The existence of a higher APR is not of itself indicative of an unfair relationship for the purposes of the Consumer Credit Act.
Judge Burn in the Bromley County Court gave judgment that has decided that a high APR in connection with a “log book loan” was not, of itself, an unfair relationship. The case involved a loan for that amount of money but payable by 55 instalments. The APR was 384.4%. The loan was secured by a bill of sale over the customer’s car. The loan account fell into arrears and the vehicle was sold. The lender sued for the balance owing of nearly three times the original amount of the loan. The borrower claimed the agreement constituted an unfair relationship under section 140 of the Consumer Credit Act 1974. This section replaced the old provisions of section 138 of the CCA relating to extortionate credit bargains. The old section had a number of factors that the court could take into account in deciding what is extortionate, but no such factors are in the new unfair relationship provisions. The court, therefore, looks to the relationship between the parties to decide whether or not the relationship is in fact unfair. In this particular instance, the relationship was not unfair for four reasons:-
- the interest rate was high but the risk to the lender was also high;
- the loan was to be repaid over a short period and this was at a competitive interest rate;
- the entitlement to recover the vehicle without a court order was harsh but the borrower was advised and given opportunities to prevent the recovery of the vehicle;
- the lender’s procedures in setting up the loan were reasonable and they encouraged the borrower to come to an arrangement rather than lose the car. These indicated that there was not an unfair relationship. However, the court did go on to look at the way in which the agreement had been enforced and some concession was given back to the borrower for the fact that the vehicle had been sold without the keys and logbook.