Is the Finance Company Liable for the Things Said and Done by the Supplying  Dealer?

What are the legal rights against the asset or car finance company for the things said and done by the supplying dealer or trader before the conclusion of a sale to a consumer on finance?

Section 56 of the Consumer Credit Act 1979 is designed to not only ensure the supplying dealer or trader is liable for the things it said and did in relation to the sale of a vehicle or any other goods and service on finance (known as antecedent negotiations) but the finance company will also be responsible for those things, by the dealer or trader being deemed its agent.

Section 56 of the Consumer Credit Act 1979

• In this Act “antecedent negotiations ” means any negotiations with the debtor —

(c) conducted by the supplier in relation to a transaction financed or proposed to be financed by a debtor-creditor-supplier agreement within section 12(b) or (c),

and “negotiator” means the person by whom negotiations are so conducted with the debtor or hirer.

(2) Negotiations with the debtor in a case falling within subsection (1)(b) or (c) shall be deemed to be conducted by the negotiator in the capacity of agent of the creditor as well as in his actual capacity.

However, case law such as Black Horse Ltd v Christopher Langford, has been interpreted to mean that the involvement in the transaction of a third-party finance broker breaks the agency relationship, leading to the finance company not being liable for the mis-selling or wrongful conduct of the supplying dealer.

At face value, this appears contrary to common sense, given that the supplying dealer owns and is in the position of the vehicle owner, and invariably the exclusive source of information about it. From this standpoint, it must be the agent or sub-agent of either the broker or the lender.

In any event, if it were true that liability could be avoided by bureaucracy, it would be contrary to the intentions of law to protect consumers, creating a loophole which allows motor and partner finance firms to in effect sell vehicles, goods and services on false pretences, with impunity, or perhaps more accurately, negate any need to check the veracity of the representations of the supplier, and the provenance of the vehicle.

Instead, section 56(1)(b) of the Consumer Credit Act 1979, defines ‘antecedent negotiations’ as those relating to the sale or proposed sale of the vehicle or goods by the ‘credit broker’ to the customer.

In many circumstances, the vehicle is supplied by the dealer rather that the credit intermediary, leaving the deemed agency intact.

There are circumstances where the dealer sells the vehicle to the broker, who sells it to the finance company, who sells it to the consumer, which may negate the liability of the lender for the acts and omissions of the dealer.

On the one hand, although pragmatic, to hold banks and lenders liable for all the acts or omissions of suppliers, may be seen as unduly onerous. On the other hand, holding finance companies responsible for ensuring finance is discharged on part exchange vehicles would increase diligence, reduce fraud, and decrease consumer detriment.

Regardless, motor finance companies should tread with caution, in actively seeking to create a commercial landscape which facilitates bypassing consumer legal safeguards, and in turn giving rise to unfairness, under s140 Consumer Credit Act 1979.

This. Ironically. is at the centre of the current investigation of discretionary commission agreements, following its abolition by the FCA, which is demonstrative of how loopholes are closed, and the consequences of non-compliance with the sentiment of the rules.

Notwithstanding this, even if the agency loophole was foolproof, s75 Consumer Credit Act 1979 provides a remedy against the finance company for the misrepresentations of the supplying dealer, which states:

(1) If the debtor under a debtor-creditor-supplier agreement falling within section 12(b) or (c) has, in relation to a transaction financed by the agreement, any claim against the supplier in respect of a misrepresentation or breach of contract, he shall have a like claim against the creditor, who, with the supplier, shall accordingly be jointly and severally liable to the debtor.

(2) Subject to any agreement between them, the creditor shall be entitled to be indemnified by the supplier for loss suffered by the creditor in satisfying his liability under subsection (1), including costs reasonably incurred by him in defending proceedings instituted by the debtor.

Stromcatcher specialise in hire purchase, PCP, asset finance advice and dispute resolution.

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