A borrower who can no longer afford goods bought on regulated hire purchase or conditional sale is not always locked in until the final payment. Section 99 of the Consumer Credit Act 1974 gives a right to end the agreement by notice, and section 100 sets out what the borrower must pay when doing so. The provisions apply across the UK, and the FCA has published guidance telling lenders to make borrowers aware of the right where it may help them.
The right to terminate
Under section 99(1), at any time before the final payment falls due under a regulated hire-purchase or regulated conditional sale agreement, the debtor is entitled to terminate the agreement by giving notice to any person entitled or authorised to receive the sums payable under it. Termination does not affect any liability under the agreement that accrued before the termination, so arrears already owed remain due. The right is not available for a conditional sale agreement relating to land once title to the land has passed to the debtor, and it is lost for a conditional sale of goods where property in the goods has vested in the debtor and is then transferred to someone who does not become the debtor.
What the borrower must pay: the half rule
Section 100(1) says that where an agreement is terminated under section 99, the debtor is liable, unless the agreement provides for a smaller payment or none at all, to pay the amount, if any, by which one-half of the total price exceeds the sums already paid plus the sums due immediately before termination. As an illustration, if the total price were £10,000 and £3,000 had been paid or was due, the amount payable would be up to £2,000, while a borrower who had already paid or owed £5,000 or more would owe nothing further under that rule. Where the creditor has to carry out an installation and the agreement specifies an installation charge within the total price, the figure becomes the installation charge plus one-half of the remainder of the total price.
Court adjustments and care of the goods
The half rule is a default rather than a fixed cost. Section 100(3) allows a court that is satisfied that a lower sum would equal the loss the creditor sustained because of the termination to order payment of that lower sum instead. A borrower who has failed to take reasonable care of the goods, however, can be made to pay more: section 100(4) increases the amount by the sum needed to recompense the creditor for that breach. Anyone considering termination should therefore keep the goods in good condition until they are handed back.
Handing the goods back
Section 100(5) deals with a debtor who wrongfully retains the goods after termination. In an action by the creditor to recover possession, the court must, unless it would not be just in the circumstances, order the goods to be delivered to the creditor without giving the debtor the option of paying their value. For a conditional sale of goods where property had already passed to the debtor, section 99(5) provides that on termination the property vests again in the person who held it immediately before it passed to the debtor. Termination therefore ends the borrower’s claim to the goods as well as the payment obligation.
The FCA’s expectations of lenders
The FCA’s Consumer Credit sourcebook contains guidance on the right. CONC 7.3.21G says that where it may be in the customer’s interests to exercise the right to terminate a hire purchase or conditional sale agreement under section 99 or 100, a firm should make the customer aware of it in good time, in a way that is clear, fair and not misleading. CONC 7.3.22G adds that where a customer intends to exercise those rights, a firm should consider deferring legal liabilities associated with voluntary termination. Both provisions took effect on 4 November 2024. The wider arrears rules are covered in the guide to falling behind on repayments.
Weighing termination against the alternatives
Termination is not automatically the best choice. It ends the agreement but leaves the borrower without the goods and possibly with a balance to pay, whereas other routes may keep the goods. A court can reduce payments through a time order, as explained in the guide to time orders, and the position on early repayment is described in the guide to repaying a regulated loan early. Free debt advice, described in the guide to free debt advice, can help compare the figures before notice is given.
FAQs
Do I need my lender’s permission to terminate?
No. Section 99(1) entitles the debtor to terminate by giving notice to any person entitled or authorised to receive the sums payable under the agreement.
Will I still owe money after I terminate?
Possibly. Accrued liability remains, and section 100(1) requires payment of any shortfall between what has been paid or is due and one-half of the total price, unless the agreement provides for less.
Does the right apply to every finance agreement?
No. Sections 99 and 100 apply to regulated hire-purchase and regulated conditional sale agreements.
The bottom line
Sections 99 and 100 of the Consumer Credit Act 1974 let a borrower end a regulated hire-purchase or conditional sale agreement by notice, subject to paying accrued liabilities and, unless the agreement provides for less, enough to bring payments up to one-half of the total price. The FCA expects lenders to explain the right when it may help and to consider deferring liabilities. This is general information, not legal advice.
Sources
- legislation.gov.uk, “Consumer Credit Act 1974, section 99: Right to terminate hire-purchase etc. agreements”
- legislation.gov.uk, “Consumer Credit Act 1974, section 100: Liability of debtor on termination of hire-purchase etc. agreement”
- FCA Handbook, “CONC 7.3 Treatment of customers in or approaching arrears or in default (including repossessions)”