Double Car Finance Fraud

Stormcatcher specialise in cases involving the sale of vehicles on finance, HP, PCP etc and are authorised and regulated by the Financial Conduct Authority (FCA) for advice, investigation or representation in relation to a financial service or financial product claim.

Double finance fraud is at face value a simple fraud, which should never happen, but does, within increasing regularity.

The reason can be traced to the friction created by the inclusion in the contracts of an indemnity clause and the way this causes the parties to act and react.

What is double finance?

As the name implies, double finance is where a second car finance company finances a vehicle without settling the existing hire purchase / finance agreement. In short, one vehicle, two finance companies.

In these cases, the second finance company buys the vehicle and pays the purchase price to the rogue dealer, who keeps the sale proceeds, rather than pay them to the original finance company or the seller.

Both finance companies receive monthly payments for the same car, while the rogue dealer moves on to the next vehicle.

Indemnity clause

The indemnity clause, as shown in the dramatisation of Post Office scandal, Mr Bates v The Post Office, simply means that in the event of the Post Office, or in this case the finance company, suffers loss, the other party, namely the postmaster / mistress or the hirer [the person financing the car], pays.

The indemnity clause automatically gives rise to a debt, and generally in cases involving debt claims, there is no duty on the creditor to mitigate (minimise) their losses. The focus is on recovering the debt, and not investigating how and why the debt occurred and where the money [or in the case of double financing] or the vehicle went.

This creates fear on the part of the hirer, and leaves him or her caught between ‘a rock and a hard place’. Do they tell the finance company that the vehicle has been sold, which will then pursue them for the full balance of the HP agreement, or do they keep quiet and keep paying the monthly finance payments?

However, by continuing to pay the monthly finance payments, the alarm is not raised and the dodgy car dealer continues to get away with it.

In this regard, both finance companies benefit from the status quo.

In the meantime, the crooks who have fraudulently received payment for the vehicle, who are often part of an organised crime gang, carry on operating the fraud through their operatives, while laundering the proceeds.

Consumer duty

The solution could not be simpler.

The law states where goods are sold by a person who is not their owner, and who does not sell them under the authority or with the consent of the owner, the buyer acquires no better title to the goods than the seller had, unless the owner of the goods is by his conduct precluded from denying the seller’s authority to sell.

Clearly, the original finance company owns the vehicle and has not agreed to it being sold by the car dealer. Therefore, the second finance company has no claim to the vehicle, and it must be returned.

The second finance company has a claim against the fraudster, which in conjunction with the criminal investigation, will assist in the recovery of the proceeds of crime.

In fairness, it is difficult for the bank or lender to protest it is an innocent party, as but for them failing to carry out due diligence whether adequately or at all, it is likely to have been negligent.

From this perspective, the damage and loss caused to the original hirer is foreseeable and preventable.

Unless finance companies act, things will stay the same.

For automotive law advice, contact Stormcatcher Law today.