Complaining Again!
This probably affects a LOT of people who have financed a purchase and decided to repay early, so I hope I can explain it well and that you pass this on!
I financed a car recently and since I’m a sucker for a bit of maths I decided to work out how much I felt my repayment would be. I found a large difference between the amount I calculated and the amount the company wanted me to pay. I figured that the company would levy some penalties against me for early settlement of my arrangement but I wasn’t expecting such a large amount.
As I investigated this with the company I discovered that my calculations were actually wrong. Not that I did my math improperly but that the way the loan was constructed and the way the contract was carefully written meant I had failed to include a couple of figures in my sums.
First off I had not been aware that two fees in my arrangement were not included in the top level figure, ‘Total Amount for Credit’. Well go figure! The ‘Total Amount for Credit’ was in fact NOT the ‘Total Amount for Credit’. There was an additional fee added to this number (bad finance company!!) and there was another fee due at the end of the loan which wasn’t financed (understandable but not at all clear).
Once all this was worked out there was still a difference between my calculation and their calculation and although it was now much smaller it was still over one hundred and fifty pounds. So I decided to dig deeper and this is where the useful advice comes…
Credit contracts in the UK are governed by the Consumer Credit Regulations. Repaying these contracts before their term is covered by the Consumer Credit (Early Settlement) Regulations 2004. If you want to go read it please just ignore the equations on calculating repayments – they’re actually just a way of stating something much easier and obvious to calculate on a spreadsheet.
Here’s the important thing. When you tell your lender that you want to settle early they must send you a letter that tells you how much you must repay and when. The ‘when’ is crucial. It is a legal entity referred to as the ‘Settlement Date’ in the Regulations. Once the company states the date it is set in stone.
Now your lender will set a Settlement Date of 28 days after you ask for an early settlement. This is to allow them to claim 28 days more interest from you which is fine. However they may at their discretion delay the settlement by another 30 days, allowing them to net 58 days more interest in total. Again this seems perfectly reasonable. There has to be some give and take when you want to get out of a contract.
The important thing is that they can’t just tell you to pay them the relevant amount at any arbitrary time. If they only defer by 28 days then the payment is due in 28 days. If they defer by 58 days then the payment is due in 58 days.
My lender made this crucial mistake. They charged me 58 days interest but stated the Settlement Date as only 28 days after my request. I bitched about this to them repeatedly and told them if they continued to demand the money I would take them to the ombudsman. I quoted repeatedly from the Regulations and lo and behold they told me to keep the extra 30 days interest. However, of course, they accept no liability and insist that their contracts and arrangements are perfectly inline with the law. Their withdrawal of the demand was simply ‘in the interests of continuing customer satisfaction’.
BULLSHIT!
Anyway I won and the important thing is always to check that you are not being charged this extra 30 days interest and being asked for it before it is due.
Also you should know that under the regulations they are not permitted to otherwise charge you ANY other penalties or fees for early settlement. If you have been charged any such fee on a finance deal, pick up the phone and get complaining!
Oh and here’s another little trick they try and pull. They try to get you to overpay the loan and then return you the difference. This arises because you are required to continue paying your normal payments up until the settlement date. But in their letter to you they will typically tell you the amount in total that you need to pay between now and the settlement date, including what your regular payments will be. Imagine you were paying $100 per month on this example loan and you’ve been told you owe $1000 in 58 days. You are going to make two payments in that 58 day period then blindly send them $1000 and find that in a month or so you get $200 back.
The regulations state that the settlement amount should be only what you need to pay on that date to finish up. I refused to pay my lender the extra money, pointing out that they had absolutely no right to demand it and that they were once again breaking the regulations by suggesting in their wording that I was required to overpay. Again they backed down.
Bullet point summary incoming!
- Don’t let them charge you 58 days interest over 28 days.
- Don’t let them make you overpay.
- Don’t let them charge you ANY other penalties for settling early
- I’m not a lawyer but I won on all counts against a very large finance house.
Personal | PadainFain April 29, 2010
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