In what might be perceived as a
further try on by claims management companies, the court has once
again taken a robust view in favour of the lender.
In Brooks vs Northern Rock
(Asset Management) Plc, Mrs Brooks entered into a fixed sum
loan agreement with a fixed rate of interest. The agreement was
regulated by the Consumer Credit Act 1974 (the Act) and Consumer
Credit (Agreements) Regulations 1983 (the Regulations).
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The amount of credit was £15,000
and the charges (interest only) £4,713.60. The total was therefore
£19,713.60 which was to be repaid by instalments of £164.28 over
120 months. The APR was recorded as 5.8% and the rate of interest
(there being no other charges) was also recorded as 5.8%. This was
the effective rate of interest.
Mrs Brooks subsequently stopped
paying and had her agreement checked for compliance on a Checker
Report provided by a claims management company. This report assumed
the rate of interest recorded on the agreement was the nominal rate
(rate of interest per month in this case) multiplied by the number
of monthly instalments a year) which meant that all the figures on
the agreement appeared to be wrong, which would make the agreement
irredeemably unenforceable.
She issued proceedings for a
declaration of unenforceability. The lender sought to strike out
the claim and have judgment entered against her.
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By GlobalDataThe issues
The main issues for determination were:
- Must an agreement regulated by the Act state the nominal or the
effective rate of interest? - If the agreement does not state
the correct rate of interest, does that render the agreement
irredeemably unenforceable? - Did the rate of interest have to
be rounded to a certain number of decimal places? - Whether the agreement failed to
state the date for the first repayment or failed to contain a
statement indicating how that date would be calculated. - Whether the agreement failed to explain how and when interest
charges were calculated and applied.
The court’s findings
The court held that parliament had
not provided any guidance on what interest meant. Lenders could
therefore use either the nominal or effective rate of interest and
the agreement would be compliant.
There was therefore no issue of
unenforceability on this point.
There was no reason why the rate of
interest should not be rounded or go to any number of decimal
points without being in breach of the regulations.
The agreement provided that on
completion the debtor would be told of the first payment date and
subsequent payments would be made on the same day each following
month. This was sufficient under the regulations.
The repayments and interest rate
were fixed. Stating that the interest payment would be debited to
the account at the start of the loan again satisfied the
regulations.
Comment
Another sensible and
welcome judgment for lenders. When defending claims where such a
computer programme has been used and issues as to the rate of
interest arise, consideration should be given to suggesting to the
claimant that they might like to discontinue the proceedings and
contribute towards the lender’s legal costs or face a summary
judgment application.
The author is a partner at
Wragge & Co LLP
