Stephen WilsonIn a repossession case brought by an unregulated lender, Principal Bridging Limited (PBL), the County Court found that where a loan is used to refinance previous borrowing, it is the purpose for which the original loan is taken out which determines whether it is “wholly or predominantly for the purposes of a business” for the purposes of Articles 60C and 60O of the Financial Services and Markets Act 2000 (Regulated Activities Order) 2001 (the RAO).
In this case, the borrower, Mr Lewis took out a bridging loan with PBL (secured as a second charge loan against his primary residence) which was used to refinance an earlier loan (with a different lender) which in turn had been use to refinance an original loan (from a third lender). It was taken as a matter of fact that Mr Lewis had used a maximum of 50% of the original for business purposes and, therefore, it had not been used “wholly or predominantly for the purposes of a business” carried on by him (and, therefore, was as a matter of fact a regulated mortgage contract as the exemption under Article 61A(1)(c) of the RAO. However, the Court found that PBL had no way of knowing this and that Mr Lewis had made repeated representations that he would use the loan PBL made for business purposes and, therefore, the loan was unregulated and not a regulated mortgage contract.
In the alternative, the Court also found that if the PBL loan�was a regulated mortgage contract, it would still have been just and equitable for PBL to enforce the loan due to the repeated representations made by Mr Lewis.
Following on from these findings, and taking into account Mr Lewis history of defaulting on previous lending the interest rate charged by PBL was not an unenforceable penalty.
Lastly, it followed that the relationship between PBL and Mr Lewis could not be said to be unfair for the purposes of Sections 140A-C of the Consumer Credit Act 1974.