In July the Court of Appeal handed down its judgment in the case of NRAM plc v McAdam and Anor [2015] EWCA Civ 751 which considered what should happen when a lender drafts a credit agreement which is not regulated by the Consumer Credit Act 1974 (CCA) but includes standard form wording which refers to consumer credit regulation and sets out rights which are only usually provided under a regulated agreement.

In those circumstances does the agreement, as a matter of law, give additional rights to the borrower as if it were regulated? Specifically should a borrower’s rights under a regulated agreement to receive periodic statements under section 77A of the CCA apply to an unregulated agreement? The significance of this is that if section 77A applies and is breached by the lender then the borrower has no liability to pay any interest and/or sums due in default under the agreement.

Overall the decision was undoubtedly good news for NRAM and lenders in general as NRAM's appeal against the adverse first instance decision was upheld. There was however a potential sting in the tail as the Court left open the possibility that claims could be brought on the basis that lenders may have misled borrowers into believing that they had rights under the CCA when they did not.

Background

The proceedings were initiated by NRAM itself which sought a declaration from the Commercial Court as to the actual rights which its unregulated agreements conferred on its customers.

At first instance Mr Justice Burton held that statements made within the credit agreement that it was regulated by the CCA had the contractual effect of incorporating provisions of the CCA into the agreement. He held that those provisions and the rights given to a borrower by them could be applied to a non-regulated agreement. Therefore, in this case the credit agreement had in fact given the borrower the benefit of additional rights under the CCA, including section 77A, even though it was an unregulated agreement.

Court of Appeal decision

The Court of Appeal disagreed. It held that Mr Justice Burton was wrong to conclude that it was a contractual term of the agreement that the borrower would be treated as if they had the benefit of certain protections under the CCA. Those protections and benefits were only available to borrowers under regulated agreements. Mr Justice Burton had also wrongly concluded that because NRAM had chosen to include the standard 'regulated agreement' wording in its unregulated agreement that it was then prevented from denying that the borrower had the benefit of various CCA protections.

The Court of Appeal judgment provided NRAM with the comfort it set out to obtain when it commenced its declaratory proceedings in the Commercial Court and enabled many lenders faced with similar documents to breathe a collective sigh of relief.

Commenting on the company’s website, Richard Banks, Chief Executive Officer of UK Asset Resolution Ltd (which was established in 2010 to facilitate the management of the closed mortgage books of both Bradford & Bingley (B&B) and NRAM) says that:

“NRAM is committed to acting in full accordance with the law and to treating customers and taxpayers fairly. For this reason, we sought clarification of the law by conducting a case in the High Court and subsequently the Court of Appeal. The Court of Appeal ruled in favour of NRAM, confirming that customers who took out unsecured loans of more than £25,000 under agreements that incorrectly stated these loans were regulated under the CCA, are not entitled to the same rights and remedies as those customers who took out loans that were regulated under the CCA.”

For many other lenders who have also adopted the common practice of including 'regulated agreement' wording within their unregulated agreements this decision is good news.

Possible sting in the tail

Towards the end of its judgment the Court of Appeal commented that a lender, having represented to a borrower that an agreement conferred certain benefits and protections on the borrower when in fact it did not, might face a claim for misrepresentation and/or a claim for breach of contractual warranty by the borrower. Effectively, a borrower could claim that they had been misled by the lender when they entered into the agreement.

A successful claim for misrepresentation would allow a borrower to bring the agreement to an end and pursue a claim for damages and losses incurred as a result of the misrepresentation.

Comment

As yet we have not seen any claims of this nature being brought by claims management companies or consumer-focused law firms. This is probably because, rather than the straightforward claim they could have brought had the Court of Appeal found against NRAM, any claim they might bring would face the following significant hurdles:

  • limitation issues – any breach will have occurred at the date the agreement was entered into so many claims will by now be statute-barred; 
  • difficulty in establishing reliance – any borrower bringing such a claim would need to establish that they relied on any misrepresentation (ie prove that they would not have entered into the loan agreement had it not stated that CCA protections would apply), which might prove difficult; and
  • difficulty in proving actual loss as a result of entering into the agreement as opposed to, for example, entering into another loan agreement where such misrepresentations were not made.

It is hoped that these potential obstacles will dissuade claims management companies from seeking to track down and pursue these claims. Although with some claims management companies actively looking for new income streams, it would be wise to be watchful, identify any claims swiftly and adopt a robust strategy for resisting them on the grounds set out above.