Laura WilesThe High Court has provided useful guidance on the boundary between mortgage and consumer credit regulation, confirming that regulated mortgage contracts fall under the MCOB regime and are excluded from the unfair relationship remedies under the Consumer Credit Act 1974 (CCA).
The case involved an appeal by 392 individuals who had entered into residential mortgage contracts with Northern Rock, which were later transferred to TSB Bank. At the time of the transfer, the applicable SCR was 4.79%, which was 4.29% above the BoE base rate. TSB has varied the rate from time time time in line with the BoE base rate but it has remained 4.29% above it. It uses different SVRs for different categories of variable rate mortgage that it offers – including its “standard mortgage variable rate” which is 2% above base rate. The claimants argued that they were ‘mortgage prisoners’ trapped into high variable rates, and brought claims for breach of contract and statutory duty. Some of the claimants also had a package from Northern Rock which comprised a mortgage and an unsecured loan, which allowed borrowers to borrow on a mortgage up to 95% of their property’s value, but then get a further unsecured loan which would allow them in total to borrow well over 100% of the property value.
Two issues came before the court:
- had TSB breached the express terms of the mortgage contracts by charging the claimants a higher rate than its general SVR (this depended on interpretation of the contractual terms, and the judge agreed with TSB); and
- does s140A(5) CCA preclude an order being made under s140B in relation to an RMC, or quantified by reference to sums payable under an RMC, irrespective of whether the RMC is a “credit agreement” or a “related agreement”
Both the RMC and the related loan were credit agreements for the purposes of the unfair relationship provisions of the CCA, and the parties agreed that the relationship to be assessed was the relationship under the “credit agreement” taken with any “related agreement”, and that, is the RMC was the “credit agreement” then, even if the loan was a “related agreement”, there could be no order because of s140A(5). The claimants said the loan was the “credit agreement” and the RMC “related agreements”. It was also agreed that the court could make an order for repayment of sums under the loan to remedy unfairness and could have regard to the terms of the mortgage when doing so, but the issue was whether there could be an order in relation to the mortgage, specifically an order for repayment of sums paid under the mortgage. TSB contended that s. 140A(5) of the CCA precludes the court from making orders (as to unfair relationships between creditors and debtors) affecting regulated mortgage contracts, so that the only repayments that could be ordered would be of moneys paid under the loans, but not under the mortgages.
The court agreed that TSB’s interpretation was correct and the attempt by the claimants to use unsecured loans to obtain relief for regulated mortgage contracts was in fact an attempt to circumvent the statutory regime.