Legal Relationship between customer, car dealer and finance co?

GazaEDI

About 3.5 years ago I took out a Lease Purchase agreement with BMW Finance for the purchase of a new car. As the loan was over £25k the agreement was unregulated. The finance was arranged by the dealer but all the paperwork is BMW Financial Services. The dealership use BMW Financial Services systems to calculate the loans.

I’ve raised a complaint with BMW as the residual value has been set at level that means I am looking at circa £4k “negative equity” when the agreement ends. BMW Financial Service have rejected my complaint saying only “as the agreement was unregulated the dealer was not acting as their agent” and therefore they are not responsible. They have referred me back to the dealership.

Anyone care to comment on this? Any value in going straight to he FOS?

tictax

Hi, having worked for Black Horse in their underwriting department I have some first-hand knowledge of how these deals work.

Basically BMW will have had a tolerance on the residual value set at the start of the agreement. They would NOT have allowed an unlimited residual value as it would not be in their interests to do so if they ended up having to repossess the vehicle.

At the time of the agreement being made they would have felt that the residual value would have been in the region of the anticipated value. However, used car values have plummeted recently (mainly in the last 6 months) and this is how you are in negative equity.

I am going to guess that you have a petrol car with a fairly large engine which are the vehicles that have suffered the most.

Unfortunately there is nothing that you can do about it but this is the big hazzard of taking out loans of this nature - you get a lower monthly payment but now you have negative equity.

As I said I worked for Black Horse and know about them - I recall that the manufacturer finance companies always offered higher residual values than BH did but unfortunately you are stuck with it.

GazaEDI

tictax wrote: »

I am going to guess that you have a petrol car with a fairly large engine which are the vehicles that have suffered the most.

Your guess is very accurate. I have a 3.0 petrol engined X3.

My beef is they allowed the dealer to set a residual value at an unrealistic value, even allowing for the dive in used car values. During the purchase I told the dealer I wanted the residual value set at a realistic value to ensure I had some equity to go towards my next vehicle.

Thanks for your help.

tictax

Sorry if I didn't explain it enough but the residual value was proposed to BMW Finance and they were ok with it. They would have then looked at depreciated value forecasts from internal information, CAP and Glasses guides (the car value bibles). If the residual value was acceptable to them they allowed the application for finance to proceed.

Unfortunately you have been hit by the impact of the ever increasing oil prices which has led to vehicles like yours 4x4s to depreciate more than was ever anticipated. Due to the sort of agreement that you had the risk of the car value not meeting the falls solely on you. If you want to pursue it further I would write to BMW Finance but the answer you will get from them will be the same as you are getting from me.
The only complaint you have against the dealer is that you weren't made aware of the risk if the car value at the end of the agreement didn't cover the balloon payment.