Loophole in Loan Agreements Closed

19th November 2009

The Court of Appeal has overturned an earlier decision relating to loan agreements taken out by a Cheshire couple and it is anticipated this decision could affect other cases that are currently being disputed as a way to 'write off' debts.

The Court of Appeal has overturned an earlier decision relating to loan agreements taken out by a Cheshire couple and it is anticipated this decision could affect other cases that are currently being disputed as a way to ‘write off’ debts.

The claimants, Michael and Suzanne Walker, fell into arrears after they remortgaged their home. They faced repossession until a county court judge ruled in April this year that their credit agreement was unenforceable. This meant they wouldn't be chased for the existing debt.

But earlier this month, the appeal judges said the ruling at Cheshire County Court had led to a "spate of consumer credit litigation" and the lenders, Southern Pacific Personal Loans, had faced more claims of irrecoverable loans from other borrowers. Lord Justice Mummery, giving the ruling of the three appeal judges, said consumer credit law is complicated and county court Judge Halbert got it wrong when he found the debt unenforceable.

The appeal judge said the case turned on whether the loan agreement correctly stated the amount of credit to comply with consumer credit legislation. Although the amount of credit was £17,500, a "broker administration fee" of £875 was added to the total and this led to the challenge because if the amount of credit is incorrectly stated, the agreement is unenforceable.

The Walkers now face losing their home in Sandringham Close, Winsford, and legal costs from the loan company of £100,000. They said the result "will affect other cases in the current spate of consumer credit litigation and potentially many other credit agreements".

Read more in our news; Court Shuts Debt Legal Loophole

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