Property – Mortgage – Repossession – Claimant bank capitalising arrears of mortgage repayments – Defendant borrowers failing to make payments under revised terms – Claimant obtaining order for possession – Defendants contending revised agreement unenforceable – Whether revised agreement constituting cash loan regulated by Consumer Credit Act 1974 – Appeal dismissed In 2006, the claimant bank made a loan of £500,000, plus fees, to the defendant borrowers. The loan was subject to the claimant’s standard mortgage conditions and was secured by way of a first charge over the defendants’ property. A deed to that effect was signed by the defendants and the property was valued at £900,000. The defendants failed to keep up the loan repayments and by June 2008 they were in arrears to the extent of £8,968.92. On 9 June 2008, the bank wrote to them offering to capitalise the arrears by adding then to the outstanding capital balance and increasing the monthly repayments correspondingly. The defendants accepted that offer. When the defendants continued to fail to make payments in accordance with the revised terms, the claimant brought proceedings for possession of the property. The county court found in favour of the claimant. The defendants appealed contending, inter alia, that, as a result of the capitalisation of the arrears, the loan agreement was regulated by the Consumer Credit Act 1974 and was unenforceable against them because the claimant had failed to comply with various requirements of the 1974 Act relating to the form of regulated credit agreements and the service of default notices. The defendants argued that those failures were not capable of being remedied so that the loan was irrecoverable and the mortgage security was worthless. The claimant contended that, under the capitalisation agreement no extra cash or available funds were provided to the defendants. The agreement was merely a rescheduling of existing payment obligations which did not constitute the provision of a cash loan covered by the 1974 Act. Held: The appeal was dismissed. (1) Since the capitalisation agreement varied or supplemented the earlier 2006 agreement, it qualified as a modifying agreement under section 82(2) of the Consumer Credit Act 1974. Therefore, the court was prepared to assume that, if that section applied, the 2006 agreement would be treated as revoked and replaced by an agreement reproducing the combined effect of the two agreements. However, the removal of the £25,000 financial limit pursuant to section 2 of the Consumer Credit Act 2006 would not affect the agreement as varied unless the variation was an agreement under which credit in the form of a cash loan was provided within paragraph 4(1) of the Consumer Credit Act 2006 (Commencement No 4 and Transitional Provisions) Order 2008. (2) The mere restructuring of an existing agreement by allowing the debtor further time to pay, without making any new funds available, constituted the giving of a form of financial accommodation but not the provision of a cash loan for the purposes of paragraph 4(1). Unless unpaid arrears were written off altogether, allowing further time to pay inevitably meant that such arrears had to be added to the amount which the borrower would eventually have to pay. Although the timing of the borrower’s repayment obligations was altered, the overall effect of such an agreement was neutral. The increase in the capital outstanding was matched by the elimination of an immediate liability to pay the outstanding arrears. (3) It was not the purpose of the legislation to apply the provisions applicable to regulation under the 1974 Act to existing unregulated agreements unless new money was being advanced, in which case it would be reasonable to expect the lender to comply with the statutory provisions applicable to agreements concluded after the removal of the £25,000 financial limit. Accordingly, all of the defendants’ defences which depended on the loan agreement being regulated under the 1974 Act fell way. James Ross (instructed by Eversheds LLP) appeared for the claimant; John Pugh (instructed by Trinity Law Solicitors, of Huddersfield) appeared for the defendants. Eileen O’Grady, barrister
Property – Mortgage – Repossession – Claimant bank capitalising arrears of mortgage repayments – Defendant borrowers failing to make payments under revised terms – Claimant obtaining order for possession – Defendants contending revised agreement unenforceable – Whether revised agreement constituting cash loan regulated by Consumer Credit Act 1974 – Appeal dismissed In 2006, the claimant bank made a loan of £500,000, plus fees, to the defendant borrowers. The loan was subject to the claimant’s standard mortgage conditions and was secured by way of a first charge over the defendants’ property. A deed to that effect was signed by the defendants and the property was valued at £900,000. The defendants failed to keep up the loan repayments and by June 2008 they were in arrears to the extent of £8,968.92. On 9 June 2008, the bank wrote to them offering to capitalise the arrears by adding then to the outstanding capital balance and increasing the monthly repayments correspondingly. The defendants accepted that offer. When the defendants continued to fail to make payments in accordance with the revised terms, the claimant brought proceedings for possession of the property. The county court found in favour of the claimant. The defendants appealed contending, inter alia, that, as a result of the capitalisation of the arrears, the loan agreement was regulated by the Consumer Credit Act 1974 and was unenforceable against them because the claimant had failed to comply with various requirements of the 1974 Act relating to the form of regulated credit agreements and the service of default notices. The defendants argued that those failures were not capable of being remedied so that the loan was irrecoverable and the mortgage security was worthless. The claimant contended that, under the capitalisation agreement no extra cash or available funds were provided to the defendants. The agreement was merely a rescheduling of existing payment obligations which did not constitute the provision of a cash loan covered by the 1974 Act. Held: The appeal was dismissed. (1) Since the capitalisation agreement varied or supplemented the earlier 2006 agreement, it qualified as a modifying agreement under section 82(2) of the Consumer Credit Act 1974. Therefore, the court was prepared to assume that, if that section applied, the 2006 agreement would be treated as revoked and replaced by an agreement reproducing the combined effect of the two agreements. However, the removal of the £25,000 financial limit pursuant to section 2 of the Consumer Credit Act 2006 would not affect the agreement as varied unless the variation was an agreement under which credit in the form of a cash loan was provided within paragraph 4(1) of the Consumer Credit Act 2006 (Commencement No 4 and Transitional Provisions) Order 2008. (2) The mere restructuring of an existing agreement by allowing the debtor further time to pay, without making any new funds available, constituted the giving of a form of financial accommodation but not the provision of a cash loan for the purposes of paragraph 4(1). Unless unpaid arrears were written off altogether, allowing further time to pay inevitably meant that such arrears had to be added to the amount which the borrower would eventually have to pay. Although the timing of the borrower’s repayment obligations was altered, the overall effect of such an agreement was neutral. The increase in the capital outstanding was matched by the elimination of an immediate liability to pay the outstanding arrears. (3) It was not the purpose of the legislation to apply the provisions applicable to regulation under the 1974 Act to existing unregulated agreements unless new money was being advanced, in which case it would be reasonable to expect the lender to comply with the statutory provisions applicable to agreements concluded after the removal of the £25,000 financial limit. Accordingly, all of the defendants’ defences which depended on the loan agreement being regulated under the 1974 Act fell way. James Ross (instructed by Eversheds LLP) appeared for the claimant; John Pugh (instructed by Trinity Law Solicitors, of Huddersfield) appeared for the defendants. Eileen O’Grady, barrister