Griffiths v Welcome Financial Services
| Jurisdiction | England & Wales |
| Judgment Date | 26 July 2006 |
| Neutral Citation | [2006] EWHC 3769 (QB) |
| Docket Number | Case No: 5LV56665 |
| Court | Queen's Bench Division |
| Date | 26 July 2006 |
[2006] EWHC 3769 (QB)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
Liverpool L2 2BX
LIVERPOOL DISTRICT REGISTRY
The Law Courts,
City Square,
35 Vernon Street,
His Honour Judge Pelling Q.c.
(Sitting as a Judge of the High Court)
Case No: 5LV56665
Mr. SAY appeared on behalf of the Claimant.
Mr. ONIONS Q.C. and Miss SMITH appeared on behalf of the Defendant.
Wednesday, 26th July 2006
JUDGE PELLING QC:
In these proceedings the Claimant seeks a declaration under section 142(1) of the Consumer Credit Act 1974 that the Defendant lender is not entitled to enforce a regulated loan agreement entered into by the parties on 30th June 2004, whereby a total of �14,784.94 was lent to the Claimant and secured on the Claimant's house at 2 Pennington Street, Walton in Liverpool. If the Claimant succeeds in obtaining the declaration he also seeks an order requiring the removal of the charge from the register of title for the property, pursuant to section 106(c) of the 1974 Act.
This case was transferred from the County Court into the Mercantile List of the Queens Bench Division of the High Court at the request and with the consent of the parties. No witnesses were called and the case proceeded on the basis of the witness statements filed by the parties.
The agreement between the parties is in a form dictated by the Consumer Credit (Agreement) Regulations 1983. On the front of the agreement it is recorded that the amount of credit is �13,108.05, that an acceptance fee of �235 and a mortgage indemnity fee (MIF) of �1,441.89 has been charged, thus giving rise to total sum loaned of �14,784.94. The detailed terms are set out on the reverse of the agreement. clause 3 provides:
�Mortgage Indemnity Fee
The mortgage indemnity fee shall be charged to you by being included in the total amount of the loan. In return for payment of this fee we agree that in the event that it is necessary for us to enforce the security and the value of the secured property upon the sale is insufficient to cover all sums then due by you to us under this agreement we shall not pursue you for such shortfall.�
In the statement dated 13th January 2006 the Claimant identifies the purpose of the loan in these terms, and I quote from paragraph 1, 2, and 5 of his statement as follows:
�I have taken out a number of secured loans with Welcome Finance over the past few years. The loans have been in joint names with my partner, Victoria King. Four loans have been taken out in total. Each loan has solely or in part has been used to settle the previous loan.
The last loan taken out is the subject-matter of this case. This loan was taken out on 30th June 2004. It was provided solely to re-finance the previous agreement. It is the only loan that I know have with Welcome.�
Then at paragraph 5 the Claimant says this:
�The representative also advised me that I was eligible for a new loan. He explained that it would consolidate my existing debt and give me some spare cash to put me back on track. He also said the new loan would be at a lower interest rate than I currently had. This appeared to me, and as a result a further appointment was made for me and Victoria to go to Welcome's office to sort out the paperwork.�
It is common ground that the payment of the MIF was mandatory, in the sense that the Claimant was not given an option whether to take the benefits of clause 3 or not. If the loan was to be made then the finance product offered was a secured loan subject to clause 3. The reasons for this were explained by the Mr. Orrell, the Defendant's Legal Manager, in his statement dated 24th February 2006, as follows:
�The Defendant's customers are, in general, sub-prime borrowers who have poor credit ratings and/or previous County Court judgments against their name. Accordingly, on average there is a higher level of default upon these agreements than you would expect with a higher quality loan book. Furthermore, in relation to the secured personal loans it is unusual for the Defendant to obtain a first legal charge over the customer's property and, therefore, the value of the security held by the Defendant can be extremely limited, if it has any value at all. The Defendant is therefore operating in a market where it potentially has a high loan to value secured on uncertain equity in the property. Given the higher than average level of default and the doubtful value of the security, the Defendant ensures that this type of finance agreement is priced appropriate to cover losses suffered by the Defendant. This higher risk is reflected by the rate of interest agreed to be charged to the customer. In addition, where the finance agreement is secured then the Defendant charges what in industry terminology is normally called a mortgage indemnity fee. By signing the secured personal loan agreement the customer agrees to pay the fee as shown on p. 7��,
(I interpose, that is p. 7 of the exhibit to the witness statement)
�� resulting in the customer obtaining an immediate benefit as set out in the Terms and Conditions to the finance agreement. In summary, it means that the customer knows from the outset of the loan, and thereby has immediate peace of mind, that if the customer defaults on the finance agreement and the Defendant repossesses and sells the customer's property but there is insufficient equity remaining after all prior charge holders have been settled to fully repay the sums due, then the Defendant agrees that it will not take any steps against the customer to recover any shortfall. Instead, the Defendant agrees with the customer at the time the loan is initially given that the Defendant will simply write off the balance. In effect, the Defendant receives a sum from the customer when the loan is provided, in return for which the customer receives the benefit at that time of knowing that should he default a limit is imposed on his exposure at the level of the value of the equity in his property, if any. When the Defendant receives the fee it is not treated any particular way and simply forms part of the charges paid by the Defendant under the agreement. In particular:
9.1 no mortgage indemnity guarantee or insurance policy is in existence in respect of any security held by the Defendant, including that of the Claimant and Part 20 Defendants. Indeed, the Defendant has never taken out such guarantee or policy in respect of any loan with any customer.
9.2 no such guarantees or insurance policies are taken out or arranged by the Defendant in respect of its secured loan agreements.
9.3 no fund has ever been set up by the Defendant to cover losses from shortfalls which have been written off following defaults in secured personal loans.�
The point that arises in this case is a narrow one. As I have already noted, on the front of the agreement form the amount of credit is stated net of MIF, which is included as a charge. The Claimant's case is that the MIF should have been included in the statement of the amount of credit and not as a charge, so that the amount of credit is understated. It is accepted by the Defendants that if the Claimant is correct in these submissions then the loan agreement would be irredeemably unenforceable and that the Claimant would be entitled to the relief sought.
The issue depends upon a true construction of the Consumer Credit (Total Charge for Credit) Regulations 1980. The purposes of these Regulations is to ensure that the debtor should be able to know the true cost of the credit facility on offer and to be able to compare different types of facility, and to contrast these costs with the cost of financing from the borrower's own resources. This, indeed, is the effect of section 20 of the 1974 Act, pursuant to which the Regulations were made. The relevant paragraphs of the 1980 Regulations for present purposes are Regulations 3, 4 and 5, which provide as follows:
�3. Total charge for credit
For the purposes of the Act the total charge for the credit which may be provided under an actual prospective agreement shall be the total of the amounts determined as at the date of the making of the agreement of such of the charges specified in Regulation 4 below as apply in relation to the agreement, but excluding the amount of the charges specified in Regulation 5 below.
4. Items included in total charge for credit.
Except as provided in Regulation 5 below, the amounts of the following charges are included in the total charge for credit in relation to an agreement�
(b) other charges at any time payable under the transaction by or on behalf of the debtor or a relative of his, whether to the creditor or any other person; and
(c) a premium under a contract of insurance payable under the transaction by the debtor or a relative of his whether the making or maintenance of the contract of insurance is required by the creditor:
(i) as a condition of making the agreement; and
(ii) for the sole purpose of ensuring complete or partial repayment of the credit, and complete or partial payment to the creditor of such of those sums included in the total charge for credit as are payable to him under the transaction in the event of the death, invalidity, illness or unemployment of the debtor, notwithstanding that the whole or part of the charge may be repayable at any time or that the consideration therefore may...
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