The Supreme Court gives guidance on what is and isn’t fair

5th December, 2014

Remember your parents telling you as a child that life wasn’t fair?

The Supreme Court has recently given some guidance on what is and isn’t fair, and the consequences of unfair behaviour in consumer credit transactions.

Section 140A of the Consumer Credit Act 1974 (which was added by the Consumer Credit Act 2006) allows the court to review, vary or cancel any credit or loan agreement which is “unfair to the debtor”. This is a much wider discretion than the old “extortionate credit bargains” under the original Consumer Credit Act, and covers the loan being unfair because of:

• the terms of the agreement (or any related agreement);
• the way the lender has behaved in enforcing its rights; or
• anything else done (or not done) by or on behalf of the lender.

In the recent case of Plevin v Paragon Personal Finance Limited ([2014] UKSC 61), Mrs Plevin had borrowed money from Paragon Personal Finance. The loan, and an associated payment protection insurance product (PPI), were sold to Mrs Plevin by an independent broker, LLP Processing (UK) Limited. The loan was for £34,000 and the premium for the PPI was £5,780 which was added on to the loan. Out of the PPI premium, nearly 72% (or £4,150) went to Paragon and LLP as commission. Mrs Plevin’s case hinged on her contention that she was not told about the size of the commission payments and, if she had been, she was unlikely to have entered into the loan.

The court was asked whether that non-disclosure made Mrs Plevin’s relationship with Paragon unfair. The court suggested that sometimes it would be fair not to disclose commission payments and in some cases it would be unfair. In this instance (and without determining at what point fair becomes unfair), the court firmly decided that the size of the hidden commission payments was a long way beyond the tipping point and accordingly that Paragon’s relationship with Mrs Plevin was unfair. The case has been sent back to the High Court for a decision on the appropriate remedy for Mrs Plevin.

However, in a helpful judgment for lenders, the court clarified the meaning of “on behalf of”. Section 140A is not just concerned with anything done by the lender, but also anything done on the lender’s behalf – which of course could be well outside the lender’s control. The court made it clear that this only covers agency arrangements and in this case, LLP was acting as Mrs Plevin’s agent, and not for Paragon.

For more information please contact Hugh Strickland on 01743 294120 or email [email protected]

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