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Your legal rights: Hire Purchase (HP) Debt Problems

If you buy something, such as a vehicle or a piece of furniture, under a hire purchase scheme, this is known as a “conditional sale agreement.” What this means is that you do not actually own the goods until you have made the final payment on them. Until that point, they belong to the creditor – or the finance company.

What the law says

In the event that you miss payments before a third of the total amount has been paid, then the creditor is allowed to take the item back. They are only allowed to do this in a public place. So, while they may be able to repossess your automobile, they are not allowed to come in to your home and take furniture away, as this is not a public place.

In the event that you have paid back at least a third of the total amount due, then the creditor may launch court proceedings against you to either get you to pay or to take the items back.

At that point, you will receive a hearing date. Then the court shall decide whether you have to return the item. Otherwise, they may decide to accept any offer you make in terms of paying the rest of the debt off.

You may also ask the court for a “time order.” This gives the court the power to reduce the payments to a level you are actually able to afford. The court may also institute a “suspended order.” This means that the finance company is only allowed to take the goods back if you miss future payments.

If you wish to avoid court action, you may write to the creditor and end your contract with an offer to return the goods. In that case, you will only have to pay half of the total amount you originally owed, as well as the cost of any damages to the goods.

Is your credit agreement a regulated agreement?

Keep in mind that anyone who offers you credit has to be licensed by the Office of Fair Trading. The vast majority of credit agreements for amounts less than 25,000 pounds are covered by the 1974 Consumer Credit Act. Under such agreements, you are entitled to the following:  

• Have specific information included in your agreement, such as the amount you are borrowing, the length of the agreement, interest rates, any charges, the amount and frequency of payments and your cancellation rights (if applicable -see below). It must also include the total charge for credit and the Annual Percentage Rate (APR), which is the annual cost of credit after interest and all other charges have been added together. If this information is not included, the agreement may be unenforceable
• Be given a copy of the agreement, which is not binding until signed by both you and the creditor
• Be sent a statement or copy of other documents on request. You may have to pay a small amount

Be informed of the procedures to be followed, such as sending you a default notice, before court action is taken.