Consumer credit multiple agreements

This case looked at the interpretation of section 18 of the Consumer Credit Act 1974 (“the Act”) dealing with a multiple agreement. 

There was a disagreement between the parties and indeed between academics about the meaning of this section.  The case involved a possession order on a residential property. The defendant had been lent approximately £29,000 to be secured on a first legal mortgage of the house. It was a term of the offer that the first legal mortgage be redeemed and that the remainder could be released to the defendant.

The defendant argued that for the purposes of the Act, the agreement had to be treated as two separate agreements: one relating to the amount required to repay the first mortgage (restricted use) and the other relating to the amount released to her (unrestricted use). At the time of the transaction, that is before 6 April 2007, the Act did not apply to transactions for more than £25,000. If the agreement was treated as two separate agreements pursuant to section 18(1)(a), then the Act would have applied to each agreement because each agreement was for less than £25,000. If the Court of Appeal agreed with the defendant’s submissions, the agreements would be regulated and, as the lender had not complied with the provisions of the Act, the agreements would be unenforceable.

The Court of Appeal held that this case was a single agreement with different categories. There were not two or more separate agreements. The whole credit facility had to be drawn together. Although a single agreement, the terms fell into different categories within the Act and section 18(1)(b) would apply. The agreement should not be treated as separate agreements and, since the credit was for more than £25,000, it was not a regulated agreement.

This is positive news for lenders if faced with the argument that a transaction is unenforceable because it consists of multiple regulated agreements, when in fact there is only one agreement, but with terms which fall into different categories. Close scrutiny will still need to be applied to each transaction, however, to determine whether it consists of one agreement or not.

Southern Pacific Mortgages Ltd v Jayne Elizabeth Heath [2009] EWCA Civ 1135