Look Before You Lend!

A Consumer Credit Act 1974 ("CCA") agreement must state the amount of credit, the rate of interest, and the number, amount and frequency of repayments. If not, it is potentially unenforceable.

In 1999 Mrs Wilson borrowed £5,000 and gave her BMW as security. A documentation fee of £250 was added to the loan. The agreement stated she had borrowed £5,250.

Mrs Wilson failed to make repayments. The lender claimed the balance and declared an intention to sell the BMW. Mrs Wilson applied to Court for a declaration that the credit agreement was unenforceable because it wrongly stated the loan as £5,250 and not £5,000.

In November 2000 the Court of Appeal reluctantly decided that the CCA made the agreement unenforceable. Mrs Wilson was entitled to recover her BMW and not repay the loan. Bad news for the lender.

In May 2001, the Court of Appeal decided this result was unjust as it gave Mrs Wilson a windfall even though she had not been misled or prejudiced by the flawed agreement. The Court felt the provisions of the CCA which made the agreement unenforceable were incompatible with the Human Rights Act 1998. That is the lender's right to enjoyment of its property - money. Good news for the lenders.

This decision was appealed to the House of Lords. This summer the House of Lords overruled the Court of Appeal. It looked at the social policy reasons why the CCA made certain credit agreements unenforceable. It rejected the idea that lenders should be able to rely on the Human Rights Act when they couldn't rely on CLA. Good news for the consumer.

Failure to comply with CCA regulations can be fatal.

Jan Arkwright
Associate

11 September 2003