Chapter 20: Consumer c redit – rights of the parties

The debtor defaulting in making the payments due under the agreement is easily the most common event to cause the rights of the parties to be actively considered. There could be several rights of the creditor which will arise in such an eventuality:

• Claim the arrears. The creditor is immediately entitled to bring proceedings to enforce payment of instalments which have fallen due. The agreement may provide that interest is payable on the arrears until they are paid. If so, the rate of the interest charged must not exceed the rate of the APR payable under the agreement as a whole.

• The creditor will have the right to terminate the agreement if:

  the breach amounts to a repudiation of the agreement;

  • the agreement states that prompt payment of sums due is ‘of the essence’ of the agreement (Lombard North Central v Butterworth [1987]); or

  • the agreement expressly gives that right.

• the breach amounts to a repudiation of the agreement;

• the agreement states that prompt payment of sums due is ‘of the essence’ of the agreement (Lombard North Central v Butterworth [1987]); or

• the agreement expressly gives that right.

• The creditor may well have the right to repossess the goods (for example, upon termination of a hire purchase agreement).

• The creditor will have the right to activate an accelerated payments clause, if the agreement gives him that right.

• Similarly, the creditor will have the right to enforce security.

All of these rights of the creditor, apart from (a), are dramatic and likely to be final so far as the debtor is concerned. Thus, in those cases, but not in the case of (a), the creditor is not entitled to exercise any of these rights without first serving on the debtor a default notice (s 87 of the Consumer Credit Act 1974) giving the debtor at least 14 days’ notice. If the debtor makes good his default (pays off all his arrears) before expiry of the default notice, the debtor is deemed not to have defaulted at all. Even if he does not make good his default, the debtor may apply for a time order.

The Defendant finance company leased a computer system to the Claimant for five years. Payment was expressed to be required ‘promptly’ subject to an acceleration clause. In fact payments were usually quite late. After six instalments were late the Defendant terminated the agreement and demanded all sums due under the agreement (both those owed and those to be owed in the future). The court allowed the Defendant to claim overdue payments as debts and future payments as damages.

The prompt payments clause can act as a condition and effectively accelerate payments.