New Clause 4 - Liability of debtor on termination of hire-purchase etc. agreement
Consumer Credit Bill
4:30 pm
Mr Laurence Robertson (Shadow Minister, Economic Affairs; Tewkesbury, Conservative)
I beg to move, That the clause be read a Second time.
This is our last throw in Committee so I shall try to make it a good one. This new clause refers to what is often termed the ''half rule'': the voluntary termination of a contract. To continue the car analogy, if someone enters into a hire purchase agreement to buy a car—having had such an agreement, I declare an interest—the law states that they may hand the car back at any time and be liable for only half of the due payments; that applies to the capital and the interest. I think that I have correctly understood the law.
On the face of it, that is beneficial to consumers who have a car and can hand it back as long as it is in a reasonable condition. The definition of ''reasonable condition'' can be problematic, but that is not the point I am making. The Finance and Leasing Association and other groups, such as motor manufacturers, financiers and rental companies, support my amendment. It may appear that handing the car back after three months, six months or halfway through the term benefits the consumer, but there is a problem. If that is costing the hire purchase companies a lot of money—I am advised that it is—somebody somewhere is paying for that. The hire purchase companies—I mean no disrespect to them—will not foot the bill themselves. If I hand a car back, somebody else will have to pay for it through slightly higher interest rates; indeed, I may have done so myself. Somebody somewhere has to pay.
The Finance and Leasing Association advises that between 80 and 90 per cent. of cars are handed back not because people have got into financial difficulties, but because that is the option available to them under those contracts. As a consumer, I have declared that interest, and I may indeed take advantage of the situation. Given that it is legal, there is no reason why people should not do so. However, that distorts the market and transfers to other people the responsibility of paying a fair price for the credit. Above all, it is a distortion of contract law.
It is neither a satisfactory way of doing business, nor is it beneficial to consumers or hire purchase companies. It is an area of the law that needs looking into, and, if I am correct, it emanates from the 1974 Act, which is 30 years out of date. I ask for the Minister's thoughts on the amendment and on the situation that I described. The Department has looked into the matter, so he may surprise the Committee and amaze me by accepting an amendment to the Bill for the first time, but I shall not hold my breath.