As we have mentioned many times before in our articles on this site, the Consumer Credit Act 1974 was developed to protect the consumer. That protection does extend to extortionate credit bargaining, however, recently the emphasis has been on the rise in arguments based upon enforceability. We believe the reason there has been a shift on arguing extortionate credit bargaining is because previous cases, such as Nash and Staunton v Paragon and Broadwick Financial Services Limited v Spencer, were not successful and it has proven to be difficult to show that the agreements credit bargaining was in fact extortionate.
Due to the lack of protection from the Consumer Credit Act, vulnerable people who would struggle to get loans from mainstream lenders such as High Street banks or building societies, were offered non-status loans. These are loans which hold a much higher interest rate and were lent over long periods, resulting in the loan being substantially more expensive than a loan from, say, a High Street bank.
Typically, these loans:
Clients who have approached us for debt advice and have produced a non-status loan are usually shocked and in a state of disbelief when we explain to them the total amount they would have to pay back on the loan before it is cleared.
One of the first cases to bring to light the issue of non-status lending was the case of London North Securities v Meadows Court of Appeal, 28 July 2005.
Mr and Mrs Meadows took out a loan of £5,750.00 in April 1989 from Home Loans (Northern) Limited secured by a third charge over their home. They had arrears on their first mortgage to Birmingham and Midshires Building Society of £2,277.91 and arrears on a second mortgage with Pioneer Mutual of £132.94.
The purpose for the loan stated on the application form was home improvements. The initial sum on the agreement was £2,000, but this had been crossed out and increased to £5,000. Mr Meadows claims he had initially asked for £1,000, but later decided to take a further £1,000 to complete central heating work in his house. He said he never intended to pay off his arrears as he had come to arrangements with the lenders.
APR was shown as 34.9% and the loan was repayable over 15 years at monthly instalments of £146.94. On further inspection of the documents behind the loan, it was found that a payment of £750.00 for Payment Protection Insurance had been made to Bridgewater Insurances Services. At the trial Mr Meadows denied any knowledge of these deductions.
Mr & Mrs Meadows struggled to maintain the payments on the account and on 1 August 1990 a possession order was made.
On 9 June 2003, an application was made to set aside the possession order, claiming the agreement was unenforceable under s127(3) of the Consumer Credit Act 1974 as the amount of credit was mis-stated. It was also claimed extortionate credit bargaining.
At the trial a statement of account was produced showing a balance of £384,674.02, made up as follows:
There were numerous points to be considered. The case was heard by Judge Howarth in Liverpool County Court, however, two points were addressed by the Court of Appeal.
On the point of unenforceability, Judge Howarth was satisfied that the arrears paid to previous lender were not the purpose of the loan and, as such, these payments were deemed as a charge for credit.
On the point of unenforceability and payment protection insurance (PPI), again, it was found that this was also a charge for credit and should not have been stated in the credit itself.
On the point of extortionate credit, Judge Howarth found that, although the rate of 34.9% was not in itself extortionate, it was a high rate when combined with the power to charge this rate on late payment and on a compound basis.
This is an exceptional case and the first we have heard of where a judge actually finds in favour of the debtor on extortionate credit bargaining.
The majority of arguments surrounding unenforceable agreements result from:
If you are unsure if your agreement may be unenforceable, call our consultants. We can check with you over the telephone and give you some idea within the first five minutes of talking to you if you may have a claim. However, we cannot be sure on your claim until we have received all the documents back from your lender.
We do not charge if we get your agreements written off.
Given that the majority of non-secured lending is used for second mortgages, it could be that we could help you prevent repossession if you are in arrears with a mortgage that is by a non-status lender such as, Welcome Finance, Picture Loans, Yes Loans or any other lender that is not a High Street bank of building society.