Unfair relationships

The Consumer Credit Act 1974 enables borrowers to challenge unfair credit agreements in court and obtain redress, if the overall relationship is unfair to the borrower.

This is in addition to an enhanced ability for consumers to take disputes to the Financial Ombudsman Service (FOS). See alternative dispute resolution scheme.

The provisions were introduced by the Consumer Credit Act 2006. They applied to new agreements from 6 April 2007, and to pre-existing agreements from 6 April 2008. Agreements completed before the new provisions took effect remain subject to the previous extortionate credit bargains provisions.

The 2006 Act also enhanced the right to apply for a time order, which is a court procedure that can give borrowers more time to repay a debt.

The unfair relationships provisions

Section 140A of the 1974 Act (as amended) provides that a court may determine that the relationship between a lender and a borrower arising out of a credit agreement (or the agreement taken with any related agreement) is unfair to the borrower because of:

• any of the terms of the credit agreement or a related agreement
• the way in which the lender has exercised or enforced its rights under the credit agreement or a related agreement, or
• any other thing done (or not done) by or on behalf of the lender either before or after the making of the credit agreement or a related agreement.

The courts have a wide range of powers where a credit relationship is found to be unfair, including:

• altering the terms of the credit agreement or a related agreement
• reducing the amount payable by the borrower
• requiring the lender to refund money to the borrower
• removing any duty placed on the borrower under the agreement , and
• imposing requirements on the lender or an associate.

In addition, where unfair relationships harm the collective interests of consumers, the OFT and other enforcers (including local authority trading standards services) can take enforcement action under Part 8 of the Enterprise Act 2002.

The OFT has published guidance on Part 8 action and unfair relationships. See Unfair relationships - Enforcement action under Part 8 of the Enterprise Act 2002 (pdf 179 kb).

If there are queries regarding interpretation of the above provisions, these may be addressed to credit.guidance@oft.gsi.gov.uk.

The OFT cannot take up complaints on behalf of individual consumers. If a consumer has a complaint against a lender, and considers that the overall relationship is unfair, they should speak to a Citizens Advice Bureau or other debt adviser, or contact Consumer Direct on 08454 04 05 06.

Alternatively, if the consumer has pursued the complaint with the lender but is dissatisfied with the outcome, they can approach the Financial Ombudsman Service on 0845 080 1800.

The OFT would welcome details of court cases involving unfair relationships, and copies of relevant judgments. These may be sent to credit.guidance@oft.gsi.gov.uk or by post to Martin Goulden, Head of Credit Policy, Office of Fair Trading, Fleetbank House, 2-6 Salisbury Square, London EC4Y 8JX.

Time orders

Section 129 of the 1974 Act provides that a court can make a time order, giving the consumer more time to repay a debt under a regulated consumer credit or consumer hire agreement, if the court considers it 'just' to do so. In addition, section 136 provides that an agreement may be amended as a consequence of a time order - for example, by reducing the rate of interest or extending the term of the agreement.

The consumer can apply for a time order following receipt of a default notice, or a notice of enforcement action under the Act. The court can also make a time order as part of proceedings brought by the lender for enforcement of the agreement or to recover possession of goods or land (for example, mortgage repossession).

The 2006 Act will also enable the consumer to apply for a time order following receipt of an arrears notice (from 1 October 2008), provided that he first gives notice to the lender and submits an alternative payment proposal, and at least 14 days elapse before an application is made to the court.

A guide to time orders is available on the National Debtline website.

Back to: Consumer Credit Act 2006