Allegiant has been helping customers make unaffordable lending claims for over 10 years, and we’ve recovered over £67 million during that time. This is one our blogs providing insights into access to justice…
In today’s world, borrowing money is a common part of life for a lot of people, whether it’s for buying a home, a car, or simply managing everyday expenses. But what happens when the terms of a loan or credit agreement seem unfair or are causing you distress? This is where the concept of “unfair relationships” under Section 140A of the Consumer Credit Act 1974 comes into play.
Imagine you’ve taken out a loan, and over time, you start feeling that the deal is stacked against you. Maybe the terms weren’t clear from the start, or perhaps the lender is enforcing the agreement in a way that feels unjust. Section 140A was designed to protect people like you from these situations. It gives a Court the power to step in and assess whether the relationship between you and your lender is unfair. If the Court finds that the relationship is indeed unfair, it can take action to set things right, which might include changing the terms of the agreement or even cancelling certain obligations.
Court out
The High Court decision in Kerrigan v Elevate Credit International Limited (t/a Sunny) (in administration) [2020] EWHC 2169 was a big moment for people who have found themselves caught in a cycle of debt due to payday loans. In this case, Michelle Kerrigan and others took on Sunny, a company that provided high-interest short-term loans. The Court found that Sunny had not done enough to check whether its customers could actually afford the loans they were being given. This led to many people repeatedly borrowing more money just to pay off previous loans, creating what the Judge deemed an “unfair relationship.”
The Judge ruled that this relationship was unfair because Sunny’s lending practices pushed borrowers into a deeper financial hole rather than helping them manage their money. As a result, the Court decided that the interest and charges on these loans should be refunded to the borrowers. This ruling is important because it shows that lenders must act responsibly and ensure that they are not trapping their customers in a cycle of debt with loans they cannot afford.
Now most people don’t want to have to take their lender to Court; understandably so, due to the time, stress and expense. But, even down the more informal claims route, regulated lenders should be taking your dispute seriously, by taking the law into account.
Allegiant does not pursue claims through the Courts, but does make claims directly to financial firms and via the ombudsman service. Next, we will take a look at some examples of what Ombudsmen, rather than Judges, have said.
Ombudsmen outcomes
In this case, the Ombudsman ruled in the customer’s favour when they claimed for irresponsible lending:
– “Mr W is complaining about First Response Finance Ltd. He says they acted irresponsibly in lending to him because of his credit history and complains that this created an unfair relationship.”
– “I’ve considered the Kerrigan judgment and I’m inclined to agree with Mr W”
– “The loan agreement proved to be unaffordable, which First Response ought reasonably to have foreseen at the time of lending. So I’m inclined to conclude that the lending decision First Response made created an unfair relationship as defined in section 140A of the Consumer Credit Act 1974”[1]
In a separate case, Mrs Y took out a hire-purchase agreement to buy a car in April 2016. She complained that Black Horse acted unfairly by paying the broker a commission without her knowledge and by operating a commission model that linked the broker’s commission to the interest rate on the agreement, which the broker had the discretion to adjust. The Ombudsman found that this commission model created a conflict of interest, as it incentivised the broker to set a higher interest rate to increase its commission:
– “I consider that a court would likely find that Black Horse’s relationship with Mrs Y was unfair under s140A CCA and that each of the unfair relationship grounds I have identified are reasons why Black Horse failed to act fairly and reasonably towards Mrs Y.”
– “And, having considered all the evidence and arguments about redress, my final decision is that Black Horse should compensate Mrs Y” [2]
Here to help
At Allegiant, we’re committed to helping you understand your rights and take action when those rights are compromised. Remember, fairness in credit agreements is not just a legal requirement—it’s a fundamental principle that protects us all.
[1] https://www.financial-ombudsman.org.uk/decision/DRN-4830645.pdf
[2] https://www.financial-ombudsman.org.uk/decision/DRN-4188284.pdf