The unfair relationship provisions of the Consumer Credit Act 1974 have been in force since April 2007, attracting an array of judicial decisions on their application. The most recent decision of the Court of Appeal in Scotland & Reast v British Credit Trust Limited (BCT) has far reaching implications on a creditor’s responsibility for a salesperson’s representations:

The customers wished to buy double-glazed windows and doors from Zenith Staybrite but required finance to do so. Zenith found and introduced the customers to BCT. BCT was not involved in any negotiations. The Zenith salesmen informed the customers they had to take out PPI to obtain the loan. That was not the case. BCT would have accepted the loan without PPI. Documents from BCT confirmed that prior to entering into the loan.

At trial, the customers succeeded in claiming that the relationship between BCT and the customers was unfair as:

  1. The salesmen had misrepresented the need for PPI, and so the PPI had been sold in breach of ICOB; and
  2. The salesmen’s negotiations had been conducted as BCT’s agent and that conduct was relevant as "any other thing done (or not done) by, or on behalf of, the creditor" in determining that the relationship was unfair.

BCT was ordered to provide redress to the customers. BCT unsuccessfully appealed to the Court of Appeal. The key points are:

  1. All antecedent negotiations for the debtor-creditor-supplier credit agreement were conducted as agent for BCT, and the misrepresentations regarding the PPI were an essential part of those negotiations.
  2. The negotiations also constituted as "any other thing done (or not done) by, or on behalf of, the creditor" under the unfair relationship provisions.
  3. It didn’t matter that there were other recourses available to the customers. There was an unfair relationship and BCT was required to provide redress.
  4. It didn’t matter that BCT had done nothing wrong or that its communications with the customers confirmed that PPI was not a requirement of the loan. But for the salesmen’s misrepresentations BCT would not have had the benefit of the interest on that element of the loan or received commission on the sale of PPI. That created an unfair relationship.
  5. On "any other thing done (or not done) by, or on behalf of, the creditor" the Court of Appeal preferred a broad approach so that any act or omission of any person who contributed to the entering into of the credit agreement could be taken into account.

This decision is unhelpful for creditors. It could have far-reaching implications on a creditor’s responsibility for another’s actions/omissions that it cannot control.

We all await the Supreme Court’s decision in Plevin v Paragon Finance Limited (expected in October) which may provide finality to when a creditor is accountable for another’s actions/omissions and the unfair relationship provisions generally. If the broad approach is confirmed there may well be an increase in claims made by customers.

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David Martin is a senior associate at Eversheds