Thread: Consumer Credit Agreements - a guide to enforceability

Consumer Credit Agreements

This thread is designed to help users decide if a copy of a credit agreement sent to them by a creditor is enforceable or not. It has several sections that explain what the Consumer Credit Act 1974 means by a 'properly executed agreement', what sort of documents comply with a request by the debtor under sections 77, 78 and 79 of the Act and whether such a document is enforceable.

The sections are as follows:

Properly executed agreements
This section defines what constitutes a properly executed agreement for loans, hire purchase agreements and credit cards. It also considers the particular case of electronic agreements entered into after 2004.

Copies of agreements
This section describes requests under sections 77, 78 and 79 of the Consumer Credit Act 1974 and what the regulations allow as a valid response.

Enforceability of agreements
This section gives guidance as to whether an agreement is enforceable or not, including whether the creditor can enforce it directly or whether a court order is required. In the case of a court order being required, it describes the limitations placed on a Court by the Consumer Credit Act.

Multiple agreements
If an agreement has more than one part (for example an agreement for a cash loan and for PPI), then under certain circumstances, the Consumer Credit Act places extra requiremets for the agreement to be properly executed.

Following these there are posts giving examples of enforceable and unenforceable agreements.


For definitions of terms used in this document see A to Z of debt Terms.

For information relating to interest, definitions and how it is calculated, see the Interest Tutorial.

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Properly executed agreements

What constitutes a properly executed agreement is laid down in section 61(1) of the Consumer Credit Act 1974:

61.--(1) A regulated agreement is not properly executed unless--

(a) a document in the prescribed form itself containing all the prescribed terms and conforming to regulations under section 60(1) is signed in the prescribed manner both by the debtor or hirer and by or on behalf of the creditor or owner, and

(b) the document embodies all the terms of the agreement, other than implied terms, and

(c) the document is, when presented or sent to the debtor or hirer for signature, in such a state that all its terms are readily legible.

Section 60(1) says that the Secretary of State shall make regulations as to the form and content of documents embodying regulated agreements and these regulations are mainly laid down in the various schedules to the Consumer Credit (Agreements) Regulations 1983.

The agreement must have the following:

1. A heading in the prescribed form giving the nature of the agreement (Schedule 1).

For example,

Credit Card Agreement regulated by the Consumer Credit Act 1974

Schedule 1 also lists the other requirements which are spelled out in other schedules.

2. The name and address of both the debtor and creditor (Schedule 1)

3. Financial Information (Schedule 1)

The financial information that must be present for the agreement to be properly executed depends on the type of agreement.

i) loans for particular purchase (fixed-sum, debtor-creditor-supplier agreements) - a description of the goods or services, the cash price and the amount of credit

ii) advances - the amount of credit

iii) running account credit (overdrafts, credit cards) - the credit limit

iv) fixed sum agreements or fixed term agreements - the duration of the agreement

v) fixed sum agreements - the total charge for credit, rate of interest and how and when interest is applied (there are some exceptions to this - if payment interval and payment amounts are not both given) and the total amount payable

vi) running account credit (and agreements falling within the exception above) - total charge fpr credit broken down into constituent parts, rate of interest and whether it is fixed or variable, and how and when interest is applied.

vii) all agreements - the timing and amounts of repayments, APR

There are some minor differences for specific types of agreements. If in doubt, you should refer to the regulations themselves.

4. A statement of your rights (Schedule 2)

For example,

YOUR RIGHT TO CANCEL
Once you have signed this agreement, you will have a short time in which you can cancel it. The creditor will send you exact details of how and when you can do this.

5. A signature box in the prescribed form (Schedule 5) signed by you.

For example,

This is a Hire-Purchase Agreement regulated by the Consumer Credit Act 1974. Sign it only if you want to be legally bound by its terms.

Signature(s) of Debtor(s)

Date(s) of signature(s)

The goods will not become your property until you have made all the payments. You must not sell them before then.

If an agreement has any of these items missing, it is not properly executed.

There are two exceptions:

Firstly, in certain circumstances the box explaining your rights may be omitted. However, it must be sent to you within 7 days of the agreement being signed otherwise the agreement is not properly executed.

Secondly, for agreements made online after December 2004, the Consumer Credit (Electronic Communications) Order 2004 allows the signature in the signature box to be replaced by a tick box.

Examples of Prescribed Terms for loan agreements can be seen in the first and third examples here and for credit cards here.

Finally, there are requirements about the accuracy of the statament of APR. These are given in Schedule 7. The APR stated must be no more than 0.1% below the actual interest charged and no more than 1% above.

Copies of agreements

Sections 77, 78 and 79 of the Consumer Credit Act 1974 give you the right to request a copy of the executed credit agreement for your account from the creditor. The creditor is either the original creditor (for example, the credit card company) or a company to whom the agreement has been assigned.

Section 77 applies to regulated fixed sum loans (e.g. bank loans),
Section 78 applies to regulated running account credit (e.g. credit cards), and
Section 79 applies to regulated consumer hire agreements (e.g. hire purchase agreements)

In all cases, if you request a copy of your agreement and quote the relevant section of the Consumer Credit Act, the creditor must comply within 12 days. If no money is owing (and no money is to become owing) the creditor does not need to comply. They also need not comply if you have made a similar request in the previous month.

If the creditor fails to comply with the prescribed period (12 days), then they may not take any enforcement action until they do comply. For agreements signed before 2006, if they fail to respond within a further calendar month, then they commit an offence (Note - not a criminal offence).

Enforcement actions include:
- Requesting or demanding payment
- Sending you a default notice
- Giving information relating to the account to any third party, particularly credit reference agencies
- Passing the account to a debt collection Agency or assigning it to a Debt Purchaser.

As noted above, the creditor must send a copy of your agreement on request under one of these 3 sections of the Consumer Credit Act.

However, the Consumer Credit (Cancellation Notices and Copies of Documents) Regulations 1983 define what may be sent in response to a request under ss77-79. they have to send a 'true' copy but this is far short of an exact copy. They may just send a copy of current terms and conditions.

Requests for copies of agreements for fixed loans and hire-purchase agreements normally produce a proper copy of the executed agreement.

However, credit card companies usually send a copy of the application form (often without a signature) and a copy of current terms and conditions, which fully complies with the 1983 regulations.

You should be aware that compliance with a request under sections 77, 78 or 79 and an agreement being enforceable have nothing to do with each other.

Enforceability of Credit Agreements

1. Properly executed agreements

A properly executed agreement is enforceable except in two cases where it may not be:

a) if the debtor's rights were not in the agreement and they were not sent to him/her within 7 days.

b) if the agreement is not legible (see regulation 2 of the Consumer Credit (Cancellation Notices and Copies of Documents) Regulations 1983)

2. Agreements that are not properly executed

If an agreement is not properly executed as defined in section 61(1) of the Consumer Credit Act 1974 then Section 65 says that it can only be enforced by a court.

65.--(1) An improperly-executed regulated agreement is enforceable against the debtor or hirer on an order of the court only.

However, the Court's powers to enforce an agreement that is not properly executed and that was entered into before 2006 are limited by Section 127(3) of the Act.

127.--(1) In the case of an application for an enforcement order under--
(a) Section 65(1) (improperly executed agreements)....

(3) The court shall not make an enforcement order under Section 65(1) if Section 61(1)(a) (signing of agreements) was not complied with unless a document (whether or not in the prescribed form and complying with regulations under Section 60(1)) itself containing all the prescribed terms of the agreement was signed by the debtor or hirer (whether or not in the prescribed manner)

This section says that an agreement that is not properly executed can only be enforced if it consists of a single document

a) signed by the debtor, and

b) has the prescribed terms

The prescribed terms for enforceability under s127(3) are given in Schedule 6of the Consumer Credit (Agreements) Regulations 1983:

For fixed sum loans (e.g. bank loans, hire purchase agreements) the agreement must contain:

- A term stating the amount of the credit

For running account agreements (e.g. credit cards) the agreement must contain:

- A term stating the credit limit or the manner in which it will be determined or that there is no credit limit.

In all cases, the agreement must contain:

- A term stating how the debtor is to discharge his obligations under the agreement to make the repayments, which may be expressed by reference to a combination of any of the following--
(a) number of repayments;
(b) amount of repayments;
(c) frequency and timing of repayments;
(d) dates of repayments;
(e) the manner in which any of the above may be determined;
or in any other way, and any power of the creditor to vary what is payable.

(For hire agreements, there are other details given in Schedules 3 and 4).

All running account credit agreements and agreements for fixed sum loans which fall within certain exemptions (Schedule 1 paragraph 9 - usually if either of the other relevant prescribed terms are missing) must also have

- A term stating the rate of any interest on the credit to be provided under the agreement

Thus, it is quite often the case that an agreement sent in response to a request under Section 77, 78 or 79 may fully comply with the (revised) requirements of those sections but not be enforceable. For example, a typical response from a credit card company consisting of a copy of an application form and a copy of recent terms and conditions would comply with Section 79 but would probably not be enforceable for one of several reasons:

a) no signature (copy of unsigned application form)

b) no prescribed terms (interest rate, etc not on the form)

c) signature and prescribed terms not on one document (signed application form and recent terms and conditions).

It should be noted that some older MBNA application forms in particular do have the prescribed terms in a narrow column on one side. They are often headed "Credit Card Agreement Regulated by the Consumer Credit Act 1974" as well. Such forms should be checked very carefully as they may be properly executed. If not, they are probably enforceable by a court under Section 65.

Section 127(3) was repealed in the Consumer Credit Act 2006, which came into force in January 2007. Therefore, the enforceability of any agreement entered into after 2006 cannot be challenged by Section 127. This doesn't mean that such an agreement is necessarily enforceable but it does mean that its enforceability must be argued on its own merits.

3 Other considerations

In addition to the above, there is a requirement that an agreement should be legible under regulation 2 of the Consumer Credit (Cancellation Notices and Copies of Documents) Regulations 1983.

Quite often, credit card companies in particular do not appear to keep copies of the executed agreements but rely on the 1983 regulations allowing them to 'reconstruct' the agreement. If a case based on such an agreement comes to Court, the defence should point out strongly the requirement of the Civil Procedure Rules (CPR). Paragraph 7.3 of Practice Direction 16 says

7.3 Where a claim is based upon a written agreement:

(1) a copy of the contract or documents constituting the agreement should be attached to or served with the particulars of claim and the original(s) should be available at the hearing.

Another Practice Direction says that a copy of the contract document does not need to be attached if the claim is made via MCOL. However, the requirement to produce the original in court is still valid.

Summary

1. A properly executed agreement is enforceable

2. An agreement that is not properly executed and was signed before 2006 is not enforceable unless it has the debtor's signature and the prescribed terms in the same document.

3. The enforceability of an agreement that is not properly executed, signed after 6 April 2007 and not having the debtor's signature and the prescribed terms in the same document may not be enforceable but it's enforceability has to be argued on a case-by-case basis (you cannot use section 127(3)).

Multiple Agreements

If an agreementhas more than one part and those parts are for different categories of credit, then section 18 of the CCA 1974 says that the different parts must be treated as seperate agreements. In particular, this means that the prescribed terms for the different parts of the loan must be listed seperately.

18.--(1) This section applies to an agreement (a “multiple agreement”) if its terms are such as--

(a) to place a part of it within one category of agreement mentioned in this Act, and another part of it within a different category of agreement so mentioned, or within a category of agreement not so mentioned, or

(b) to place it, or a part of it, within two or more categories of agreement so mentioned.

(2) Where a part of an agreement falls within subsection (1), that part shall be treated for the purposes of this Act as a separate agreement.

(3) Where an agreement falls within subsection (1)(b), it shall be treated as an agreement in each of the categories in question, and this Act shall apply to it accordingly.

The different categories of credit are defined in sections 8-15 of the CCA 1974:

1. 'Personal credit agreement' or 'Consumer credit agreement' (Section 8 )
2. 'Regulated agreement' or 'Exempt agreement' (Section 8 )
3. 'Hire purchase agreement' (Section 9)
4. 'Running account credit' (eg credit card, overdraft) or 'Fixed sum credit' (eg bank loan) (Section 10)
5. 'Restricted use agreement' (eg PPI, car purchase) or 'Unrestricted use agreement' (eg cash loan) (Section 11)
6. 'Debtor-creditor-supplier agreement' (eg PPI) (Section 12) or 'Debtor-creditor agreement' (eg cash loan) (Section 13)
7. 'Credit token agreement' (eg credit card) (Section 14)
8. 'Consumer hire agreement' (Section 15)

So, a regulated, consumer credit agreement for fixed sum credit falls into three categories and the terms relating to all three must be in the agreement.

For our purposes though, where section 18 may render an agreement invalid is where the loan itself has two 'bits' which fall into different categories. For example (probably the most common example), a cash loan with PPI fall into different categories of credit:

Cash loan: ' unrestricted use credit' and 'debtor-creditor credit'
PPI: 'restricted use credit' and 'debtor-creditor-supplier credit'

Both fall into the categories 'regulated agreement' and 'consumer credit agreement'.

Such an agreement would fall under the scope of section 18 and require that the two parts of the loan be regarded as seperate loans. This in turn requires that the prescribed terms for each part must both be listed on the agreement: Loan amount, regular repayments and APR for both seperately.

Therefore, if, as is quite common, the monthly repayment is lumped together without the repayment amount for the loan and PPI listed seperately, the agreement would not be properly executed nor would it be enforceable under s65 as it wouldn't have the signature and all the prescribed terms on one document..

Another example is where a 'top-up loan' is arranged on a mortgage. Here the loan again has two bits - a bit that pays off the original mortagage and a bit that can be used by the borrower for other purposes as (s)he wishes. The first bit is 'exempt' and 'restricted use'; the second 'regulated' and 'unrestricted use (This example is worked through in detail in Bennion's article - see below)

Examples of Properly Executed and Unenforceable Multi-Part Agreements

For further information, have a look at Francis Bennion's article. In the article, Bennion gives the example of a multiple (multi-part) loan - a 'top-up' loan where part goes to pay off an existing mortgage and the other is for the debtors free use. He says this is covered by s18 as a loan with restricted-use and unrestricted-use parts. This has now been overruled in a High Court judgement. The PPI example above still holds.


(Thanks to PT2537 for this information)

Examples of Properly Executed and Unenforceable Multiple Agreements

Below are some agreements posted around the site that are for loans and PPI.

The loan part in each case constitites a regulated fixed-sum unrestricted-use debtor-creditor agreement whereas the PPI part constitutes a regulated fixed-sum restricted-use debtor-creditor-supplier agreement.

Under s18, these should be regarded as seperate agreements.

This first example fully complies with s18 and lays out the agreement as 2 seperate agreements to make that clear (shame they got the APR wrong )


and here is the first part of an Egg one that completely ignores s18 and is therefore unenforceable (it doesn't have seperate repayment terms for the two agreements and repayment terms are prescribed terms in Schedule 6 of the Consumer Credit (Agreements) Regulations 1983)



(THis egg case can be found here - http://www.consumeractiongroup.co.uk...riend-egg.html)

Here is one of each from the Co-op. The first fully comlies with s18 in that it gives the prescribed terms for both agreements although the form is not laid out quite as obviously as the First Direct one above. The second loan is unenforceable for exactly the same reasons as the Egg loan above:





These Co-op loans can be found here: http://www.consumeractiongroup.c o.uk/forum/payment-protection-insurance-ppi/151052-pompeyfaith-co-op-ppi-3.html

Example Credit Card Agreements

Here are some examples of Crdit Card Agreements. None is properlt excuted except the on-line one at the end.

The first is almost properly executed. The title is correct, Prescribed terms are under 'Key Financial Information', signature box is OK. Missing are the creditor's signature and 'your right to cancel'



Next is a more typical agreement - not properly executed for loads of reasons but having the prescribed terms under 'Financial and related details' and the debtor's signature, albeit on the opposite side of the form. This agreement is only enforceabld by court order under s65 of the CCA 1974. It complies with the requirements of s127(3). See Pt2537's commentary on this agreement.



And another


And an online version (properly executed)

There is also the issue of the 'Right to Cancel' which must be present in an outlined box within the signature page if an agreement is signed at home. This is covered by the CCCA 1983 see pages 4 & 5 and must be in the prescribed form.