Broadwick Financial Services Ltd v Spencer & Anor

A regulated consumer credit agreement is properly executed where the signed agreement contains all prescribed repayment terms. A separate letter offering a non-contractual, ex gratia reduction is an indulgence, not an additional repayment term.

For extortionate credit bargains, interest rates prevailing includes APR, and comparisons must reflect the relevant lending market. The later operation of a discretionary interest-variation clause is not ordinarily part of the assessment, although an undisclosed policy about operating it may bear on fair dealing. A statutory early-settlement formula and a customary term are powerful, but not conclusive, considerations. The statutory threshold remains high: terms must be grossly exorbitant or grossly contrary to ordinary fair dealing, involving oppressive unfairness rather than mere unwise borrowing.

Mr and Mrs Spencer appealed from the decision of His Honour Judge Neligan at Truro County Court on 23 March 2001. The judge granted Broadwick possession of their property under a legal charge securing a £7,700 loan and dismissed their counterclaims.

The credit agreement was regulated by the Consumer Credit Act 1974. The appellants argued that it was improperly executed because a separate concession letter referred to reduced instalments, and sought to reopen the agreement as an extortionate credit bargain. The central questions were whether the concession letter contained a prescribed repayment term and whether the agreement, considered individually and cumulatively, met the statutory test.

1. Disposition. Dyson LJ delivered the leading judgment. Robert Walker LJ and Auld LJ agreed. The appeal was dismissed, with costs, and permission to appeal to the House of Lords was refused.
2. Proper execution. Under sections 61 and 127 of the Consumer Credit Act 1974, the signed agreement had to contain the prescribed repayment terms. The credit agreement itself satisfied the repayment requirements in Schedule 6 to the Consumer Credit (Agreements) Regulations 1983. The concession letter was expressly ex gratia, non-contractual, and not a variation or modification of the agreement. It therefore did not state how the borrowers were contractually obliged to repay, and did not create an additional prescribed term or a bar under section 127(3).
3. Extortionate bargain and interest rates. The reference to interest rates prevailing in section 138(2)(a) included APR, since the relevant comparison was the cost to the debtor. The appropriate comparison was with other non-status lenders, rather than primary banks and building societies. The relatively high loan-to-value ratio was a relevant indication of the risk accepted by the lender.
4. Interest variation. The Court followed Nash and Staunton v Paragon Finance plc [2001] EWCA Civ 1466: subsequent changes in interest rates and the lender’s actual operation of a discretionary variation clause were not ordinarily relevant to whether the bargain was extortionate. However, the existence of such a clause, and an undisclosed policy about not reducing rates when market rates fell, could be relevant to ordinary fair dealing. The failure to disclose the policy was not serious or gross in the circumstances.
5. Other considerations. The non-contractual concessionary instalment arrangement was not unfair or oppressive. The Rule of 78 was the statutory minimum rebate formula for early settlement. Its use was usual and statutorily sanctioned, although those matters were powerful rather than conclusive. The early-redemption clause did not make this agreement extortionate, and the alleged features did not do so individually or cumulatively.
6. Threshold. The statutory test was high. The bargain had to require grossly exorbitant payments or grossly contravene ordinary principles of fair dealing. The concept involved oppressive unfairness and substantial abuse of bargaining power, rather than an merely unwise or expensive transaction. The lender retained the burden under section 171(7), but that burden did not lower the statutory threshold. The absence of proven pressure and the other circumstances meant that the agreement was not extortionate.

• Court of Appeal (Civil Division): In [2002] EWCA Civ 35, the appeal was dismissed with costs and permission to appeal to the House of Lords was refused.
• Truro County Court: His Honour Judge Neligan, on 23 March 2001, granted Broadwick possession of the property and dismissed the appellants’ counterclaims.