Unfair relationship applies to live agreements only

04.05.10

 

This article was written by Greg Standing, partner in Wragge & Co LLP's finance, insolvency, recoveries and sales team and published in the April issue of Motor Finance.

 

In the case of Soulsby and Soulsby v FirstPlus Financial Group Plc (1) and Loans.co.uk Limited (2), FirstPlus advanced money to the claimants under three successive written credit agreements arranged via a broker. The broker sold the claimants a payment protection insurance (PPI) policy in relation to each agreement.

The first credit agreement was entered into in 2002. Subsequently, in July 2003, in order to consolidate the claimants' debts, the claimants entered into the second agreement which incorporated the balance outstanding on the first agreement.

The balance of the second agreement was subsequently rolled over into the third agreement in July 2005 in the same manner. Each of the consolidated agreements included a sum of credit relating to the funding of the premium for each of the earlier PPI policies.

The claimants subsequently alleged mis-selling of the PPI policies as against the second defendant broker and the defendant.

The claimants sought to reopen all three agreements, alleging that there was an unfair relationship between themselves and the defendant in relation to each of the agreements within the meaning of s140A of the Consumer Credit Act 1974 (CCA).

Section 140B(1)(a) CCA enables the court to order a creditor to repay any sum paid by a debtor by virtue of the agreement or any related agreement.

The claimants alleged that the first and second credit agreements were related agreements of the third credit agreement, as they had been consolidated into it and so were caught by these provisions.

FirstPlus argued that the first and second agreements were completed agreements as defined by the CCA, as no sums were payable under them or would or may become payable. As they were no longer live agreements, they were therefore excluded from attack under s140A and the claim in relation to them should be struck out.

The court agreed with FirstPlus. The first and second agreements were related agreements which had ceased to have any operation before s140A CCA came into effect in April 2007.

All the obligations of the claimants under those agreements had been discharged and if FirstPlus were to attempt to sue on either agreement, it would have no cause of action.

The agreements were therefore protected from attack as related agreements under s140B CCA. They might be challengeable as extortionate credit bargains under sections 137–140 CCA should that be pleaded however.

The allegations of unfair relationship in those two agreements should therefore be struck out.

Comments

If a creditor is seeking to re-open a completed credit agreement it needs to be determined which regime it should be considered under: the old regime of extortionate credit bargain or the new one of unfair relationship.

If the credit agreement was made before 6 April 2007 and ceased to have any operation before the end of the transitional period (6 April 2008), it will fall to be dealt with under the old regime, not the unfair relationship regime.

For further information about this published article, contact Kathryn Hobbs on +44 (0)121 685 2785, Rebecca Davies on +44 (0)121 685 3819, Gayle Redding on +44 (0)121 685 2708 or Rebecca Lum on +44 (0)121 260 9973

This published article may contain information of general interest about current legal issues, but does not give legal advice.