The Consumer Credit Act 1974
From 1998 to 2008 the Consumer Credit Act 1974 only applied to agreements to lend consumers less than £25,000. The financial limit was removed completely in 2008. Over the period 1998-2015, however, some lenders did not establish distinct systems for loans covered by the Act on the one hand and those not covered on the other hand. So they documented all consumer loans as if they were covered.
The question thus ultimately arose whether borrowers under loans documented under the Act but not covered by it could nonetheless claim rights under it.
One of the lenders was Northern Rock. It was nationalised in 1998 after becoming insolvent. Its business was transferred to a new company called NRAM. A legal issue arose whether NRAM was obliged to provide redress to its 41,000 odd borrowers with incorrectly documented loans. If it was so obliged then giving effect to their rights under the Act would cost it about £258 million.
Test case: judgment at first instance
So a test case was launched involving a Mr. McAdam and a Ms Hartley, who had borrowed £30,000 from Northern Rock. At first instance, the judge, Mr. Justice Burton, held that the effect of the loan agreement documented under the 1974 Act was to treat the parties as having contracted into the Act. Alternatively NRAM was estopped, i.e. legally prevented, from asserting that the 1974 Act did not apply.
Court of Appeal judgment
The Court of Appeal disagreed. Lady Justice Gloster gave the judgment of the Court which also included Lords Justices Longmore and Richards.
Although the Court accepted that it might be possible for a lender and borrower to contract into the Act, it did not accept that using loan documentation in the form required under the Act could have that effect. Much more explicit words were needed to achieve that outcome. The leading textbook, by Professor Goode, says:
“Judicial conservatism being what it is, the reaction of the average County Court Judge is likely to be: ‘if they cannot lawfully contract out of the 1974 Act, they cannot contract into it either’.”
For the same reason estoppel could not apply. That conclusion reflects the legal reality of the situation: the loan agreement is not regulated and the borrowers do not enjoy the protections afforded by the Act. The Court commented: “The only rights conferred by the 1974 Act which have been incorporated as contractual terms are those actually set out in the agreement itself: namely the right of early settlement and cancellation. The scope of any estoppel cannot in our judgment extend any wider.”
Other cases on whether specific rules had been incorporated.
This decision contrasts with Ismene Larussa-Chigi v CS First Boston Ltd  CLC 277. That case concerned foreign exchange transactions. They were carried out under a contract which stated that the transactions would be governed by a code of conduct established by the Bank of England “to which we [the brokers] will adhere”. Mr. Justice Toulson held that this incorporated the code into the agreement.
In Brandeis (Brokers) Ltd v Herbert Black  2 All E.R. (Comm) 980 the terms of the contract between a broker and a client on the London Metal Exchange were stated within the contract to be “subject to Securities and Futures Authority Rules”. The judge, Mr. Justice Thomas, held these to be clear words of incorporation.
Consolation for the borrowers
The Court held, however, in favour of the borrowers in the NRAM case on one point. By using the forms for a loan under the 1974 Act the lender had made a representation or warranty. The lender had warranted that the agreement was regulated under the Act even though it was not.
So the borrowers were entitled to damages for breach. Their claim however, might be statute barred, since all the agreements were entered into in 2008 or earlier and the limitation period is six years. The date of the loan in the test case is not mentioned.
Moreover it might be difficult for a borrower to prove that he or she had suffered any significant loss by reason of the breach of representation or warranty, particularly if he or she was not in default in making repayments.