The Commercial Court in NRAM PLC (formerly known as Northern Rock Plc) ("NRAM") v (1) Mr J P McAdam (2) Ms A Hartley (2014) held that where a bank had used the same loan documentation for regulated consumer credit agreements as for unregulated loans, express references to the unregulated loans being governed by the Consumer Credit Act 1974 meant that they would be treated as ifthey were regulated consumer credit agreements.
Between 1999 and March 2008, NRAM entered into a large number of agreements called the "Together Mortgage". The Together Mortgage permitted borrowers to take out a mortgage of up to 95% of the value of their home, and additionally to take out an unsecured loan of up to 30% of the value of their home, capped at £30,000. It was the unsecured element of the product which these proceedings were concerned with.
Prior to 6 April 2008, consumer credit agreements which were valued in excess of £25,000 were not regulated by the Consumer Credit Act 1974 ("CCA 1974"). The CCA 1974 and subordinate legislation offered substantial rights and protections for regulated agreements. Under section 77A, a creditor is required to provide periodic statements to borrowers. Under sections 77A(5) and (6), where the creditor fails to give the borrower the statement within the time specified in section 77A(1E), the borrower shall have no liability to pay the creditor interest on the loan during the period of non-compliance.
NRAM used the same loan documentation for regulated agreements below £25,000, as for non-regulated loans valued in excess of £25,000, which expressly stated that the loans were regulated agreements for purpose of the CCA 1974. NRAM had subsequently furnished all borrowers with statements required by section 77A CCA 1974. However, the forms of statement had not complied with the statutory requirements triggering a period of non-compliance. NRAM had recompensed the borrowers with regulated agreements for the interest charged during the period of non-compliance but had not recompensed the borrowers with unregulated agreements. For loans valued in excess of £25,000, NRAM maintained that the loans were not regulated agreements for the purpose of the CCA 1974, despite the references to the CCA 1974 in the loan documentation, and considered that no such compensation was payable.
The key question, therefore, was whether borrowers under unregulated agreements were also entitled to compensation. In order to decide the issue, NRAM brought Part 8 proceedings as a test case, seeking declaratory relief from the Court. The Defendants were two individuals who had obtained unsecured loans from NRAM for £30,000. There were 41,000 other borrowers in a similar position to the Defendants.
The central issue to be determined was whether the statements regarding CCA 1974 were sufficient to import statutory protection into the loan or alternatively whether the statements were sufficient to give rise to a shared assumption between the parties to the effect that the loan was governed by the CCA 1974. NRAM and the Defendants agreed that parties could not agree to convert an agreement into a regulated agreement. The question was whether the loan could be treated as if it was a regulated agreement pursuant to the CCA 1974.
NRAM contended that the reference to the CCA 1974 was irrelevant and should be ignored because the agreements were not regulated agreements under the CCA 1974 – the reference to the statute should be ignored in the same manner as any other irrelevant material in a contract. The Defendants' loans were entered into before section 77A was inserted into the CCA 1974. On this basis, NRAM further argued that even if the parties intended for the loan to be treated as if it were an agreement regulated at the present time by the CCA 1974, the parties would not have intended that all future vagaries of the CCA 1974 were to be incorporated. Additionally, NRAM argued that in order for the loans to be treated as if they were regulated agreements, both parties would need to have expressly known that they were not regulated agreements. However, in this case, the Defendants believed that they were regulated.
The Defendants' case was that the terms of the CCA 1974 were incorporated into the contract through express reference to it and that the provisions of the CCA 1974 were not inapplicable. Alternatively, if any part of the CCA 1974 was inapplicable, then there was an implied term that such provisions would not apply.
Burton J found in favour of the Defendants.
He was not attracted by NRAM 's argument that the reference to the CCA 1974 should be disregarded. He considered that those parts of it which were inapplicable should be disregarded, but not all references to the statute.
- He also considered that the legislation to be incorporated by way of reference in the documentation was the relevant legislation, as amended from time to time. Burton J considered that it was a basic feature of the consumer credit regulatory environment that such legislation would evolve over time.
He was not persuaded that words which were contractual in agreements under £25,000 were not contractual in agreements over £25,000, whether or not they derive from statute.
He did not agree with NRAM that both parties had to know that the agreement was not regulated, in order to treat the loan as if it was a regulated agreement. He considered that parallels could be drawn with judgments on contractual estoppel in which parties could agree on a state of affairs whether or not the state of affairs was correct. Such situations required the parties to know that the state of affairs was incorrect. He therefore found that the Defendants were given the rights and benefits of a regulated agreement whether or not they were regulated agreements for the purposes of the CCA 1974.
As such, the loans valued in excess of £25,000 would be treated as ifthey were regulated agreements under the CCA 1974 and NRAM was liable to pay borrowers compensation for the non-compliance with section 77A CCA 1974.
The Judge noted that "it does not seem as if the Claimant was the only bank to use the same documentation for all its borrowers whether of less or more than £25,000". It remains to be seen whether this will be picked up by other defendants, seeking CCA 1974 protections for non-CCA 1974 loans.
NRAM has confirmed that it will seek leave to appeal.