A man who was facing repossession of his home after two £5,000 loans spiralled into a £35,000 debt has had the entire amount written off, after the initial loan was found to be unfair.
Stephensons Solicitors LLP acted for the client, who was funded by legal aid. He had approached Burbank Securities in February 2007, as he wanted to re-mortgage his house to free up some equity. Burbank advised the client they were unable to offer him a mortgage as various improvement works were needed on the house, but they offered him a £5,000 loan to carry out the jobs on the property, under the proviso that this loan would be repaid in six months time when they had managed to secure a mortgage contract for him.
The loan was referred to as a ‘quick cash loan’ and within two days our client had £5,000 in his bank. It had an APR of 82.5 per cent.
Six months later, our client asked Burbank Securities if they had obtained a mortgage for him. They said no, saying that more jobs were needed on the home, including a fitted kitchen, before they could secure a mortgage on the property. They offered our client a further £5,000 on the same terms as the last agreement and he could continue to improve the house. Our client used the money to pay for new windows and doors, a new roof, plastering and a fitted kitchen.
Six months on he approached the lender again to see if a re-mortgage could now be arranged to discharge the two loans, but he was told yet again that further work was required and they would not offer him the mortgage. As a result, the client was then unable to discharge the two loans within the six month period.
Burbank Securities then went into administration and began possession proceedings against the client in February 2009 seeking a total debt of £27,600.64, for initial loans of £10,000.
Stephensons was able to defend the action on the basis that an Unfair Relationship had arisen. This is a new challenge brought about by the Consumer Credit Act 2006, which allows agreements to be challenged on many grounds where they appear to be unfair.
In this case, the grounds were:
- The loans were for terms of just six months and the lender knew that the client would not be able to repay the loan within this period. The opponent had no intention of offering a mortgage on the property.
- The APR on both loans of 82.5 per cent was extortionate, unreasonable and unfair, and is not comparative with similar products available on the market;
- Burbank’s failure to undertake proper and appropriate checks on the debtor’s creditworthiness, ability to repay the loan and to meet the terms of the Agreement (Contrary to OFT’s Fitness Guidance issued under Section 25 of the Consumer Credit Act 1974; Non-Status Lending Guidance). In particular, given the nature of the income that our client was in receipt of, and the prospect of repaying the loans within just six months;
- They secured lending against the substantial equity then existing in the property knowing that the enforcement of the security was likely to be the only means by which the sums advanced along with interest would be recovered. Stephensons was able to argue that their lending amounted to equity lending which the OFT have indicated in its view amounts to irresponsible lending and contrary to fairness.
- The above points are supported by the findings of the Competition Commission in its report dated 5 June 2008.
Burbank Securities has now settled the dispute, after the filing of the defence, on the basis that they will write off any liability for the client under the loan agreements and remove the secured charge from his property. At the date of settlement, with interest, the write off amount was approximately £35,000. They also agreed to rectify any adverse credit references entered against him and also agreed to pay his legal costs of having to defend the claim.
Liam Waine, a partner and head of the consumer contract team at Stephensons, said: “A recent web poll on our dedicated website – www.debtandrepossession.co.uk – found that 77 per cent of people do not believe their banks/lenders treat them fairly.
“In this case, the relationship between the client and the lender was unfair, the APR was extortionate and the lender had no intention of offering a mortgage on the property.
“There are many people facing similar situations to our client and this case illustrates that even the most complicated debt problems can be unravelled to secure a positive outcome.”
Stephensons’ consumer team is one of the leading specialists in the country in dealing with debt problems on behalf of clients. There are various funding options open to people, including legal aid and conditional fee arrangements, also known as no-win, no-fee.
Stephensons has developed a website, www.debtandrepossession.co.uk, where people can obtain free initial help. The firm also offers a free 30-minute consultation to check through credit agreements and assess the potential of challenging them. For more information on this, contact Liam and his team through www.debtandrepossession.co.uk or call the free helpline on 0800 694 0189.