Write off Debt on Unenforceable Car Loans: Consumer Credit Act 1974 and Illegal Car Finance

Those that took out a car finance prior to April 1st 2007 have a realistic chance of being able to write off debt in relation to legally unenforceable car loans. There is a legal requirement that all car loan agreements must comply with the prescribed terms of the Consumer Credit Act 1974. Whilst it is difficult to quantify how many car loans aren’t compliant, the number is likely to be significant.

What is Necessary to Identify Whether an Unenforceable Car Loan Exists?

A fundamental part of the process to see if an unenforceable car loan exists is an initial audit of the credit agreement. Those that don’t have a copy of the car loan agreement can get this from the lender. There are two ways that this can be requested:

  • Under section 77-79 of the Consumer Credit Act 1974. This allows someone to get a copy of their car loan agreement for just £1. A cheque should be included with the formal request;
  • More detailed documentation can be requested for £10 via a Subject Access Request (SARN) under the Data Protection Act 1998. Although it takes longer to get this information, it is harder for the car finance company to comply with.

It is recommended that a debtor utilises the services of a professional solicitor to check the agreement. Although the prescribed terms of the Consumer Credit Act 1974 are reasonably easy to interpret to the trained eye, there are more esoteric reasons for an unenforceable car loan agreement.

When Might an Unenforceable Car Loan Exist?

  • The lender doesn’t have a copy of the car loan agreement;
  • The interest has been incorrectly calculated;
  • The credit charges (rate of APR) are deemed unfair;
  • The sale of a bad credit car loan to someone with a good credit rating;
  • A deposit has been paid for the car and this isn’t acknowledged in the car loan agreement;
  • No rate of APR is displayed;
  • There is no mention of any ‘cooling off’ period;
  • The car loan credit agreement hasn’t been signed by one or both parties;
  • The car loan is secured and this wasn’t stated on the agreement;
  • A person has been advised that they can only get a car loan if they take out Payment Protection Insurance (PPI).

It is estimated that in 25% of cases, the provider of the car finance is unable to provide a copy of the car loan agreement. If this is the case, the lender is not legally able to enforce it in a court of law. This would mean that it is effectively an unenforceable car loan.

Should an unenforceable car loan exist, it is possible to write-off the outstanding amount owed and receive a refund in relation to any car loan payments made. Others have received damages because the agreement is too one-sided in favour of the company offering the car finance.

Will a Successful Case Result in a Bad Credit Rating?

Proving that an unenforceable car loan agreement exists won’t worsen a credit rating. In many instances, consumers have already missed payments on car loans. Establishing that an unenforceable car loan exists may actually improve a credit rating because the credit report entry in relation to the car loan will be completely removed.

A consumer that has taken out car finance prior to the 1st April 2007 will be well-served by getting their credit agreements audited by a specialist solicitor. Should an unenforceable car loan agreement exist, because it fails to comply with the Consumer Credit Act 1974, any debt can be written-off. This can only serve to ease financial difficulties and alleviate personal debt problems.