FLAC wins appeal against decision of Financial Services Ombudsman

27 July 2011

In a decision in the High Court this morning, Judge Hanna found that the practice of some Finance Companies in refusing to accept back cars where Hire Purchase agreements were terminated was wrong in law.

In all Hire Purchase agreements, the car remains the property of the finance company until the final Hire Purchase payment has been made. The Consumer Credit Act 1995 sets out what is to happen when a hirer cannot keep up repayments and needs to terminate the agreement early. An agreement which is terminated early still requires a hirer to pay up to half of the full Hire Purchase price and allows the Finance House to get the vehicle back. The case concerned the refusal of GE Money to accept the car back until such time as the 50% of the overall Hire Purchase price had been paid.

In this case, Michelle Gabriel had acquired a car on Hire Purchase from GE Money in 2008 but needed to end her agreement in 2009 when she got into financial difficulty. Working with the support of MABS (the state Money Advice and Budgeting Service), she tried to return the car to GE Money but the company refused to accept it unless she paid 50% in total of the Hire Purchase price. Ms Gabriel appealed to the Financial Services Ombudsman who agreed with GE Money that she had to pay the additional amount up to 50% before they had to take the car back.

Today's case was the outcome of an appeal brought to the High Court on Ms Gabriel's behalf by FLAC (Free Legal Advice Centres). Judge Hanna found that there was no legal basis for a precondition that 50% of the full Hire Purchase price had to be paid once an agreement was terminated and that the Financial Services Ombudsman had been in significant error in insisting that the payment be made.

According to FLAC's Noeline Blackwell, "today's decision is important for many people in similar circumstances with arrears on vehicle Hire Purchase agreements. A number of Finance Companies take the view that they have to get the full 50% of the price in advance of taking back a car. This case clarifies that this is not the case. The payment of 50% is not a precondition to handing the car back. The sum may still be due by a hirer but at least hirers in financial difficulty won't be left with cars they don't own and that are deteriorating in front of their eyes".

Notes for Editors

  1. FLAC (Free Legal Advice Centres) is an independent human rights organisation which works to promote equal access to justice for all. It provides legal support to MABS offices country wide as well as furnishing advice and information to the general public through its lo-call information line and its network of clinics around the country.
  2. The decision of Judge Hanna is in the case Michelle Gabriel and Noreen Gabriel, Appellants, Financial Services Ombudsman Respondent and GE Capital Woodchester Finance Limited trading as GE Money, Notice Party, Record No. 2010/298 MCA. A copy of the judgment is available on FLAC's website.
  3. Hire Purchase for car finance has been a common form of credit in Ireland over the past decade. While precise figures are not readily available, the website of the Irish Finance Houses Association states that the Association has 19 financial institutions employing 1,400 staff engaged in the provision of asset finance with assets at risk of €5,000 million. Most Hire Purchase agreements run for 60 months, but a 48-month agreement is also common. HP is expensive credit with the cost of the credit generally having been in excess of that charged on personal loans from banks. In the Gabriel case, the notional cash price of the vehicle was 14,950 with a total cost of credit of 18,155.54 meaning that 3,200 is paid in interest and other charges over a four year period. This equates to over 21% of the initial cash price of the vehicle. Ms Gabriel paid instalments of €7,019.44 but was €2,058.32 short of 50% of the Hire Purchase price when she got into difficulty.