On 23 July 2015, the Court of Appeal handed down a commercially sensible judgment in NRAM plc v McAdam & Hartley  EWCA Civ 751 on an important issue for finance providers; the consequences (if any) of providing lending which is not regulated by the Consumer Credit Act 1974 (“CCA”) on documentation which purports to comply with the CCA and its regulations. Lenders will be pleased to hear that the Court unanimously decided that it was not possible, unless there were very clear words used, to ‘contract in’ to the CCA or to imply the provisions of the CCA into the contract. However, statements in the documentation that the agreement was regulated by the CCA (when it was not) could give rise to a claim by the borrower for a breach of a contractual warranty or misrepresentation (but such claims are likely to be fraught with difficulties).
Before 6 April 2008, there was a £25,000 limit on lending regulated by the CCA. This has since been repealed and therefore widens the scope of lending potentially regulated by the CCA. However, between 1999 and March 2008, NRAM plc (“NRAM”) entered into a number of unsecured credit agreements (part of the ‘Together Mortgage’ product). Under these agreements, the amount of credit provided to the borrower was capped at £30,000 (meaning some agreements were for more than £25,000 and therefore not within (at that time) regulation by the CCA). However, NRAM documented all of these credit agreements as if they were regulated agreements under the CCA.
NRAM did not correctly implement the requirements for periodic statements in Section 77A of the CCA (which was introduced on 1 October 2008). The consequence of not complying with Section 77A of the CCA is that (a) the agreement was not enforceable during the period of non-compliance and (b) the borrower has “no liability to pay” interest and default charges during the period of non-compliance. NRAM therefore provided redress to customers who had borrowed £25,000 or less but did not provide any redress for customers where the loan exceeded £25,000 (“affected customers”). This was because, NRAM argued, the affected customers were not borrowers under a “regulated agreement” (despite what the contractual documentation purported to say). NRAM started to receive complaints from affected customers. It therefore decided to bring a ‘test case’ to decide whether or not the affected customers had (in broad terms) any rights under the CCA.
The High Court
Mr Justice Burton, sitting in the High Court, handed down judgment on 10 December 2014. He decided, despite NRAM’s arguments to the contrary, that the rights and remedies under the CCA were imported into the agreement. This meant that the affected customers should have received periodic statements under Section 77A and, because they did not, they were entitled to redress (being the interest and charges wrongly debited during the period of non-compliance). NRAM appealed to the Court of Appeal.
The Court of Appeal
Lady Justice Gloster, giving the only judgment of the Court of Appeal (but expressly stating that Lord Justice Longmore and Lord Justice Richards had contributed), allowed NRAM’s appeal. The Court decided that:
- In light of the highly technical provisions of the CCA, particularly the Court’s role in enforcing the agreement, it was almost impossible to contract into the CCA (and it would require very clear words to achieve this). The CCA was not, therefore, contractually incorporated into the agreement.
- The loan documentation stated that it was “regulated by”. This was a statement of fact rather than a word of incorporation. The other decisions (which used words like “incorporated” and “governed by”) were different and did not apply. The agreement did not, therefore, incorporate the CCA.
- The statements in the credit documentation amounted to a contractual representation or warranty that the agreement was one regulated by the CCA. If that was untrue, it would give the borrower a potential claim for misrepresentation under the Misrepresentation Act 1967 or for breach of contractual warranty. These claims would have, at least, a limitation defence.
- The statements in the credit documentation did not mean NRAM had expressly or implicitly agreed to allow the borrower to have some or all of the protections of the CCA. It would create “unjustified violence to the language” if such statements created additional contractual agreements or promises that even if the agreement was not regulated, NRAM would treat the agreement as if it had the benefit of unspecified, but not all, of the statutory protections.
- The statements created no basis for any estoppel argument by the borrowers because, in particular, there was no shared assumption that the agreements would be treated (if they were not) as if they were regulated by the CCA.
- The only real consequence is therefore that the statements made in the documentation gave rise to a contractual representation or warranty that the agreement was one regulated by the CCA. However, the breach would occur at the time the borrower entered into the credit agreement and, therefore, there was a prospective limitation defence to any such claim.
This is a commercially sensible and practical decision from the Court of Appeal. The CCA is highly prescriptive and it would be surprising if (as the editors of Goode: Consumer Credit Law and Practice stated before the High Court’s decision) a party could not contract out of the CCA (because of Section 173) but could contract into it. This point has even more force when the CCA introduces a number of criminal sanctions and contains a set of provisions giving the Court the power to decide whether or not the agreement can be enforced (for example, under Section 127(1) of the CCA). There are also other provisions which would cause significant practical difficulties for the parties and the Court. These include the County Court’s exclusive jurisdiction for claims by lenders enforcing the agreement (see Section 141(1) of the CCA) and the fact that judgments under regulated agreements cannot be transferred to the High Court for enforcement by a High Court Enforcement Officer (see Regulation 8 of the High Court and County Courts Jurisdiction Order 1991).
It therefore follows that if an agreement is wrongly documented as a regulated agreement when it is, in fact, not regulated by the CCA (or it is exempt), it does not mean that the borrower gets all of the protections provided by the CCA (or the agreement should be treated as if it were a regulated agreement). The only remedy appears to be a claim for breach of a representation or warranty. This may not be an easy claim to bring (particularly where there is a limitation defence; and it was accepted that limitation for such claims would start to run at the date the statement was made).
There are also likely to be significant practical hurdles for any borrower. These include:
- the fact that borrowers often say in enforcement claims against them that they did not read the documentation (and, if that is right, how could they have relied on any statement made in that documentation?)
- (if they did read the documentation) did the borrower really rely upon the statement or understand the consequences of regulation? This would be surprising in most cases; even the judiciary have found the system “certainly not comprehensible” for consumers and “scarcely comprehensible” to lawyers (see, for example, Lord Justice Clarke’s comments (as he was then) in McGinn v Grangewood Securities Limited  EWCA Civ 522).