Following November's Wilson v First County Trust case, the Court of Appeal is poised to make the first ruling under the Human Rights Act that a statute is incompatible with the European Convention on Human Rights. The subject of the challenge is the Consumer Credit Act 1974.
Wilson pawned her BMW convertible with First County Trust (FCT) for a six-month loan of £5,000. FCT made a mistake when drawing up the agreement, which was regulated by the Consumer Credit Act 1974. Wilson was charged a £250 fee for preparing the document, which was added to the loan.
The document stated: “amount of credit: £5,250”, but under the act the £250 counted as part of the charge rather than part of the loan. The agreement did not state the full amount of credit (£5,000), as required by the act.
When Wilson failed to keep up her repayments, FCT threatened to sell her car unless she repaid the loan in full. She responded by starting proceedings against FCT, alleging that the agreement was unenforceable because it did not contain prescribed terms in compliance with section 127(3) of the Consumer Credit Act.
The Appeal Court, following the reasoning in Dimond v Lovell, found that the agreement was not enforceable. While there was discretion under the act to enforce defective agreements in certain circumstances, the absolute bar on enforcement contained in section 127(3) prevented the court from doing so in this case. The result was a windfall for Wilson who was able to keep both the car and the loan.
Others may not be so fortunate, however, because the Court of Appeal concluded that the absence of discretion under section 127(3) was incompatible with the Human Rights Act 1998. The appeal has been adjourned to allow representations to be made if the Crown wishes to oppose this decision.
The question of wording
Just four weeks after Wilson was considered there was the appeal in Ketley v Gilbert. Again, the Court of Appeal had to consider the Consumer Credit legislation. This time the issue was enforceability of a credit hire agreement.
The question centred on the words used in a 3 Arrows hire agreement to describe when the hire charges had to be repaid. The agreement stated: “on the expiry of 12 months starting with the date of the agreement”. Did this satisfy the requirement that payments be made “within a period not exceeding 12 months beginning with the date of the agreement” under the Consumer Credit (Exempt Agreements) Order 1989 3(1)(a)?
If not, the agreement would be a regulated agreement within the meaning of the Consumer Credit Act 1974. As the formalities of the act had not been complied with, the agreement would be unenforceable. The hire company would not be able to recover from the claimant, nor would they be able to recover from the defendant.
At first, the district judge held that the wording of the agreement meant the hire charges had to be repaid within 12 months. But the circuit judge found that “on expiry of 12 months” meant, in plain English, “after the 12 months had expired”. Ketley appealed. An obligation to make payments within a period could only be complied with by making the final payment before the period expired. An agreement permitting final payment to be made “on expiry” of that period permitted the final payment to be made after the 12-month period had expired.
As the agreement failed to comply with the requirements of the order it was not exempt. As it failed to comply with the formalities of the act, it was unenforceable.
Ketley follows the reasoning in Dimond. It can be relied on to repudiate claims for hire based on the 3 Arrows' (or a similarly worded) agreement, but in truth its effect may be short-lived.
If, as seems likely, a declaration of incompatibility is made in Wilson, parliament will have to decide whether to amend the statute to give the courts discretion to enforce credit hire agreements notwithstanding failure to set out prescribed terms.
If the act is amended, the absolute bar on recovery where prescribed terms are not included will be lifted. That means enforcement may become easier to obtain where a credit agreement fails to comply with the act – and the possibility that claims that might not have been pursued following Dimond will be resurrected.