28 February 2020 | Comment | Article by Richard Evans

What is an unfair relationship?

In 2006 the Consumer Credit Act (“CCA 2006”) was brought into force which amended the Consumer Credit Act 1974. It relates to credit agreements entered into after 6 April 2007 or agreements which had not been repaid by a borrower before that date. The purpose of introducing the new legislation was to provide greater protection to consumers in order to redress unfairness in consumer credit agreements between a lender and a borrower. The new legislation includes the concept of “unfair relationship” which replaced what was known as “extortionate credit bargaining” provisions. These related to circumstances where a loan charged grossly exorbitant interest or was unfair to the borrower in some other way.  

Section 140 of the amended Consumer Credit Act 1974 Act sets out provisions to rectify potential unfairness between a borrower and a lender of a loan. Examples of unfairness are set out in the paragraphs below.

Under s 140 of the Consumer Credit Act 1974, the court can make a finding of an unfair relationship in a broad range of circumstances including the following:

  1. The terms of the agreement or related agreement are deemed to be unfair to the borrower of the loan;
  2. The manner in which the creditor has exercised or enforced their rights under an agreement, for example seeking to issue legal proceedings and recover the debt due;
  3. Anything done or not done by, or on behalf of a lender, either in respect to
    the loan agreement or a related agreement, such as insurance. By way of example, this could relate to the loan agreement itself, or an insurance policy running alongside it.

Among other things, the provisions relate to all second charge lending as long as the relevant agreement was entered into before 21 March 2016. Second charge lending relates to loans which are secured, by way of mortgage, against a property.

Any second charge lending after 21 March 2016 is governed by the Financial Conduct Authority mortgage regime and the provisions above will not apply.

What power does the Court have to deal with an unfair agreement?  

  1. Make the lender repay the borrower some or all of the value of the loan.
  2. Order the lender to release the borrower from all of or a portion of the remaining balance of the loan.
  3. Order the lender to release their claim on the property offered by the borrower as collateral.
  4. Release the borrower from having to pay any penalties that may have resulted from the unfair relationship.
  5. Change the terms of the agreement or any related agreement, such as an insurance policy to protect payment required under the loan to make the terms fair to the borrower.

Are there time limits to bringing a claim based on unfair relationship?

Yes, there are strict time limits for bringing this sort of claim.

If you are not seeking to recover money paid under the agreement, you have 12 years from the date the relationship ended to bring a claim based on unfair relationship If you are trying to recover money paid under the agreement, you have 6 years to bring a claim for unfair relationship.

As these time limits are quite strict, it is important that you begin a claim as soon as possible. If you are unsure whether you have run out of time or not, a quick chat with one of our financial mis-selling solicitors will help you find out if you are eligible to claim.

Example of unfair relationship in credit agreements

Although every case where the provisions are applied will be decided on its own individual facts, the following could be evidence that there may be an unfair relationship between a debtor and a creditor:

  • a failure to provide statements;
  • a failure to keep accurate records in respect to payments received; and
  • failure to disclose commissions received in respect to related agreements, such as an insurance policy linked to the loan agreement.

If you believe that there is an unfair relationship between you and your lender in respect to a credit agreement, the best thing to do is to speak to a specialist financial mis-selling solicitor. They will be able to advise whether the relationship is unfair and if you have a basis for a claim. For more information, visit our financial mis-selling page.

Disclaimer: The information on the Hugh James website is for general information only and reflects the position at the date of publication. It does not constitute legal advice and should not be treated as such. If you would like to ensure the commentary reflects current legislation, case law or best practice, please contact the blog author.

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