The CCA allows customers with a regulated Hire Purchase or regulated Conditional Sale agreement to terminate the agreement before the end of the contractual term. It does not apply to lease agreements.
Voluntary termination, or VT, is also referred to as the "Halves Rule" because, in order to terminate the contract, the customer must pay or have paid at least half of the total amount owed to the finance company.
Termination is not the same as settlement, because title to the good does not pass to the customer if they decide to terminate.
Whilst voluntary termination is available to all customers who have Hire Purchase or Conditional Sale agreements (including PCP), it may be used by customers who can no longer afford repayments because they are in financial hardship.
Customers who elect voluntarily to terminate a contract, must comply with the following:
- Pay or have paid at least 50% of the total amount owed to the finance company. The amount owed comprises everything the customer would have paid if the agreement had run its full course including the deposit, amount borrowed, interest and all fees and charges.
- Bring up to date any arrears that are owed to the finance company, even if this results in more than the 50% being paid.
- Return the goods/vehicle in a reasonable condition for their age and mileage.
- Write to the finance company to explain the option they wish to take - this is known as the “surrender” or “voluntary surrender” letter.
Provided the customer has paid at least half the total amount payable and is up to date with his payments and taken reasonable care of the goods, then the goods can be returned to the finance company with no further liability.