Implications
of the Consumer Credit Act 2006
The
Consumer Credit Act 2006 introduces a range of changes to the Consumer Credit
Act 1974. Whilst this article cannot hope to detail all the reforms, it is
intended to draw attention to three of the changes and their practical
implications. Of particular interest is that some of the changes may impact on
exempt agreements.
Unfair
Relationships
The first
interesting change is the replacement of the concept of “extortionate credit
bargains” (sections 137 -140) with the new concept of “unfair relationships”
(section 140A and 140B). One of the aims of the 2006 Act was to achieve better
protection of consumers. Extortionate credit bargains failed to provide
effective protection. The reason was that it was very difficult to prove that
any given agreement was “extortionate”.
The new
regime provides that if a court concludes that a relationship between creditor
and debtor is unfair, it can make any of a series of orders (listed in section
140B) including setting aside any duties imposed on the debtor. “Unfair
relationship” is clearly a broader term than “extortionate credit bargain”. The
court may have regard to “all matters it thinks are relevant” by section
140A(2). It is suggested that the court may draw guidance from other consumer
protection legislation such as the Unfair Terms in Consumer Contracts
Regulations 1999 as to the meaning of unfair. It is open to Defendants to argue
that credit hire agreements are unfair, for example because the Claimants are
not aware of the terms and conditions when they agree to the hire.
The wording
of section 140 suggests that the concept of unfair relationships applies to all
“credit agreements” and not just regulated agreements. Defendants can therefore
argue that it applies equally to exempt agreements and therefore that all
credit hire agreements are caught.
No
Financial Limit
The second
change is that at present only agreements for less than £25,000 can fall within
the definition of a regulated consumer credit agreement (cf section 8(2)). The
new Act will remove this financial limit. It will do this by deleting section
8(2) of the 1974 Act. The result will be that every credit agreement where the
debtor is an individual will be a regulated agreement (and therefore have to comply
with the requirements of the legislation), unless it is exempt. This is
scheduled to come into force on 6 April 2008.
No
Automatic Unenforceability
Thirdly,
under the 1974 Act a regulated agreement that was improperly executed could not
be enforced without an order of the court (cf section 65). Further, there were
specified situations in which the court could not grant an enforcement order
(sections 127(3) and (4)). This effectively made such agreements automatically
unenforceable.
From 6
April 2007 there will be no automatic unenforceability. This will be achieved
by the repeal of sections 127(3) and (4). The result is that in any case where
a regulated agreement has been improperly executed, the court will have a
discretion whether or not to make an enforcement order.
This has
some significance for credit hire litigation. In Dimond v Lovell [2002]
1 AC 384 it was conceded by the Claimant that if the credit hire agreements
were regulated, then they would be automatically unenforceable. It is now open
to Claimants to argue that the change in the law distinguishes Dimond.
The credit hire agreement will remain potentially enforceable and while there
remains a potential liability on the Claimant, the Defendant should still have
to pay. The counter argument for Defendants is that an agreement is either
enforceable or not enforceable. The court should be invited to determine
whether the agreement would be enforceable or not. To achieve this, the credit
company may have to be joined into the litigation.
Conclusion
The 2006
Act opens several new avenues for the parties to consumer credit litigation to
explore. In the years to come, it will be for the courts to resolve these
questions as a matter of statutory interpretation.
Aidan
Ellis
