitled to a refund of any sums paid under the agreement including any deposit, document fees and monthly payments;
- in the case of a hire agreement, the entitlement to a refund extends only to rentals that have been paid in respect of a future period of hire that the consumer will no longer get because he/she has rejected the goods; and
- any refund must be made within 14 days from the day on which the entitlement to the refund has been agreed. Importantly, a deduction for use of the goods can only be made in the first six months if those goods consist of a motor vehicle.
Finance providers need to be ready to make these calculations and apply refunds within the time limits permitted.
Key concerns, then, are that the Act may drive an increase in early cancellation and rejection of goods and therefore finance agreements, which would have both financial and operational impacts.
Notably, the changes brought in by the Act are on top of new law3 which has already given consumers a right to reject goods financed under a hire-purchase or conditional sale contract where the dealer has engaged in misleading and aggressive practices, which new right lasts for 90 days from delivery.
Clearly, therefore, finance providers are well-advised to review their supplier terms and invoice terms and, if necessary, update them to ensure that they are not left having to deal with unwanted goods and can return them from where they came in the event of early rejection by consumers.