Southern Pacific Personal Loans Ltd v Walker  EWCA Civ 1218 (although the neutral citation may change since there are two cases with number 1218)
We noted this case when it was but a county court decision. The Court of Appeal decision is now available and the decision of the county court has been overturned. This looks like it’ll have put an end to what was becoming a fairly common defence. On a purely personal note, having only just got my head around the argument (and started using it) the result is very frustrating.
The Consumer Credit Act 1974 isn’t, of course, necessarily a housing law statute. It so happens that a number of second charges (i.e. sub-prime mortgages) are loans which are regulated by the 1974 Act, but there is no necessary link between housing law and the 1974 Act.
By way of brief legislative background – the Consumer Credit Act 1974 regulates lending below a certain level (which was – I think – £25,000 at the time of the loan in this case). It requires certain prescribed information to be provided on the loan documentation and, if it is not provided or is inaccurate, then (for loans made prior to April 6, 2007), the loan cannot be enforced. One of the prescribed matters is “the amount of the credit.” Another is the interest rate and details of any charges for the credit.
Mr & Mrs Walker applied for a loan of £17,500 from SPPL. That loan was (a) regulated by the Consumer Credit Act 1974 and (b) secured by way of second charge on their home. The Walkers fell into arrears and SPPL sought possession. The DJ granted an SPO, which Mr & Mrs Walker appealed to the Circuit Judge.
The CJ allowed their appeal. They advanced – for the first time – an argument that the original loan was unenforceable because it did not specify the correct “amount of the credit.”
They argued that, whilst the loan had only been for £17,500, they had actually been advanced £18,375 (and had paid interest on the same), with the difference representing a fee paid to the broker. The 1974 Act required the amount of credit to be stated on the loan documentation. That had only referred to £17,500 and, therefore, the loan failed to comply with the requirements of the 1974 Act and was unenforceable. In addition, they successfully argued that the 1974 Act prohibited the charging of interest on any charges for credit.
SPPL appealed – successfully – to the Court of Appeal. The loan documentation had been correctly completed. The amount of the credit was £17,500. The additional £875 was a charge for the credit and not part of the credit itself. It had clearly been described as such on the loan documentation. It was correct for SPPL to exclude it from the credit figure.
There was no legal reason why interest could not be charged on a charge for credit. The 1974 Act did not prohibit the same and there was no reason for the court to invent a prohibition where the statute was silent.
The agreement correctly indicated the different component parts of the sum advanced to Mr & Mrs Walker and was therefore enforceable.
So – there we are – what at one time appeared to be a very attractive defence has just gone up in a puff of sub-prime smoke. A charge for credit should not be included in the amount of the credit specified on the loan documentation for a loan regulated by the 1974 Act but should be specified separately on the document.