Southern Pacific Personal Loans

Southern Pacific Personal Loans Ltd v Walker and another
[2009]EWCA Civ 1176; [2009] WLR (D) 333 12 November 2009

In March 2009 Chester County Court heard an appeal about a possession order sought by Southern Pacific against Michael & Jane Walker which raised a novel argument concerning s.9(4) of the Consumer Credit Act 1974. The loan agreement contained financial details in a series of 10 boxes. The first, box A, stated that the amount of the loan as £17,500. B was for PPI, of which there was none. Box C is labelled "Amount of Credit", which was stated to be £17,500. Box D was labelled "Broker Administration Fee" and was £875. Box E was labelled "Total Amount Financed" and contained the total £18,375. The remaining boxes contained the interest rate and repayment details. It was clear that the payments and interest charge only calculated accurately if it was assumed that £18,375 was the loan, not £17,500 so it is clear that interest was being charged on the broker fee (which was anyway charged by the lender, not by a broker).

Section 9(4) of the Act states "for the purposes of this act, an item entering into the total charge for credit shall not be treated as credit even though time is allowed for its payment". The judge agreed with the defendants' counsel in his written submission:
"to charge interest upon any element of a regulated advance is by definition to treat that element as credit. This is equally true where that element must by law form part of the charge for credit since it cannot lead a double life (as the trial judge had wrongly held in Wilson). Yet Section 9(4) is absolutely prohibitive. It does not say that a particular element can be treated as credit for some purpose (eg for attracting interest) but not for others (eg identifying the aggregate advance) nor does it say that a particular element may be treated as credit by the lender, but not by the court."

Another way of considering the matter would be to ask what was the charge for credit (other than interest). If we take the credit to be £17,500, then the charge would not just be £875 but £875 plus the interest on it, namely £2083.74, calculated as a percentage of the deemed Total Amount Payable.

The judge therefore considered the loan to be irredeemably unenforceable. His written judgment is available here.

On appeal, it was stated that the judge was in error. There was nothing in the Act that prevented an item within the total charge for credit from having interest applied to it where there was a deferment in payment of it. It was clear from the agreement itself that the fee was separately shown, and the "amount of credit" was stated to be £17500 in Box A, whereas the total of loan and fee was labelled "Total Amount Financed" in Box E, this not being a prescribed indication.

The full judgment is available here.