A presentation I delivered on the 13th December 2018 at the AMI Financial Solutions Ltd Christmas Lunch and Learn event. It explores the ideas of a Scottish Debt Solution Advice Levy to fund free local authority funded money advice services, which includes local authority services, Citizen Advice Bureaux, Law Centres and Independent Advice Services.
Local Authority funded money advice services saw cuts of 45% between 2014 – 2017.
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.
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).
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.
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.
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.
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.
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.
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.
