Changing word Unfair into Fair

The court has a wide power under the Consumer Credit Act 1974 (CCA)[1] to re-open credit agreements made between an individual debtor/borrower and a creditor/lender if it finds that the relationship is “unfair” because of:

  1. the terms of the agreement or any related agreement;
  1. the way that the lender has exercised or enforced any of its rights; or
  1. any other thing that is done (or not done) by or on behalf of the lender.

Where a debtor alleges that the relationship is unfair, it is for the creditor to show that it is not. Where unfairness is proved, the court can, among other things, require repayment of amounts paid by the debtor, reduce any future amounts to be paid or alter the terms of the credit agreement.

In a recent decision of the Supreme Court [2], Mrs Plevin had, through a loan broker, taken out a loan of £34,000 with Paragon Personal Finance (Paragon). A payment protection insurance (PPI) policy was also proposed with a single “premium” of £5,780. In fact, unknown to Mrs Plevin, 71.8% of this premium was paid out as commission to the broker and Paragon. Mrs Plevin alleged unfairness on the grounds that the commission was so large (in percentage terms) and not disclosed.

The Supreme Court agreed. Considerations which are relevant when assessing the fairness (or otherwise) of a relationship included the characteristics, sophistication and vulnerability of the debtor and the facts they could reasonably be expected to know or assume. On the facts in this case, the Supreme Court held that the non-disclosure of commission was unfair because it led to a “sufficiently extreme inequality of knowledge and understanding” and stated that there is a “tipping point” at which commission becomes so large that it renders the relationship unfair. The court recognised that it was difficult to say where the “tipping point” lies, but found in this instance that 71.8% was “a long way beyond it”.

These provisions of the CCA appear to have been little used to date – in the current climate, this decision may awaken what one commentator has called “a sleeping lion”.

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[1] Sections 140A-140D

[2] Plevin v. Paragon Personal Finance Limited [2014] UKSC 61

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This blog is intended only as a synopsis of certain recent developments. If any matter referred to in this blog is sought to be relied upon, further advice should be obtained.