When did secured loans on land become covered by the CCA for under 25K

[marshallka]

I have been trying to find the date that the CCA allowed loans secured on property for under 25K (as i know loans over 25K were only just regulated) to be regulated and not exempt from the act.

I have read (as best i can) the cca and noted that secured loans on land were not covered - does that mean even loans under 25K. It just says loans secured on land are currently exempt. (is this just purely on 1st charges on properties or any loans secured to land). I know there were amendments but they are confusing.

Can anyone understand this act where these are concerned and especially with regards to loans for consolidation. It even says on the advice site the following and its very misleading

If you enter into a credit agreement which is regulated under the Consumer Credit Act, you must be given a written copy of the agreement when you take out the loan. This must set out:

• what type of credit agreement it is, for example, credit sale, hire purchase or conditional sale
• the true cost of the credit, worked out according to a special formula (APR)
• the amount of each payment, when it is due to be paid, and how it is made up (loan, interest, administration charge)
• your cancellation rights and whether you can pay off the debt early (see under heading Paying the loan off early).

Exempt agreements



Agreements which are exempt from the Consumer Credit Act include:

• loans secured on land, for example, mortgages

What does this mean. I have asked this on some other threads but i still do not understand it.

[andrew1]

You might find this article by Francis Bennion, who wrote the 1974 CCA interesting:

"I conclude with a fully worked example concerning the sort of transaction that readers are likely to encounter in practice. A mortgage company (M) wishes to float a Scheme under which it would offer its existing borrowers a further advance facility combined with refinancing. M wants to call this a ‘Topup Loan’. While the loan under the original mortgage would be outside the Act either because its amount exceeded the statutory limit or because it would be an exempt agreement under the combined effect of section 16 and the Consumer Credit (Exempt Agreements) Order 1989, the further advance under the Scheme would in most cases be of an amount below £25,000 and for a non-exempt purpose. Nevertheless M wishes the Act not to apply.

In this connection it is pertinent to note that, by virtue of article 2(2)(c) of the 1989 Order, a debtor-creditor agreement secured by a land mortgage to refinance any existing indebtedness of the debtor, whether to the creditor or another person, under any agreement by which the debtor was provided with credit for the purchase of land (including, by virtue of the Interpretation Act 1978 sections 5 and 23(1) and Schedule 1, buildings on the land) is an exempt agreement. By virtue of the Interpretation Act 1978 section 11 and the definition of ‘finance’ in section 189(1) of the 1974 Act, the term ‘refinance’ here means refinance wholly or partly
Within the meaning of the Consumer Credit Act the proposed Top up Loan would wholly refinance the outstanding obligations under the existing mortgage, but it would also provide an additional loan by way of further advance which, as stated above, would in many cases be of an amount below £25,000 and for a non-exempt purpose. The borrower would be required by a term of the agreement to use the refinancing element to pay off the earlier mortgage. Therefore that element would be for restricted-use credit within the meaning of section 11. On the other hand the further advance element would be for unrestricted-use credit.

In such a case the agreement for the Top up Loan would be a multiple agreement within the meaning of section 18. It would be partly (so far as it refinanced the original mortgage) either
an exempt agreement or outside the monetary limit of £25,000 and partly (so far as it provided a further advance not exceeding £25,000) a regulated agreement subject to the Act’s rules as to documentation etc. It would also be partly for restricted-use credit and partly for unrestricted-use credit. By apportionment under section 18(4) the deemed separate refinancing agreement would have the relevant parts of sums specified in the actual agreement, such as the principal and interest payments, allocated to it. The same would apply to the deemed separate further advance agreement.

Thus a Top up Loan would be wholly within (1) the CCA category of ‘personal credit agreement’, (2) the CCA category of agreement for ‘fixed-sum credit’ and (3) the CCA category of ‘debtor-creditor agreement’. However only the part dealing with refinancing would be within the CCA category of ‘exempt agreement’. Again, only this refinancing element would be within the CCA category of ‘restricted-use credit agreement’. Only the element relating to the further advance would be within the CCA categories of ‘regulated agreement’ and ‘unrestricted-use credit agreement’. It follows that, no matter how the proposed Top up Loan agreement is worded, it must be a Class 1 agreement. The refinancing part and the further advance part must each be treated for the purposes of the Act as a separate agreement. Making the repayment and interest provisions identical for both types of credit would not, as Professor Goode would have us believe, turn it into a unitary agreement exempt from the Act.

My analysis is confirmed by Example 16 in Schedule 2 to the Act. The example concerns the issue of a credit card for use in obtaining on credit either cash or goods. The analysis attached to this statutory example says that so far as it relates to goods the agreement is to be treated as a separate debtor-creditor-supplier agreement, while so far as it relates to cash it is to be treated as a separate debtor-creditor agreement. In defence of his own analysis, Professor Goode finds himself compelled to say that Example 16 is erroneous. He also says that Example 18 is erroneous! That statutory examples are admitted by him to be inconsistent with Professor Goode’s own analysis might rather be thought an indication that it is the latter that is out of keeping with the legal meaning and intention of the Act.

Section 18 has not so far come before the courts at any level higher than a county court. When it does do so they are likely to be asked to decide between Professor Goode’s analysis and my own. No one can say which will be found to be correct, but there is a possibility that mine will be upheld. This would mean that in cases such as the Top up Loan the further advance element would be held to be a separate regulated agreement that was improperly executed, with the consequences mentioned above.

Could this risk be avoided by amending the proposed Scheme? The element dealing with refinancing is necessarily a restricted-use credit agreement because section 11(1)(c) expressly says so. To prevent the element dealing with the further advance from falling into a different CCA category (namely ‘unrestricted-use credit agreement’) it would be necessary to ensure that it too provided restricted-use credit. To ensure this, it is not enough merely to include a restrictive term in the agreement. I inserted an anti-avoidance provision (subsection (3)) in section 11. This reads-

(3) An agreement does not fall within subsection (1) [restricted-use credit] if the credit is provided in such a way as to leave the debtor free to use it as he chooses, even though certain uses would contravene that or any other agreement.

The presence of subsection (3) reinforces the argument that section 18 is an anti-avoidance provision, which the higher courts are likely to take seriously as such when in due course it comes before them. Section 11(3) could be attempted to be got round by including in the Top up Loan agreement a term which restricted the further advance to specified uses (which could be of any nature) and provided for payment of the relevant part of the advance direct to the supplier, rather than to the borrower. This device would be inconvenient commercially. It would also be ineffective. Although the use of it would place the entire Top up Loan agreement within the CCA category of restricted-use credit agreement it would still be a multiple agreement. The refinancing element would fall to be treated either as a separate exempt agreement or as a separate agreement within a non-CCA category. The further advance element would fall to be treated as a separate regulated agreement.

It follows that neither Professor Goode’s ‘unitary agreement’ nor any other drafting device could be effective to prevent the further advance element in the Top up Loan agreement falling within the Act’s controls. Nor could this be achieved by abandoning the idea of granting a new mortgage and either treating the loan as a further advance under the original mortgage or entering into a modifying agreement. The reason is that, as I very clearly remember, the Government’s intention when the Act was drafted was that a transaction that was in substance a loan within the monetary limit laid down by it should be caught however it was dressed up. I drafted the anti-avoidance provisions accordingly, and in my opinion they are effective for the intended purpose.

The Hannah case
Since the first draft of this article was prepared there has been a relevant county court decision. The National Home Loans Corporation PLC v Hannah (Aidan Ellis) [1997] C.C.L.R. 7 concerned a remortgage coupled with a further cash advance of just over £10,000. H.H. Judge Mellor relied upon section 11(3) in finding that the whole of the loan (including that portion which was advanced for the purpose of repaying the existing mortgage) was for unrestricted-use credit. He did this on the basis that the debtor would have been entitled to repay the existing mortgage from any source and, if he did, then he would have been free to use the whole of the new loan for any purpose he wished. However this is a question of evidence. If, as seems to have been the case, the facts were that the debtor lacked the means to repay the existing mortgage loan in any other way then he was not in fact free to use the whole of the new loan for any purpose he wished. A finding to the contrary needs to have been based on evidence that he was free in the actual circumstances of the case, which it was not. On the contrary the jointly-instructed solicitor who received the money advanced from the new lender would not have been entitled to pass to the debtor the portion required to redeem the existing mortgage. So Hannah was wrongly decided, as is indicated (at page 14) in the comment by the learned editor of the textbook in which the report appears, Consumer Credit Control by Bennion and Dobson.
Postscript
It may be thought a reproach to the draftsman of the Consumer Credit Act that two learned professors should misunderstand his text in this way. I take comfort from an opinion on the point given by the late Richard Yorke Q.C. that I was shown after the first draft of this article was completed. Apparently even without consulting my looseleaf textbook Consumer Credit Control (in which it has been explained on the lines of this article since the book first came out in 1976) he unerringly arrived at the conclusions set out above. It seems that neither Professor Goode nor Professor Guest consulted my book either, since they do not refer to it, much less attempt to refute its arguments".
[Published in Consumer Credit Control via Release 49. To be cited as [1999] C.I.C.C.1. This stands for ‘Current Issues in Consumer Credit’.]
1999.004
[1999] CICC 1
© F. A. R. Bennion 1999

[marshallka]

So really and truely then, to say a loan is covered by the CCA and regulated sometimes may not be the case in law. Am i right. (even under 25K)

[andrew1]

Originally Posted by marshallka

So really and truely then, to say a loan is covered by the CCA and regulated sometimes may not be the case in law. Am i right. (even under 25K)

Only the part that may be paying off arrears to the 1st charge mtg would be exempt The Consumer Credit (Exempt Agreements) Order 1989 if it were coming from the same holder of the 1st charge as it is repaying monies for the purchase of land. What it looks like from what he is saying is that monies borrowed coming from a loan with 2nd charge from a different source and under £25k then it would also be exempt given s.2 (2)(c).

What Bennion is stating I think is that if you have a 1st charge mortgage and have run into arrears and have other debt too which you want to clear and you go to your Mortgage company and say " can I have a further advance to clear the arrears and pay off some other things?", the money given to pay the arrears would come under the ' Exempt Agreement part he quoted s.16 ' and the remainder would/should be a regulated agreement where it fell under £25k.

He's stating that a Mortgage company would try and make the whole amount exempt and would generally not split it up as they should.

So answering your question, it would only be loans repaying arrears to your mortgage that would be exempt. Read what Bennion is saying carefully. Go through the detail and study it and take your further advances to pieces bit by bit date by date and purpose by purpose of credit. Many will be surprised at what they find if only the knew how to deal with it...


I'm no lawyer, have no training and have sussed this out as I went along like many others. Take Legal advice before acting on anything I say, it's your mortgage and home you are playing with and the 'legal costs challenging anything to do with mortgages can be horrendous' - it's just worth digging that little bit deeper where this is concerned in my opinion and putting it all together like a jigsaw, reading the relevant parts of the Act then getting the backup of someone experienced in Consumer Credit Act & Mtg law..