When Is An Unregulated Agreement Not An Unregulated Agreement? The Perils Of Offering Added Protections

The judgment in NRAM PLC v. (1) JEFFREY PATRICK McADAM (2) ANN HARTLEY serves as a warning to regulated firms that if you offer a customer greater protections than they are legally entitled to, you have to provide them or face the consequences. In this case, Northern Rock sought a declaratory judgment having treated a set of loans to consumers as regulated agreements for the purposes of the Consumer Credit Act 1974, although some of them exceeded the then £25,000 limit. When Northern Rock failed to provide its customers with required statements, it claimed it was not obliged to provide these to customers whose loans were not in fact regulated. In this note, we explain why the court thought otherwise.

The Facts

Background

The Claimant, Northern Rock Asset Management PLC, the successor company to which Northern Rock Building Society transferred its business in 1997, entered into a large number of unsecured credit agreements between 1999 and March 2008 as part of a product called the "Together Mortgage". This allowed consumers to borrow up to 95% of their home's value on a secured basis and then a further fixed sum unsecured loan up to 30% of the value of their home, capped at £30,000. Interest on the unsecured loan was charged at the same rate as for the secured part. The Defendants for the purposes of these proceedings were two such borrowers who took out the maximum £30,000 loan.

The basis of the dispute

Prior to 6 April 2008 consumer credit agreements were regulated by the Consumer Credit Act 1974 (1974 Act) if the amount of credit provided under them did not exceed £25,000. From 1 October 2008 s.77A of the 1974 Act, which was introduced into the 1974 Act by the Consumer Credit Act 2006 (the 2006 Act), required periodic statements to be provided to the debtor by the creditor under a regulated agreement for a fixed sum credit. Where the creditor failed to give a statement to the debtor within the prescribed time limit for doing so, the debtor would have no liability to pay any interest or default sum in respect of the period of non-compliance. The creditor's obligation to provide s.77A statements took effect on 1 October 2008 and applied to all relevant agreements in force at that point.

The Claimant treated all loans, whether under or over £25,000, as if regulated under the 1974 Act. The dispute arose because the Claimant failed to implement the requirements of s.77A properly. The statements they provided did not state the amount of credit...