Central to the Consumer Credit Act 1974 (hereinafter mainly referred to as the “Act”) is the word “credit”. There is however scant attention paid to what “credit” is under the Act. It is a very important issue; if it can be shown that there is no “credit” provided, then many agreements are not regulated by the Act and are therefore free of the “shackles” of the Act. Of course, a hire agreement can still be regulated by virtue of being capable of subsisting for more than 3 months under section 15 of the Act; that however is an issue for another future article. This article will be purely focusing on the word “credit” under the Act.
In this short article, I will be exploring the issue in the following manner: (1) what does “credit” under the Consumer Credit Act 1974 mean? (2) examples of agreements that involve “credit” and those agreements that do not involve “credit” and (3) conclusion and summary.
In order to avoid confusion, I will not be dealing with the issue of “regulated” agreements in this particular article. Save to state this: in many (though not all) cases if an agreement does not involve any “credit”, then there is no need to move to on to the question of whether the agreement is “regulated” under the Act. Where there is no “credit” involved, in many cases the agreement will not be regulated and therefore is free from the Act.
At first blush, this appears to be an easy question. It is however not as simple as it appears. Indeed, in the history of credit hire, what amounts to “credit” has caused considerable confusion.
The difficulty is caused by the Consumer Credit Act 1974 providing only limited assistance as to what the concept of “credit” actually means. Section 9 (1) states as follows as to the “Meaning of credit”: “In this Act ‘credit’ includes a cash loan, and any other form of financial accommodation”.
In Dimond v Lovell (2000, 2 All ER 897) there was reference by the House of Lords to Professor Goode’s definition of “credit” (Goode, Consumer Credit Legislation, loose-leaf ed., vol 1, para. 443) which had been approved by the Court of Appeal ([1999] 3 W.L.R. 561, 572) in Dimond namely: “credit [is] extended whenever the contract provides for the debtor to pay, or gives him the option to pay, later than the time at which payment would otherwise have been earned under the express or implied terms of the contract.” Lords Hobhouse in Dimond v Lovell did however exercise some caution with the definition when he stated “The test formulated by Professor Goode adopted by the Vice Chancellor in the Court of Appeal [1999] 3 W.L.R. 561, 572 will not always be a satisfactory one to apply. Many commercial agreements contain provisions which could be said to postpone (or advance) the time at which payment has to be made. Frequently, there will be reasons for this other than the provision of credit. Payment may be postponed as security for the performance of some other obligation by the creditor. Payments may be made in advance of performance in order to tie the paying party into the commercial venture. Payment provisions may like any other aspect of the transaction be part of its commercial structure for the division of risk, for the provision of security or simply the distribution of the commercial interest in the outcome of the transaction”.
It seems to me that Professors Goode’s definition of “credit” is largely the correct criteria, with the added caveat by Lord Hobhouse that there may be reasons other than “credit” why payment is postponed in some agreements.
This seems to suggest that whether “credit” is provided can be assessed by the following two criteria: (i) whether payment is agreed to be later than would otherwise be under the express or implied terms of the contract and (ii) the reason for postponement of payment under the agreement is also relevant.
So, whilst it was not specifically stated in Dimond v Lovell, it seems to me that under limb (ii) above, the reason for the postponement of payment is also a necessary pre-condition of “credit”. In other words, is the purpose to provide “credit”? In my view even without the comments of Lord Hobhouse, it is clear from the definition of “credit” under the Act that there has to be the purpose of providing “credit”. In my view the fact that the words “financial accommodation” are used in the Act clearly suggests that there has to be a purpose of providing “credit”. The word “accommodation” clearly suggests this.
Obviously on many occasions, the purpose is not something that one needs to trouble oneself with. If for example the agreement states that payment should be made within 1 year, without anything further as to why this is, then in my view it can be readily inferred that the purpose was to provide “credit”. Conversely an agreement providing that payment should be made within 7 days, 14 days or 28 days are obvious examples of where it can be readily inferred that there was no purpose in providing “credit”.
The obvious example is where payment has to be made when the claim for damages has concluded, for example as in Dimond v Lovell.
Another example is where payment has to be made within 51 weeks, for example in Clark v Ardington (2001 EWCA Civ 585).
A simple example of where no “credit” is involved is where payment has to be made within 28 days, as is commonly seen in Basic Hire Rates produced by the defence.
A more nuanced example of where “credit” has not been provided is the typical “insured hire agreement”, where there is no specific provision for payment of hire charges within the hire agreement which the claimant signs. As discussed within one of my earlier articles, this is because the hire company and the claimant’s insurance company has a separate written agreement whereby the latter is liable to pay for the hire charges. A good example is Bee v Jenson (2007 EWCA Civ 923). The lack of specific provision of payment of the hire charges within the insured hire agreement is not the issue as far as “credit” is concerned. As correctly identified by the Court of Appeal in Bee v Jenson, if the insurance company were to become insolvent then the Claimant may have to pay for the hire charges – this would be presumably under common law implied terms, though the Court of Appeal did not specifically state this. It is because there is no “credit” provided under the insured hire agreement referred to in Bee v Johnson and other such similar agreements, that no issue of “credit” is involved.
In the event of insured hire, where the insurance company becomes insolvent let’s say even one year after the agreement and payment is then demanded of the claimant by the hire company (presuming that the insurance company has not made payment before its insolvency), there is still no provision of “credit” under the hire agreement. Therefore, the typical insured hire agreement does not attract the Act.
In conclusion and summary:
(1) limited assistance is provided by the Consumer Credit Act 1974 as to what “credit” means as it merely states in section 9: “In this Act ‘credit’ includes a cash loan, and any other form of financial accommodation”;
(2) however it seems clear from Dimond v Lovell that whilst the definition of “credit”
provided by Professor Goode is largely acceptable, it will not be satisfactory in every situation. Whilst the House of Lords did not specifically state as such, in my view it is clear from the examples which Lord Hobhouse gave as to what does not amount to “credit” notwithstanding postponement of payment, that the purpose of the postponement of payment is relevant;
(3) in my view whether “credit” is involved has to be considered in 2 stages namely: (i) whether payment is agreed to be later then would be otherwise under the express or implied terms of the agreement and (ii) was the purpose to provide “credit”? Under stage (ii) however in many cases the purpose can be readily inferred and it is therefore not a question which needs to be addressed in those cases;
(4) payment within 7, 14 days, or 28 days are good examples of where “credit” has not been provided;
(5) payment upon conclusion of the case or within 1 year are good examples of where “credit” has been provided;
(6) insured hire agreements where there is no specific provision of payment of the hire within the hire agreement are good examples of where “credit” has not been provided.
I hope the reader has a better understanding of the meaning of “credit” in the Consumer Credit Act 1974. This is often the very first hurdle in a consumer credit case and therefore in my view great care needs to be taken in understanding the concept of “credit” under the Act.
Please note this article does not constitute legal advice for any specific case or cases.
© Mohammed Azeem Ali 08/02/2021