Extortionate credit
(ss.137-140 of the Consumer Credit Act 1974 )
This concept has been replaced by the idea of an "unfair relationship". An “unfair relationship” could include the terms of an agreement, the ways in which enforcement is being carried out, or anything else. The new rules are retrospective and will make lenders responsible for the transgressions of their brokers, even when these do not fall within the antecedent negotiation rules.
The method is the same as for extortionate credit, and there is no doubt that anything that is extortionate will also be an unfair relationship, but hopefully a lot more will be.
Any
Court can re-open any credit agreement, whether regulated or not, where
it considers that the bargain was an unfair relationship. The debtor must raise
the matter and it is for the creditor to rebut it (s.171).
In
terms of unfair APRs. three of the successful cases at County Court level are :
|
Barcabe Ltd v. Edwards (1983) CCLR 11, where the lender had charged 100% flat rate per annum (APR 381%),
other organisations would have charged only 20%, the lender took no
exceptional risk, and the debtors were ignorant and illiterate. The Court
substituted a 40% rate. |
|
Castle Phillips & Co -v- Wilkinson and
Wilkinson (1992) CCLR 83, where the lender, through brokers, provided
a bridging loan of £21,000 for a period of between 4 and 6 months at 4%
per month. It was held that the credit bargain was clearly extortionate
because the interest rate was 3.33 times what a building society would
charge, the security provided exceeded the nominal amount advanced, the
borrowers were of little financial understanding, and had been persuaded
to enter into an agreement which in normal circumstances they would not
have entered into. The Court substituted a rate of 20% per annum, being
the current building society re-mortgage rate plus one third to reflect
the short-term nature of the loan. |
| London North Securities Ltd v Meadows (2005) which was confirmed at appeal, where the lender charged £50 for every arrears letter and added this to the loan balance, which was being charged at 36.9% APR. It was held that this was extortionate since the charges levied did not represent the lender's costs over the arrears. However, the original loan was held not to be extortionate. |
Note that since 31 October 2004,
when the Financial Services Authority (FSA)
took over regulation of first
mortgages, such loans have not been covered by the unfair relationship controls.
However, FSA is expected to apply its own rules on fairness to deal with such
issues.
This page was last updated on 02/05/08 (c) Bob Imrie