Griffiths v Welcome Financial Services

A mandatory mortgage indemnity fee charged under a secured loan agreement is a charge forming part of the total charge for credit, rather than an insurance premium excluded from that calculation, where the fee purchases an immediate contractual waiver of the lender’s rights to recover any shortfall. The classification depends on the particular statutory language and transaction. General characteristics of insurance are useful but do not provide an exhaustive definition. A contractual waiver of liability following an uncertain event is not necessarily insurance, especially where the benefit is acquired immediately and merely alters the parties’ contractual relationship.

The claimant sought a declaration under section 142(1) of the Consumer Credit Act 1974 that the defendant could not enforce a regulated secured loan agreement. He also sought removal of the registered charge under section 106(c). The agreement included a mandatory mortgage indemnity fee, described as purchasing the lender’s agreement not to pursue any shortfall after enforcement and sale of the property.

The claimant argued that the fee was a premium under a contract of insurance and should have been included in the amount of credit. The defendant argued that it was a charge forming part of the total charge for credit under the Consumer Credit (Total Charge for Credit) Regulations 1980. The central issue was the proper characterisation of the fee under those Regulations.

The claim was dismissed. The mortgage indemnity fee was properly treated as a charge under regulation 4(b) of the Consumer Credit (Total Charge for Credit) Regulations 1980, not as an insurance premium excluded by regulation 5(i).

1. The statutory question was the meaning of the expression used in the Regulations. Authorities identifying features commonly associated with insurance did not establish a comprehensive definition. A contract satisfying those features might still be a guarantee, maintenance contract or other arrangement rather than insurance. This caution was reflected in Prudential Insurance v ILC, [1904] 2 KB 659, DTI v St. Christopher Motorist Assurance Association Limited, [1974] 1 LLR 17, and MBU v The Department of Trade and Industry, [1980] 1 Ch 82.
2. The fee purchased an immediate surrender or waiver of rights which the lender would otherwise have. The benefit was therefore acquired when the agreement was made, rather than on the occurrence of a future contingency. The arrangement was analogous to a collision damage waiver, which alters the contractual allocation of liability rather than constituting insurance.
3. Humber Clyde Finance v Thompson, [1997] CCLR 23, remained good law and applied by analogy. Although it had to be read subject to Watchtower Investments v Payne, [2001] EWCA Civ 1159, and McGinn v Grangewood Securities, [2002] EWCA Civ 522, those decisions did not assist the claimant because there was no evidence that obtaining the waiver was an objective purpose of the borrowing.
4. Including the fee as an excluded insurance premium would understate the true cost of credit and produce unintended consequences. The enforcement declaration and consequential relief therefore failed.