Find out more about Time Orders
Consumer Credit Act 1974
Time Order: New Online Tool
Advice Scotland is providing a new online tool that can be used by consumers and advisers alike, to identify when a Time Order may be an appropriate solution for them or their clients.
Time Orders are legal remedies that have been available for 45 year in Scotland, but are rarely used.
However, as I have covered in other blogs on this site (Time Orders: Has their Time come?), with the growth in car finance agreement, like Personal Contract Purchase Plans, Hire Purchase Agreements and Conditional Sale Agreements, I believe there is an opportunity for them to be used more often.
This is based on my own experiences over the last year, where I have applied for a Time Order three times to prevent clients having decrees granted against them in relation to car finance agreements, and been successful on each occasion (read about my Greenock cases: Sheriff Throws light on Time Orders).
I hope with this new online tool, more advisers will begin identifying when Time Orders are an appropriate tool for their clients and give them the tools to apply for one and, if necessary, represent them in Court.
I also hope that consumers will be able to use the tool to identify when a Time Order is an appropriate tool for their circumstances, and either apply for one themselves, or where they need help, through their local money advice agency.
Sheriff Decision Throws Light On Effects of Time Orders
Time Orders are a subject I have touched on and returned to on several occasions in this blog over the last year.
In relation to Hire-Purchase agreements for cars and Conditional Sale and Personal Contract Purchase Plans (PCP), Time Orders allow Courts to give consumers time to pay their agreements where they have went into arrears or defaulted on them, whilst also allowing them to retain possession and use of the vehicles.
The question I have been seeking an answer to is what are the effects of Time Orders once granted?
They have not been easy answers to find.
However, in an unreported decision delivered on the 7th February 2019, Sheriff McIntyre in Greenock Sheriff Court has finally provided an answer to one question I have been asking: what happens when a Time Order is granted?
In a case that involved an action for the repossession of a car, that was subject to a Personal Contract Purchase Plan (which for all legal purposes is a Hire-Purchase Agreement regulated by the Consumer Credit Act 1974), Sheriff McIntyre held that a Time Order varies the terms of a regulated agreement and allows the payments to be repaid in a regulated manner.
He also held that it was possible to argue for the action for payment of money and repossession of the car to be dismissed on the awarding of the Time Order, or for it to be continued or sisted (suspended) to monitor the repayments of the agreement.
The case involved was eventually sisted, as it was felt this was fairer to both parties, as it allowed the creditor to bring the case back into court quickly should the consumer default on the agreed repayments again,
Sheriff McIntyre also held that unlike Time to Payment Directions, which are awarded under the Debtors (Scotland) Act 1987 and result in a decree being granted, a Time Order allows the consumer to retain possession and use of the car.
What are the other effects of Time Orders?
Although the case does not definitively answer other questions I have raised in recent months, it may be possible from Sheriff McIntyre’s reasoning to extrapolate some additional understanding of what the effects of a Time Order may be.
If it varies the agreement, is it unreasonable to assume, depending on how the Time Order is framed, that it may do so to allow the consumer time to remedy their default of the agreement; or, to amend certain provisions of the agreement for the remaining duration of the agreement?
So, for example, where the consumer has arrears of £1,000, a Time Order may allow for those arrears to be repaid at £100 per month, in addition to the contractual payments; or for example, it may reschedule how the full amount owing under an agreement is repaid, changing the contractual payment amounts, the interest rates and ultimately the terms of the agreement? It is clear the court has wide discretion in how it grants a Time Order.
In such cases, where the Time Order is just for the arrears, once these are cleared, providing the issue of legal expenses are addressed, could it be argued that the action should be dismissed? Has the consumer not remedied their default and brought the agreement back into good order? Or likewise, where it varies the terms in which the full amount should be repaid, in effect varying the existing agreement, then after a period of court supervision, should the court not consider dismissing the action and allow the new varied agreement to continue as if there had been no default?
This is important as it may answer another question in relation to Time Orders which I have asked (Time Orders: Has Their Time Come?), and that is if they can remedy a default on an agreement, should any termination of the agreement by the lender, not be reversed? This may then allow the consumer to enjoy again the full contractual and statutory rights that accompanied their existing agreement, including the right to terminate the agreement themselves. The logic being as the lenders right to terminate the agreement arises from the debtor being in default, where the default is reversed, so should, where possible, all the consequences of that default?
This is important for the purposes of s99 and S100 of the 1974 Act, which respectively allows a consumer to terminate an agreement after half the amount owing has been paid and limits the borrower’s liability to that amount (subject to certain caveats).
This is important in a consumer finance market where car finance is now believed to be responsible for 90% of all new car purchases and where car debt is on the rise. It is even more important when you consider one of the reasons for this rise, is falling monthly instalments, driven by optional balloon payments at the end of the agreement, which are no longer optional once an agreement is in default or a decree has been granted.
These are still questions that need to be answered.
Either, way, it would appear, from Sheriff McIntyre’s reasoning, the action that is raised in court should not result in decree once a Time Order is granted and its terms are being complied with.
More information about Time Orders can be found here.
Note: the decision of Sheriff McIntyre is not binding on other sheriffs
Time Orders: Has Their Time Come?
Time Orders: Recent Case Raise Questions
A recent case in Greenock Sheriff Court, where I am representing, has raised some interesting questions about what the effects are of a Time Orders under section 129 of the Consumer Credit Act 1974 (1974 Act). A hearing is scheduled for later this month to hear the issues involved.
The facts of the case are quite common these days for money advisers to come across. A consumer takes out a car on a hire purchase agreement and after a period of time misses a couple of instalments. The hirer then serves a default notice under s87 of the 1974 Act and once it expires, terminates the agreement and demands the return of the vehicle and full payment of all sums owed under the agreement.
The question is where a time order is granted and complied with, what effect does it have? My argument is it remedies the default, reverses the termination of the agreement by the lender and restores the parties back to the position they were in prior to the default, with the consumer being entitled to exercise all their contractual and statutory rights again.
This would mean a consumer faced with an action for payment of money, for say £8,000, and for the return of a car, could apply for a time order; and then offer in one lump sum, or by instalments, the contractual monthly amount plus something towards the arrears, so that when the arrears are cleared and they have paid half the amount owed under the agreement, they can voluntarily terminate the agreement (s99), return the car and have no further liability (s100), subject to the normal caveats about the car being returned in a reasonable condition.
What are time orders?
Time orders are not a new remedy. They have now been on the UK statute books for over forty years. However, despite this and that they were originally introduced to increase protections for consumers, they remain a relatively little used remedy, particularly, by consumers experiencing financial difficulties.
Historically, where they have been used, it has primarily been in relation to second secured loans. This is confirmed by a quick perusal of the existing case law on them, both Scottish and from other parts of the UK.
In Scotland, their use has declined further because of the reforms introduced by Mortgage Rights (Scotland) Act 2001 and more recently the Home Owner and Debtor Protection (Scotland) Act 2010, which introduced greater protections for consumers (although, unlike time orders, these don’t allow the courts the powers to reduce interest rates payable on loans).
The growth in car finance agreements
However, the recent explosion in the use of hire purchase (HP), conditional sale and personal contract purchase (PCP) agreements in the new car market (over 90% of new cars are now purchased using finance), makes a case for time orders to be used more frequently. Particularly, when it is considered one of the effects of someone defaulting on an agreement is it usually leads to the hirer terminating the agreement and the consumer becoming liable for the full amount owing, including optional lump sums that are due at the end of the agreement and can amount to several thousand pounds.
Consumers lose possession of their cars and are often left with a substantial residual debt, often increased by the fact that the increased use of these types of agreements has led to large quantities of second hand cars flooding the market, reducing the price that is obtained by the hirers and the funds that are available to offset against the outstanding debt owed.
How could time orders be a solution?
However, where a consumer goes into arrears with their agreement and an arrears or default notice is served on them, they do have the option of applying to the court for a time order under s129 of the Consumer Credit Act 1974.
Time orders allow sheriff’s a lot of discretion. If they consider it “just”.
They can make an order allowing the consumer to pay by instalments “any sum owed”, at such times and itervals as they consider reasonable, having regard to the means of the consumer.
The benefit of this is, unlike time to pay direction under the Debtors (Scotland) Act 1987 (1987 Act), time orders are not just instalment decrees and allow the consumers to keep the car and avoid a court order being granted against them.
Just
When deciding whether or not to grant an order, courts can look at the age and level of experience of the consumer and not just their means. They can also look at what needs the consumer has and why they wish to retain the car. They may also look at the circumstances that preceded the consumer entering the agreement and the conduct and behaviour of the consumer and the hirer during the operation of the agreement. They may also look at the conduct of the consumer and the hirer following the termination of the agreement.
Any Sums Due
Existing case law suggests it could be for the full amount owed, or just the arrears outstanding, should the consumer not have defaulted.
The court, therefore, can make an order for the full amount owing, which may be important where a consumer applies for an ancillary order under s136 of the 1974 Act, as that allows the court to amend the terms of the agreement and also possibly reduce the interest rates applicable to the agreement.
However, equally, the court may just allow the time order to apply to the arrears that would have been owed on the agreement had the consumer not defaulted. The consumer, therefore, may propose to pay the normal monthly contractual amounts and something towards the arrears, allowing them to remedy the circumstances that led to the default in the first place. This would then allow the consumer to resume their contract, as originally intended, once they have done so.
What is the effect of a time order?
This area is less clear. My argument is the effect of a time order is where it is granted and complied with in full, as the circumstances that caused the default have been remedied, the default should cease and both parties should be returned to the position they were in prior to the default.
It would clearly be nonsensical if after a time order was granted and complied with the lender was still able to demand the full amount owing. If that was the case, why not just grant a time to pay direction under the 1987 Act. Also the point of a time order is unlike a time to pay direction is it allows the consumer to retain possession of the vehicle if they wish. Why then should a hirer still be able to recover it?
Equally as the right to demand full payment of monies owed and to recover the vehicle stem from the effects of an expired default notice under s87, where the consumer has remedied the circumstances that led to the default, surely those rights should be removed.
Termination of the agreement
However, another issue is where the lender on the back of the default notice has terminated the agreement, what should the effect of the time order be on the termination of the agreement? This is an important question as the effect of the termination by the hirer is the consumer loses some of their contractual protections, including the right to early terminate the agreement themselves under s99 of the 1974 Act and the protections that flow from that under s100, which provides where they do and have paid more than half the amount owing, they should have no further liability.
My argument is as the right to terminate the agreement flows from the expired default notice under s87 of the 1974 Act, if the default itself is remedied by the time order, the hirer’s rights under s87 should be removed, so they cannot demand full payment, cannot recover the vehicle and the termination of the agreement should be reversed (as where the consumer is still in possession of the vehicle, this is possible).
The consumer then should be at liberty to exercise their rights, should they choose, under s99 (early termination) and rely on the protections afforded them under s100 where they have paid more than half the amount owing under the agreement.
