Alan Mcintosh

In the last 10 years, consumer credit finance has steadily flowed into the estuaries of Scotland’s household expenditure, with monthly debt payments accounting for more and more of households’ outgoings. This has taken the form of car finance payments, mobile phone contracts and fixed loan agreements, not to mention the ubiquitous credit card and bank overdraft. However, households are now facing a retreating tide, with the reduced support for employees and the withdrawing of bank payment breaks, that may return as a tsunami and wash away the affordability of many agreements.

Take car finance. Last year, across the UK, more than 91 per cent of all new car sales were purchased using finance agreements provided by members of the Financial Leasing Authority (FLA). This included hire purchase and personal contract purchase agreements, both of which mean ownership of the car does not transfer until all the finance is paid off.

Most of these agreements will be the second largest expenditure item in many homes, after rent and mortgage payments. That is one million agreements for new cars in 2019, and another 1.5 million for used cars. In total, £38 billion of consumer finance for car sales in 2019 alone. This explains why most of the cars you see in your neighbourhood will have 2017, 2018 and 2019 plates.

For many of those households who now face an income shock, either as a result of reduced income or job losses, difficult decisions will have to be made between paying for food, mortgages or rent, or paying the car finance agreement, credit cards and loans. Where the car finance agreement cannot be paid, loss of the vehicle is a high possibility.

For those who find themselves in this situation, they should contact their lenders and request a payment break, but after today these will be provided only on a case by case basis. Motorists should also not be surprised if firms are reluctant to give further support without first getting vehicles back, as a quick sale may help them minimise their losses, with cars being a depreciating asset. Also, with FLA members already having received 745,000 requests for forbearance within the first three months of lockdown, many car owners will not have paid in months.

Where firms are not flexible, however, motorists should seek advice. UK consumer law does provide for voluntary surrender of a vehicle where more than half the amount owed has been paid, possibly leaving the consumer with no further liability. However, where less than half has been paid, consumers may lose the car and still be left with a debt. Alternatively, it may be possible to apply for a time order from the Sheriff Court, which allows consumers to keep the car and reschedule the payments.

However, at present under Scots law, there are no further protections, although the Scottish Parliament could apply the brakes and introduce increased protections via its Debt Arrangement Scheme.

Failing which, we may need to brace ourselves for a tsunami of car repossessions as part of this storm.

Alan Mcintosh is a money adviser.