The Analysis News & Opinions


Decision on motor- finance advice case


Motor-finance companies should be aware of the risk that dealers may be viewed as their legal agents, leaving them responsible for advice, after a new legal decision. Speaking at a round-table debate run by


CCRMagazine in association with Ascent Performance Group, Mark Higgins, chairman of Ascent Performance Group, explained: “From a legal perspective, one interesting piece of news from the Summer was a decision in the Gordon case. This a County Court case, rather than High Court, so that has to be borne in mind in terms of how significant it is, but Mr Gordon bought an Audi Quattro for around £50,000 and from the moment he bought it, a loud rattling noise would not go away. “He took it to the dealer and twice they


tried to repair it, but they could not fix the problem. During all that time, not only was he in touch with the dealer, but he was also calling the lender saying that he would not be paying for it. “Every time he did that, the lender would


say ‘we are very sorry, but if it is to do with the quality of the car, then you have to sort it out with the dealer’, which is not an unusual response in this market. “So it went to court and the court first


decided that it was a serious enough issue that the customer was entitled to say it was not of a good enough quality, which was not controversial, but what was more interesting was, although there is not a default position that the dealer is acting as an agent for the finance company – not in common law anyway – because every time the lender had spoken to the customer, they had said that


December 2019


because it was to do with the quality of the car he had to take it up with the dealer, the court decided that this was enough to make the dealer an agent for the finance company in those particular factual circumstances. “So the lender was completely on the


hook for everything to do with the quality of the car and Mr Gordon was entitled to reject the car, and he did not have to pay for it. Of course, it is always important to keep in mind that the lender may have been trying to sort things out behind the scenes. The court may not have been aware of that and sometimes lenders put forward reasonable proposals which customers will not accept.” He concluded: “As I say, it is not a High


Court case and it is not the first time that something has been decided like this, but it did bring home to me how, what is quite often a response by finance companies to say ‘if it is anything to do with the car – it is not the affordability or way in which the finance was sold – then the customer needs to sort it out with the dealer’, then this decision certainly brings it much closer to home for the finance company. “I suppose it suggests that a few finance


companies need to join up their procedures a bit more with some of the dealers, so that when things really are not getting sorted out over a period of time, maybe the finance company needs to be a bit more involved than it might have been in the past. “It will depend on which finance company


and which dealer you are talking about, so I would not draw too many conclusions, but it is useful to consider what you would do with a dealer in this situation.”


www.CCRMagazine.com Opinion


Deleveraging may mean Japanisation becomes us


‘Japanisation’ might soon afflict Europe and the US. It describes a stagnating economy that goes down a deflationary spiral with almost no demand for credit or consumption from the private sector. No growth and no inflation. Among the many factors underlying


Japan’s ‘Lost Decade’ (or decades, to be more apt) in the 1990s and 2000s, were bubbles in property and equities. Both speculative bubbles were punctured in 1989 when the Bank of Japan started aggressively raising interest rates. Since then, inflexible economic policy,


adverse demographics, and deleveraging of the private sector have been keeping Japan’s economy in a deflationary state. Some of the developed economies, like


those in Europe, have been making exactly the same mistakes Japan did in the 1990s. Although the US managed to avoid some of the banking system issues Europe experienced in 2011, its over-reliance on the Fed’s monetary policy keeps fuelling a potential bubble in financial assets while driving up wealth inequality. This, in turn, will most likely be a drag on future demand and consumption. Just like those in Japan 30 years ago,


European leaders made a serious policy error when they failed to quickly address the banking crisis emerging at its early stage in 2008. The European political leadership were completely unprepared for the deflation that hit the Eurozone and, therefore, had very little chance to prevent it from taking hold. The eurozone’s biggest problem is the


Maastricht Treaty, which caps the deficit-to- GDP ratio at 3%. Once in a balance sheet recession, if the private sector is saving 10% of GDP and government can only borrow 3%, the economy is very likely to experience deflation.


Artur Baluszynski Head of research, Henderson Rowe


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