Debtor fails to win on technicality

31.08.10

 

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

In what might be perceived as a further 'try on' by claims management companies, the court has once again taken a robust view in favour of the lender.

The facts

In Brooks v Norther Rock (Asset Management) Plc (NR), Mrs Brooks entered into a fixed sum loan agreement with a fixed rate of interest. The agreement was regulated by the Consumer Credit Act 1974 (the Act) and Consumer Credit (Agreements) Regulations 1983 (the Regulations).

The amount of credit was £15,000 and the charges (interest only) £4,713.60. The total was therefore £19,713.60 which was to be repaid by instalments of £164.28 over 120 months. The APR was recorded as 5.8 percent and the rate of interest (there being no other charges) was also recorded as 5.8 percent. This was the effective rate of interest.

Mrs Brooks subsequently stopped paying and had her agreement checked for compliance on a Checker Report provided by a claims management company. This report assumed the rate of interest recorded on the agreement was the nominal rate (rate of interest (per month in this case) multiplied by the number of monthly instalments a year) which meant that all the figures on the agreement appeared to be wrong, which would make the agreement irredeemably unenforceable.

She issued proceedings for a declaration of unenforceability. The lender sought to strike out the claim and have judgment entered against her.

The issues

The main issues for determination were:

• Must an agreement regulated by the Act state the nominal or the effective rate of interest?
• If the agreement does not state the correct rate of interest, does that render the agreement irredeemably unenforceable?
• Did the rate of interest have to be rounded to a certain number of decimal places?
• Whether the agreement failed to state the date for the first repayment or failed to contain a statement indicating how that date would be calculated.
• Whether the agreement failed to explain how and when interest charges were calculated and applied.

The court's findings

The court held that Parliament had not provided any guidance on what interest meant. Lenders could therefore use either the nominal or effective rate of interest and the agreement would be compliant.

There was therefore no issue of unenforceability on this point.

There was no reason why the rate of interest should not be rounded or go to any number of decimal points without being in breach of the Regulations.

The agreement provided that on completion the debtor would be told of the first payment date and subsequent payments would be made on the same day each following month. This was sufficient under the Regulations.

The repayments and interest rate were fixed. Stating that the interest payment would be debited to the account at the start of the loan again satisfied the Regulations.

Things to consider

Another sensible and welcome judgment for lenders. When defending claims where such a computer programme has been used and issues as to the rate of interest arise, consideration should be given to suggesting to the claimant that they might like to discontinue the proceedings and contribute towards the lender's legal costs or face a summary judgment application.

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.