Tag Archive for 'consumer credit'

A charge for credit isn’t credit

Published by NL on 07/07/2010 in FLW case note, Housing law - All and Mortgage possession. 0 Comments Tags: , .

Southern Pacific Securities 05-2 Plc v Walker & Anor [2010] UKSC 32

A brief note on this case, which concerned the enforceability of a credit agreement secured on the Walker’s property. Our report on the Court of Appeal decision is here, and there is little to add in this note, because the Supreme Court in Lord Clarke’s lead judgment, agree completely with the Court of Appeal.

The issue was whether a separate charge – here for broker’s fees – on which interest was charged, should have been included in the total amount of credit specified in the agreement. At first instance, the fact that it wasn’t, had meant that the agreement was declared unenforceable under the Consumer Credit Act 1974. The Court of Appeal held that the brokers fee was a charge for credit, not part of the credit, and that there was nothing in Consumer Credit Act 1974 that meant that interest couldn’t be levied on a charge for credit. The credit agreement held good.

The Supreme Court agrees. Something which is a charge for credit cannot be part of the credit:

But for the provisions of section 9 of the Act, there would be a strong case for saying that, since the total amount advanced was £18,350, that was the amount of credit and, since that sum was not stated in the agreement to be the amount of the credit, it follows that it does not contain a prescribed term and is unenforceable. The problem is that section 9(4) provides that an item entering into ‘the total charge for credit’ shall not be treated as credit. It follows that if an item is part of the total charge for credit, it cannot form part of the amount of credit, even if it would otherwise be regarded as credit.

That conclusion, which, in our judgment, follows from the plain meaning of subsection (4), is supported by the authorities: see in particular Wilson v First County Trust Ltd [2001] QB 407, Watchtower Investments Ltd v Payne [2001] EWCA Civ 1159, [2001] GCCR 3055 and Wilson v Robertsons (London) Ltd [2005] EWHC 1425 (Ch), [2006] 1 WLR 1248.

The charge for credit in this case, even though advanced by the same lender, fell clearly under Wilson v First County Trust Limited.

To the objection that there was interest charged on the loan of the broker’s fee, Lord Clarke says:

Section 9(4) does not prohibit the charging of interest. If the fee itself was part of the total charge for credit, it seems to us to follow that interest on that fee was also part of the total charge for credit and not therefore to be treated as credit. As the court sees it, both the fee and interest on the fee are ‘other charges’ within regulation 4(b) of the TCC Regulations quoted above and are thus ‘included in the total charge for credit’. Even if, for some reason, the interest were not so included in the charge for credit, we do not see how the interest could itself be credit.

The borrowers’ argument involves saying that, whereas in the case of, say, a loan of £1,000 repayable with interest and a document fee of £50 repayable without interest, the amount of credit is £1,000, nevertheless in the case of such a loan but with a document fee of £50 repayable with interest, the amount of credit is £1,050. That seems to us to be nonsensical. Either the credit is £1,050 in both cases or in neither. For the reasons we have given we conclude that the answer in both cases is £1,000.

Appeal dismissed, but

It is perhaps important to note for the future that section 127(3) of the Act was repealed by sections 15, 70 and Schedule 4 of the Consumer Credit Act 2006 and does not apply to agreements made after 5 April 2007. Further, when the Consumer Credit (Agreements) Regulations 2010 come into force, they will require documentation of the ‘total amount of credit’, which is defined as ‘the credit limit or the total sums made available under a consumer credit agreement’.

So that form of defence to possession proceedings by sub-prime lenders for loans secured on properties has gone up in smoke.

Subprime settlement

Published by NL on 11/11/2009 in FLW case note, Housing law - All and Mortgage possession. 0 Comments Tags: .

Belmain Finance Limited v Peter James Bentley High Court (Chancery Division) Cardiff.

In a widely reported settlement (see here, here and here for example) this case has come to an end. Belmain Finance had lent £40,000 to Mr Bentley, secured against his home. Mr Bentley, due to having to care for his father and then the recession, was unable to meet the £550 per month payments and fell into arrears. (Mr bentley had already had to go part-time to care for his father at the time of taking the loan). Belmain brought possession proceedings.

Mr Bentley argued that the agreement was unfair under the Consumer Credit Act 1974, s.140A, apparently on grounds that there were shortcomings in the decision making procedure on granting the loan, including the under writing, affordability checks and valuation processes.

It appears that at the doors of the Court, Belmain made a settlement in the following terms:

- to re-write the secured loan account, cutting the repayments to £150 a month

- not to levy any further interest, any charges or legal costs “whatsoever.”

- possession claim was dismissed and Belmain cannot enforce repayment of the loan by this method for 5 years.

- After 5 years, enforcement by possession only if there are at least 12 months’ arrears on the new level of payments.

The Order in these terms was made by the High Court, approving the settlement.

For a subprime lender, that is a painful settlement. Blemain, putting a brave, not to say courageous, face on it said:

Mr Bentley fell behind with his loan payments. However, the matter was resolved before it went to court and we agreed to give him further time to repay what he owed. For the avoidance of doubt there has been no court decision on this case as a satisfactory arrangement was agreed.

This may be technically true, but from the perspective of a litigator, this is a last minute settlement made in utter dread of a precedent judgment.

Any further information welcome.

Would you credit it?

Published by J on 22/06/2009 in FLW case note, Housing law - All and Mortgage possession. 0 Comments Tags: , , , .

Some of you might have seen in the news recently some rather confused reports that HHJ Halbert at Chester County Court was dealing with various attempts by people to write off debts owed under credit agreements, see, for example, this from the BBC or this from the MoJ.

We here at NL were not too sure what to make of these reports but, thanks to our friends at Garden Court North, we’ve managed to shed some light on matters.

HHJ Halbert has given judgment in a case called Southern Pacific Personal Loans Ltd v Walker (12 March 2009, Chester County Court) and has determined that Southern Pacific (“SP”) cannot enforce a particular loan against Mr & Mrs Walker. The reasoning is, one imagines, of general application to SP loans.

The case will be heard in the Court of Appeal shortly and therefore I’m only going to summarise the case so far.

The Consumer Credit Act 1974 sets down various conditions which must be fulfilled in order for a “regulated agreement” (one to which the 1974 Act applies) to be enforced. Since April 2007, an improperly executed agreement can be enforced with the leave of the court. In respect of any loans granted prior to April 2007, an improperly executed agreement was not capable of being enforced against the borrower.

The conditions include inter alia stating the full amount of the credit.

In Walker, SP loaned £17,500, to which was added £875 “broker fee”, giving a “total amount financed” of £18,375, on which interest was charged. The loan documentation referred only to £17,500 as the “amount of the credit”. Hence, it was argued on behalf of Mr & Mrs Walker that the full amount of the credit was not correctly stated and, hence, the loan was unenforceable.

HHJ Halbert accepted this argument, with the result that, unless the Court of Appeal decide differently, Mr & Mrs Walker would appear to be in the clear.

Of course, the importance of the case isn’t just that it relates to Mr & Mrs Walker but is likely to significantly affect most SP 1974 Act loans, and, one suspects, the loans granted by many other such lenders.

[Edit 12/11/2009 - judgment reversed in the Court of Appeal. See here.]

(with thanks to Andrew Byles at Garden Court North and Jonathon Davidson at Jackson and Canter solicitors).