The Supreme Court has given judgment in favour of Southern Pacific Personal Loans Limited ("SPPL").
The appeal raised the question of what is the meaning of "credit", the "amount of credit" and the "charge for credit" as defined in the Consumer Credit Act 1974 ("the Act")?
SPPL charged a broker's fee of £875, which was described in the credit agreement in box D as "Broker Administration Fee". Interest was payable on the fee at the same rate as the sum advanced under the loan, which was for £17,500. On the credit agreement in box C, the amount of the Credit was stated to be £17,500 and in box E the "Total Amount Financed" was shown to be £18,375, which was £17,500 plus £875.
The borrowers submitted that because the total amount of the loan was £18,375, it was wrong to describe the amount of credit as only £17,500 as SPPL lent the borrowers the total sum of £18,375 and charged interest on that total. If that was accepted then the agreement would be wholly unenforceable under the Act. The borrowers submissions were based on the principle of "truth in lending".
In a fairly short judgment, the Supreme Court concluded that based on the language of the Act and following the previous authorities (in particular Wilson v First County Trust Ltd [2001] QB 407), the fee of £875 was part of the total cost of, or charge for, credit and therefore could not be treated as part of the credit. There was no infringement of the principle of truth in lending.
As the court noted, if SPPL had described the broker's fee as part of the credit, no doubt they would have raised the argument that the loan was unenforceable on the ground that the fee was part of the cost of the credit and should not be treated as part of the credit. In order to succeed the borrowers would have needed to persuade the court that Wilson v First County was wrongly decided.
This decision is obviously good news for lenders. If the borrowers had been successful, then lenders may have needed to reconsider their loan agreements. It is yet another case (and this time at the highest level) which has gone against borrowers who raise technical arguments in order to avoid their obligations.
Southern Pacific 05-2 Plc (in substitution for Southern Pacific Personal Loans Limited) (Respondent) v Walker and another (Appellants) [2010] UKSC 32
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.