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2. FB's writings on Law
2.6. FB's writings on Consumer Credit
Law
2.6.4. FB's articles on Consumer
Credit Law
1999.004 ‘Multiple agreements under
the Consumer Credit Act s.18’ (continued)
........................Section
18 has not so far come before the courts at any level higher than
a county court. When it does do so they are likely to be asked
to decide between Professor Goode’s analysis and my own.
No one can say which will be found to be correct, but there is
a possibility that mine will be upheld. This would mean that in
cases such as the Topup Loan the further advance element would
be held to be a separate regulated agreement that was improperly
executed, with the consequences mentioned above.
Could this risk be avoided by amending
the proposed Scheme? The element dealing with refinancing is necessarily
a restricted-use credit agreement because section 11(1)(c) expressly
says so. To prevent the element dealing with the further advance
from falling into a different CCA category (namely ‘unrestricted-use
credit agreement’) it would be necessary to ensure that
it too provided restricted-use credit. To ensure this, it is not
enough merely to include a restrictive term in the agreement.
I inserted an anti-avoidance provision (subsection (3)) in section
11. This reads-
(3) An agreement does not
fall within subsection (1) [restricted-use credit] if the credit
is provided in such a way as to leave the debtor free to use it
as he chooses, even though certain uses would contravene that
or any other agreement.
The presence of subsection (3) reinforces
the argument that section 18 is an anti-avoidance provision, which
the higher courts are likely to take seriously as such when in
due course it comes before them. Section 11(3) could be attempted
to be got round by including in the Topup Loan agreement a term
which restricted the further advance to specified uses (which
could be of any nature) and provided for payment of the relevant
part of the advance direct to the supplier, rather than to the
borrower. This device would be inconvenient commercially. It would
also be ineffective. Although the use of it would place the entire
Topup Loan agreement within the CCA category of restricted-use
credit agreement it would still be a multiple agreement. The refinancing
element would fall to be treated either as a separate exempt agreement
or as a separate agreement within a non-CCA category. The further
advance element would fall to be treated as a separate regulated
agreement.
It follows that neither Professor Goode’s ‘unitary
agreement’ nor any other drafting device could be effective
to prevent the further advance element in the Topup Loan agreement
falling within the Act’s controls. Nor could this be achieved
by abandoning the idea of granting a new mortgage and either treating
the loan as a further advance under the original mortgage or entering
into a modifying agreement. The reason is that, as I very clearly
remember, the Government’s intention when the Act was drafted
was that a transaction that was in substance a loan within the
monetary limit laid down by it should be caught however it was
dressed up. I drafted the anti-avoidance provisions accordingly,
and in my opinion they are effective for the intended purpose.
The Hannah case
Since the first draft of this article was prepared there has been
a relevant county court decision. The National Home Loans
Corporation PLC v Hannah (Aidan Ellis) [1997] C.C.L.R. 7
concerned a remortgage coupled with a further cash advance of
just over £10,000. H.H. Judge Mellor relied upon section
11(3) in finding that the whole of the loan (including that portion
which was advanced for the purpose of repaying the existing mortgage)
was for unrestricted-use credit. He did this on the basis that
the debtor would have been entitled to repay the existing mortgage
from any source and, if he did, then he would have been free to
use the whole of the new loan for any purpose he wished. However
this is a question of evidence. If, as seems to have been the
case, the facts were that the debtor lacked the means to repay
the existing mortgage loan in any other way then he was not in
fact free to use the whole of the new loan for any purpose he
wished. A finding to the contrary needs to have been based on
evidence that he was free in the actual circumstances of the case,
which it was not. On the contrary the jointly-instructed solicitor
who received the money advanced from the new lender would not
have been entitled to pass to the debtor the portion required
to redeem the existing mortgage. So Hannah was wrongly
decided, as is indicated (at page 14) in the comment by the learned
editor of the textbook in which the report appears, CONSUMER
CREDIT CONTROL by Bennion and Dobson.
Postscript
It may be thought a reproach to the
draftsman of the Consumer Credit Act that two learned professors
should misunderstand his text in this way. I take comfort from
an opinion on the point given by the late Richard Yorke Q.C. that
I was shown after the first draft of this article was completed.
Apparently even without consulting my looseleaf textbook CONSUMER
CREDIT CONTROL (in which it has been explained on the lines
of this article since the book first came out in 1976
) he unerringly arrived at the conclusions set out above. It seems
that neither Professor Goode nor Professor Guest consulted my
book either, since they do not refer to it, much less attempt
to refute its arguments.
[Published in CONSUMER CREDIT CONTROL via Release 49.
To be cited as [1999] C.I.C.C.1. This stands for ‘Current
Issues in Consumer Credit’.]
1999.004
[1999] CICC 1
© F. A. R. Bennion 1999
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.
See the definition of ‘multiple agreement’ in Consumer
Credit Control, vol. 1, pages 1116-1120.
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