The Supreme Court has upheld a Court of Appeal decision that sums included in the charge for credit (a broker administration fee in this case) are not part of the credit itself.
In Southern Pacific Personal Loans Ltd v Walker and another, the parties entered into a fixed sum credit agreement in the sum of £17,500. In addition, a broker administration fee of £875 was advanced to the borrowers to enable them to pay for the arrangement of the loan. Interest was payable on that fee at the same rate as on the loan of £17,500. The credit agreement set out the amount of credit as £17,500 (being the loan) and the total amount financed as £18,375 (the loan together with the broker administration fee).
The borrowers fell into arrears and the lender obtained a suspended order for possession of their property. The borrowers appealed, alleging the credit agreement incorrectly stated the amount of credit and therefore, by section 127(3) of the Consumer Credit Act 1974 (the Act), was unenforceable. They argued that the true amount of credit was £18,375.
Upholding the Court of Appeal's decision, the Supreme Court held Section 9(4) of the Act provides that an item entering into 'the total charge for credit' shall not be treated as credit. The relevant authorities stress that the first step is to assess the total charge for credit. This means that those items financed by the creditor which form part of the 'charge for credit' can be identified and stripped out before the 'amount of credit' is determined.
In the court's view, the broker administration fee was part of the total charge for credit. It was a fee paid to intermediary brokers and, as such, was a cost to the borrower of borrowing the £17,500. By section 9(4) of the Act, it was not to be treated as credit. If the fee had been expressed in the agreement as part of the amount of credit so that the amount of credit was shown as £18,375, the agreement would have been unenforceable.
The court also confirmed that s 9(4) of the Act does not prohibit the charging of interest. If the fee itself was part of the total charge for credit, it follows that interest on the fee was also part of the total charge for credit, not credit.
Things to consider
This decision, confirming the Court of Appeal's view, is good news for lenders. It puts the issue of whether such fees fall to be assessed as part of the credit or part of the charge for credit beyond doubt and should now bring to an end similar cases waiting in the wings.