A charge for credit

Southern Pacific Personal Loans Ltd v Walker [2009] 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.

About J

J is a barrister in London. He loves service charges and all things leasehold law related. He also likes beating rogue landlords and mortgage companies.
Posted in Mortgage possession and tagged , , .

17 Comments

  1. Thanks for the alert. Your posts are always excellent.

    It gets a bit mad before DJs when issues like this are raised on the spur of the moment and decisions made without full consideration of the complexity.

  2. the matter was not before a DJ nor was the matter rushed. The decision was made by a circuit judge HHJ Derek Halbert. The crux of the matter was could interest be charged on a charge….NO it can’t the decision was made because interest had not been charged on a charge but the broker fee which was payable by the borrower was a cost of credit but placed in the wrong part of the loan, interest however had not been charged on it. Had it been charged the loan would hva e been unenforceable.

    • David, that doesn’t appear to be what the Court of Appeal said. The CJ had found that it was unenforceable, partly on the basis that interest was paid, but the Court of Appeal said that there was no legal reason why interest couldn’t be charged on a charge for credit, that being what they had found the additional sum was.

    • Yes, I know this one was not before a DJ. But most of them are and issues like this are often raised by DJs without the opportunity to join, and decisions given in ten minutes.

  3. Everyone is missing the point – It is impossible, according to the regs, to charge interest on a charge.

    Sch 1 para 10(1)&
    Sch 6 para 4…..”The rate of any interest on the CREDIT to be provided under the agreement”

    Sch 1 para 10(2)…”The total amount of other charges included in the total charge for credit in relation to the CREDIT to be provided under the agreement….” &

    TCC ptii reg 4(a)& (b) “Items included in the total charge for credit”… (a)- “The total of the interest on the CREDIT..” & (b) – “other charges……..”

    If a lender chooses to literally charge interest on a charge under the agreement he has nowhere to put it (a black hole). SPPL in this agreement chose to charge interest on the Broker fee and hide it within the repayments (a few quid more per month on the face of the agreement). At the time of taking up the agreement, to the punter, the ‘few quid’ extra does not look as bad as adding some £1,220 worth of additional interest as an “other” charge calling it a credit charge say – which he could have done if he had wanted to play a straight bat.

    These Judges have completely missed the point – s9(4) – no one diputes the meaning

    • But isn’t the point dealt with by the Court of Appeal saying that because the statute is silent on the point there is no reason why interest on a charge for credit can’t be levied. As above

      “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.”

  4. [Edited by J – I’ve deleted this because (a) you’re just repeating what you said above; (b) you’re not doing so in a spirit of reasoned debate and (c) because it flies in the face of the decision of the Court of Appeal.

    On the question of whether or not interest can be levied on a charge for credit, the Court held (at [32]-[34]:

    “I am unable to agree with the judge or Mr Berkley QC (appearing for the Walkers) that section 9(4) effectively prohibited interest on any charge for credit… If it was the legislative intention to prohibit interest on charges for credit… that would have been expressly and clearly spelt out somewhere… in the 1974 Act and it is not.”

    Accordingly, whatever you may think of the decision, my note of the decision is correct. If you think the Court of Appeal got it wrong, you’ll need to take it up with the Supreme Court. Unless and until that happens, the law is as per the decision of the Court of Appeal, no matter how much you disagree with it.]

  5. Your ‘spirit of debate’ is clear – censor contributions and delete them if you dont like them !!!

    With the greatst respect, I dont believe, at your 3rd para, that you have understood what I have said in my last ‘deleted’ note – it is mathematically and legalistically ‘impossible to charge interst on a charge’ – I am stressing this point as a general note rather than in defence of Walker.

    I do agree that the Judges got the s9(4) issue right – it is the easiest section in the ACT to understand. I am saying that ‘statute’ (the regulations)was not considered at all by the Court in this case. This judgment now means that all lenders that have not charged interest on charges in the past now effectively can – against the spirit of the ACT and in contravention of the Regulations.

  6. Does anyone know whether the Walkers have leave to appeal to the Supreme Court?

    I have a case in the Liverpool County Court currently stayed.

    thanks

  7. Apparently the Walkers have got permission to appeal and it’s going ahead on 13th May 2010 so watch this space

  8. the key relevance of cca regulated agreements in housing cases is that the court has rather more leeway than under ss36/8 of the 2 aja’s. in cca cases the court has discretion to change elements of the contractual agreement (eg interest rate) and make time orders which are not open to it in non-cca regulated mortgage agreements. rather more use if you are representing a defaulting mortgagor.
    but this is probably a granny-directed egg-sucking class; so apologies.

  9. Just to confirm what Jonathan says above, the Supreme Court has now given permission to appeal in this case, although I don’t know anything about the timetabling.

  10. I’ve now seen the Easter term list and Jonathan was right about that too – 13th May with a panel comprising Walker, Brown, Mance, Clarke & Sir John Dyson SCJ. I believe that abbreviation should be pronounced “skudge”.

  11. Hey folks it’s D-Day tomorrow.The SC are handing down judgment at 12.30pm apparently.

    Hope you’ve got your CCA agreements at the ready!!!

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