Deposits – to refund or not to refund

Deposits – to refund or not to refund, that is the question


The Motor Ombudsman, the automotive dispute resolution provider, looks at the circumstances where a deposit should and shouldn’t be returned to a customer during the purchase of a new or used vehicle.


To secure the purchase of a brand new or second-hand car, it is commonplace for a customer to pay a deposit, equivalent to a percentage of the overall sale price. It ultimately provides the seller with the reassurance that the consumer is committed to buying the vehicle, whilst also giving the business a means to recover any costs in the event that the individual chooses not to go through with the sale (this would be a breach of the agreement with the retailer).


During the second quarter of this year, “Can I get a car deposit refund?” was the most read article on The Motor Ombudsman’s online Knowledge Base, which highlights that this question is a prominent issue for motorists. Contrary to what some may think, the answer to this particular question is not a flat no, and the reasons for this will now be explored.


To not refund: Consumers are rarely entitled to have their deposit back


A customer does not have the automatic right to have their money back if they request this, and in the majority of cases, a deposit will be non-refundable. This is because the vehicle would have been withdrawn from sale, and in some cases be registered in the customer’s name (i.e. for a new car), thereby preventing anyone else from buying it. If the consumer has simply changed their mind, even if there is nothing wrong with the car being purchased, this is not a sufficient reason for them to have their initial down payment returned. However, although this is the general rule, this does not prevent businesses from using an element of common sense. For example, if no additional costs are incurred due to the consumer withdrawing from the purchase, or where the expense associated with this withdrawal is less than the deposited funds, this can be taken into account when deciding as to whether to award a proportion or the full deposit amount back to the customer.


In the event that buyers are unable to have their entire deposit refunded, it is important that businesses are able to demonstrate that they were made aware of this condition when buying the car. This is reinforced by clause 4.5 of The Motor Ombudsman’s Motor Industry Code of Practice for Vehicle Sales, which is approved by the Chartered Trading Standards Institute (CTSI), and states: “Where a deposit is required, the terms and conditions of the deposit will be made available to you [the customer]”. In an earlier clause (4.3), the Code equally refers to the fact that any contractual terms must be made clear to consumers during the vehicle purchase process.


Bill Fennell, Chief Ombudsman and Managing Director of The Motor Ombudsman, said: “Whilst the rules governing the conditions of the return of a deposit are enshrined in law, some consumers may still be unaware of the full implication of putting down a deposit. For the vast majority, they will not be able to get it back. Therefore, with a car purchase being a significant commitment, it is essential that businesses are fully transparent during the order process and to make sure that motorists are fully aware of the terms before they accept a down payment, no matter how small.”


To refund: Sometimes deposits should be returned


There are some exceptions to the rule where the customer will be entitled to their money back, such as if the vehicle manufacturer is unable to supply the car due to production issues or if the customer’s chosen specification cannot be provided. Similarly, if the seller needs to cancel the order if a car is no longer available, a deposit refund is also due. Furthermore, one of the other key reasons why a customer might be entitled to have their down payment back is if their finance application is declined when buying the vehicle, as they will not be able to take receipt of the car.


What about deposit refunds for cars bought at a distance?


For sales at a distance (i.e. when a car is sold over the phone or internet without the customer ever visiting a business’ premises), then the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 say that consumers have the right to a 14-day cooling off period and to have their deposit back during this time if they decide to cancel for any reason – customers don’t even have to give a reason to ask for a refund in this scenario.


For more information on the benefits of accreditation to The Motor Ombudsman, click here.