Goods bought on hire purchase or conditional sale stay in the lender’s ownership until the agreement is paid, which can make repossession seem simple. The Consumer Credit Act 1974 places limits on it. Once a borrower has paid a set share of the price, the goods become "protected goods" and the lender needs a court order, and the Act separately restricts entering premises to take goods. The Act applies across the UK, and the FCA’s conduct rules add a further layer for regulated firms.
The one-third rule
Section 90 applies where three conditions are met at the same time: the borrower is in breach of a regulated hire-purchase or regulated conditional sale agreement relating to goods, the borrower has paid one-third or more of the total price of the goods, and the property in the goods remains with the creditor. In that situation the creditor is not entitled to recover possession of the goods from the debtor except on an order of the court. Goods in that position are described in the Act as protected goods. If the creditor is required to carry out an installation and the agreement specifies the installation charge as part of the total price, the calculation is adjusted: the threshold becomes the installation charge plus one-third of the remainder of the total price.
Earlier agreements and other rules
The protection can carry over. Under section 90(3), where a borrower is in breach of a later regulated hire-purchase or conditional sale agreement between the same parties relating to any of the same goods, and had previously paid one-third or more under an earlier agreement, the requirement for a court order applies to the later agreement without the one-third condition. Section 90(5) provides that the protection does not apply, or ceases to apply, if the borrower has terminated the agreement, which is why the voluntary termination right described in the guide to ending a hire-purchase agreement is relevant. If the borrower dies while section 90 applies, the protection continues until probate or administration is granted, or confirmation in Scotland.
What happens if the lender ignores the rule
Section 91 sets out the consequences of recovering protected goods in breach of section 90. The regulated agreement, if not already terminated, terminates, and the borrower is released from all liability under it. The borrower is also entitled to recover from the lender all sums paid under the agreement. The consequences are therefore far more severe for the lender than a simple procedural error, and they apply in the same way whether the goods are a vehicle or household equipment.
Entering premises to take goods
Section 92 contains a separate restriction that does not depend on how much has been paid. Except under a court order, the creditor or owner is not entitled to enter any premises to take possession of goods subject to a regulated hire-purchase agreement, a regulated conditional sale agreement or a regulated consumer hire agreement. An entry in contravention is actionable as a breach of statutory duty. Section 92(2) adds that where a borrower is in breach of a regulated conditional sale agreement relating to land, the creditor can recover possession only on a court order.
The FCA’s rules on repossession
The FCA’s Consumer Credit sourcebook adds conduct requirements. CONC 7.3.17R says a firm must not take steps to repossess a customer’s home, goods or vehicles other than as a last resort, having explored all other possible options. CONC 7.3.17AR says a firm must not commence or continue repossession action while a forbearance arrangement is in place, for as long as the customer is meeting its terms. Guidance in CONC 7.3.20G says a firm should give a customer who says they intend to seek debt help or money guidance reasonable time to do so before considering repossession, may act as a last resort where it has made reasonable attempts to engage and the customer has not, and should consider the financial impact on the customer, including asset depreciation if repossession is delayed.
What a borrower can do
A borrower who has fallen behind should look at the notices that must precede enforcement, explained in the guide to arrears and default notices, and at the lender’s duties in the guide to falling behind on repayments. The court can also adjust payments through a time order, described in the guide to time orders. A complaint about how repossession was handled can go to the lender and then to the Financial Ombudsman Service.
FAQs
Does the one-third rule apply to every finance agreement?
No. Section 90 applies to regulated hire-purchase and regulated conditional sale agreements where the property in the goods remains with the creditor. Other types of credit have different rules.
Does the protection end if the borrower dies?
Not immediately. Under section 90(6), where the protection applies at the borrower’s death it continues until probate or administration is granted, or confirmation in Scotland.
What if the lender recovers protected goods without an order?
Section 91 says the agreement terminates, the borrower is released from all liability, and the borrower can recover all sums paid under it.
The bottom line
Under sections 90 to 92 of the Consumer Credit Act 1974, a lender needs a court order to retake goods on a regulated hire-purchase or conditional sale agreement once one-third of the total price has been paid, and cannot enter premises to take such goods without one. Breaching section 90 ends the agreement and releases the borrower from liability. The FCA also requires repossession to be a last resort. This is general information, not legal advice.
Sources
- legislation.gov.uk, “Consumer Credit Act 1974, section 90: Retaking of protected hire-purchase etc. goods”
- legislation.gov.uk, “Consumer Credit Act 1974, section 91: Consequences of breach of s. 90”
- legislation.gov.uk, “Consumer Credit Act 1974, section 92: Recovery of possession of goods or land”
- FCA Handbook, “CONC 7.3 Treatment of customers in or approaching arrears or in default (including repossessions)”