NRAM plc v McAdam and others – first instance and Court of Appeal

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The Court of Appeal continue to deliberate on the central issue of s.77A Consumer Credit Act raised in NRAM plc v McAdam and another [2014] EWHC 4174 (Comm).

NRAM plc v McAdam and others – first instance and Court of Appeal

Last year, Barton J found in favour of McAdam and others (Claimants) who claimed that whilst their credit agreements with NRAM plc (NRAM) did not in substance qualify as regulated consumer credit agreements under the Consumer Credit Act (CCA), they were to be treated as if they were regulated by way of being drafted on standard CCA compliant credit agreement templates.

NRAM had failed to comply with all of its expected obligations under the CCA in respect of its agreements with  the Claimants. In particular it did not provide the Claimants with s.77A CCA annual statements as it had believed them to be irrelevant to the, seemingly, unregulated agreements.  Failure to comply with this obligation in the ordinary course of business entitles consumers to specific redress. Barton J determined that the agreements in this instance could take the benefit of the statutory protections afforded to consumer by CCA regulation - meaning NRAM paying out somewhere in the region of £258 million to remedy the problem. The case was appealed.

The Court of Appeal are expected to hand down its Judgment later on this month but it is not certain how it  will find in this matter, as they have been known to be unpredictable in previous similar consumer credit cases. There is a significant degree of contradiction between what Burton J has honed in on as being the “deciding factors” to the case and what the appellate judges have drawn attention to in their considerations. Interestingly, as a main point of discussion, customers’ understanding/interpretation of the statutory language was considered by the Court of Appeal as integral to its determination. I.e. the expectations that were (or were not) created by statutory wording appearing in the agreements.

Implications if Burton J’s decision is upheld?

Barton J’s Judgment proves problematic when reconciling it with provisions of the CCA which specify an agreement as being unregulated by way of the inclusion of a declaration or disclaimer  - despite being on a regulated agreement “template”, e.g. the business purpose exemption found under Article 60C of Financial Services and Markets Act 2000 (Regulated Activities) Order 2001. This exemption (which is covered in this article on the business purpose exemption) allows for certain credit agreements that meet specific requirements to become exempt agreements, provided they include the specific statutory declaration wording within them. If Barton J’s Judgment is upheld, disclaimers/declarations may prove useless because the inclusion of CCA statutory wording providing customers with regulatory protections may override said exempt status – rendering those agreements regulated ones. This may impact firms operating “dual use agreements” i.e. agreements that can be used to be regulated and unregulated with the inclusion of a particular exemption disclaimer. These agreements would always be regulated even if an exemption applied because of the fact that specific consumer credit statutory protections are mentioned in the document.

The implications for redressal, like with the liability identified for NRAM, could be potentially vast for similar firms failing to comply with provisions of the CCA which encompass sanctions with a pecuniary element. Worrying yet interestingly, s.77A, s.86B and s.86D remediation is becoming an increasing issue for the consumer credit industry, if Barton J’s ruling is not dismissed I suspect many more compensatory type pay-outs to be in the future for a number of consumer credit firms.

However, as stated above, the Court of Appeal has been highly unpredictable and its ruling in this case is eagerly anticipated.