Freestanding and separate agreements are not modifying agreements and so not caught by the Consumer Credit Act 1974 (CCA).

This was the finding of the High Court in Swift Advances PLC v McKay in which the defendant appealed against a possession order granted to the claimant lender. The parties entered into a fixed-sum loan agreement regulated by the CCA which was secured on the defendant's home for £25,000.

The parties then entered into a second agreement for the sum of £110,000. This agreement was described as an unregulated credit agreement and was again secured on the defendant's home, pursuant to the terms of the earlier charge. Part of the sum advanced was used to pay off the first loan although this was not a condition of the second loan.

The defendant subsequently entered into a third agreement with the claimant; this time for £189,729 which again was described as an unregulated agreement. That sum was also secured on the defendant's property under the original charge and was used in part to pay off the previous loan. The defendant defaulted and the claimant obtained a possession order.

The defendant argued that the second and third agreements were modifying agreements within the meaning of section 82 of the CCA, that those agreements were in breach of the CCA and were therefore unenforceable.

The High Court disagreed. The second and third agreements did not vary or supplement the original regulated agreement. They were freestanding and separate agreements stated to be unregulated credit agreements and did not expressly refer to the first agreement. The second agreement did not require the first loan to be repaid from the sums it advanced. The first loan did not allow for supplementary loans or variations of the loan amount. The claimant was therefore entitled to enforce its order for possession.

Things to consider

The lender had erroneously referred in some communications with the defendant to the second and third agreements as modifying agreements or regulated CCA agreements. However, the court considered the wording and effect of the actual agreements themselves, and not the way they were post contractually described by the claimant's employees.