The recent (and largely unsuccessful) increase in claims against motor finance lenders relating to a vehicle’s previous keeper history has brought into focus what checks (if any) lenders need to make before entering into a motor finance agreement. In this article, we consider whether there is a need to make enquiries about any outstanding recalls before supplying a vehicle.

The General Product Safety Regulations

The General Product Safety Regulations 2005 (the GPSR) sets out obligations on producers and distributors to only place ‘safe’ products onto the market. Producers are defined as the “manufacturer of the product”, so a motor finance lender is unlikely to fall into this definition. Distributors are defined as “a professional in the supply chain whose activity does not affect the safety properties of a product”.

Could a motor finance lender be a distributor?

The short answer is that it could. The GPSR does not give any examples. However, the Driver and Vehicle Standards Agency (the DVSA) issued a code on interpreting the GPSR entitled ‘Vehicle safety defects and recalls: Code of practice’ (the Code). Annex A says a distributor will “typically be an importer, a dealer, wholesaler or other seller of the product” (so could include a motor finance lender entering into credit or hire agreements).

What obligations are imposed on distributors?

Distributors do not have the same obligations as a producer under the GPSR. By Regulation 8(1)(a), distributors must act with “due care in order to help ensure compliance with the applicable safety requirements” and ensure that they do not supply a product to any person which they know, or should have presumed, is a “dangerous product”. A “dangerous product” is one which is not a “safe product”. A “safe product” is a product which under normal use does not present any risk, or only the minimum risks compatible with the product’s use. The sanction for failing to comply is a criminal one.

If a motor finance lender is a distributor, how should it comply with the GPSR?

In April 2014, the DVSA provided guidance entitled ‘A guide to safety recalls in the used vehicle industry’. The DVSA’s view is that “a product with an outstanding safety recall should not be passed to a consumer”. The guidance also said that if “you are selling a vehicle to a consumer, you will need to check for outstanding recalls and these safety recalls must be attended prior to the consumer purchasing the vehicle”.

While motor finance lenders are likely to be distributors, it is far from clear whether they should be undertaking vehicle recall checks before entering into a finance agreement.

The guidance was aimed at “any persons or company who is in the vehicle supply chain which results in the sale of a used vehicle or product to a consumer” (so could include a motor finance lender). However, and importantly, the guidance also states that if “you are passing vehicles within the trade you need to share information about any outstanding safety recalls” (an obligation found in Regulation 8(1)(b)). Dealers selling vehicles to motor finance providers are therefore in a similar position and must share information with the lender when selling the vehicle to them.

Is there more recent guidance?

Yes. In March 2024, the DVSA updated the Code. The DVSA states distributors have responsibility to “monitor the safety of the products in the market” and for “supporting the producer as may be necessary in providing any information to the DVSA, in any recall or similar efforts”. The obligation to “support the producer” is likely to be less onerous than any obligation to “check for outstanding recalls” (as suggested by the 2014 guidance).

Are recall checks always necessary?

It does not necessarily follow that a recall will always mean that a vehicle is a “dangerous product”, meaning the supply to a consumer breaches the GPSR. There can be many reasons why a recall is issued: not all of them affect the safety of the vehicle or make a vehicle a “dangerous product”.

Our concluding thoughts

While motor finance lenders are likely to be distributors, it is far from clear whether they should be undertaking vehicle recall checks before entering into a finance agreement. Firstly, an outstanding recall does not necessarily mean a vehicle is unsafe.

Secondly, a lender will usually buy the vehicle from a dealer who is under the same obligation, to ensure a product with an outstanding defect is not passed onto the consumer, together with an obligation to pass on information (see Regulation 8(1)(b)) and dealers will usually agree (in trading agreements) to comply with all applicable law.

Thirdly, the requirement is not to supply a product which the lender knows, or should have presumed, “on the basis of information in his possession and as a professional”, is a dangerous product. If lenders therefore have clear trading terms with their dealers, and the vehicle is bought from such a dealer, they are likely to have good grounds to say that they have done enough to comply with the GPSR.