Santander UK Plc v Harrison & Anor

For transitional purposes under the Consumer Credit Act 2006 (Commencement No. 4 and Transitional Provisions) Order 2008, a variation of an existing unregulated credit agreement does not provide credit in the form of a cash loan merely because it defers payment of arrears and adds them to the outstanding capital. The relevant distinction is between a cash loan and other financial accommodation. No new funds being made available, routine restructuring remains outside the statutory regime. An assignment does not prevent the legal holder of a registered mortgage charge from enforcing an unregulated loan. Where an unfair-relationship defence is raised, the creditor bears the burden of proving fairness, but speculative and prolix pleading may properly be struck out as a case-management measure.

The bank claimed possession of the borrowers’ home and recovery of the mortgage debt after arrears had accrued. The borrowers resisted the claim, principally arguing that an agreement capitalising arrears in 2008 was a modifying agreement regulated by the Consumer Credit Act 1974. They also challenged the bank’s title to sue following alleged securitisation and pleaded that the relationship was unfair.

The County Court determined the capitalisation and securitisation issues as preliminary issues in favour of the bank. The borrowers sought permission to appeal. The central issue was whether deferring payment of arrears and incorporating them into future instalments amounted to credit in the form of a cash loan.

1. Capitalisation issue. Permission to appeal was granted on the meaning of credit in the form of a cash loan, but the appeal was dismissed. The consensual agreement to capitalise arrears was a modifying agreement for the purposes of section 82(2) of the Consumer Credit Act 1974, but that did not resolve whether the transitional provision applied.
2. The agreement provided credit because arrears that were immediately payable became repayable over time. It did not, however, provide credit in the form of a cash loan. A cash loan is distinct from other forms of financial accommodation, including giving further time to pay an existing debt.
3. The mere restructuring of an existing agreement, without making new funds available, is not a cash loan for paragraph 4(1) of the Consumer Credit Act 2006 (Commencement No. 4 and Transitional Provisions) Order 2008. Capitalising arrears does not alter that conclusion, because the increase in capital is matched by the removal of the immediate arrears liability. Treating routine payment deferrals as cash loans would produce the disproportionate consequence that previously enforceable unregulated agreements could become unenforceable.
4. The consequences of the capitalisation decision were that the borrowers’ defences dependent on regulation under the Consumer Credit Act 1974 fell away.
5. The title-to-sue issue did not justify permission to appeal. If the agreement had been regulated, the absence of a compliant default notice would have defeated the claim whether the bank or an assignee had title to sue. The court nevertheless observed that an unregulated assignment would not prevent the bank, as legal holder of the registered charge, enforcing the mortgage.
6. Once an unfair-relationship issue is raised, the creditor bears the burden of proving fairness under section 140B(9). It was unnecessary to decide whether such a defence could generally be struck out. The challenged pleading was speculative, unnecessary and prolix, and the County Court was entitled to strike it out as a sensible case-management decision.
7. The County Court was entitled to order the borrowers to pay the costs of the bank’s application. Permission to appeal was refused on the securitisation and costs issues.

• High Court (Queen’s Bench Division) — The County Court’s preliminary determination was upheld on the capitalisation issue. Permission to appeal was granted on that issue, but the appeal was dismissed. Permission was refused on the securitisation and costs issues.