Overdrafts & CCA

[Amethyst]

Just some info regarding overdrafts and the Consumer Credit Act.

Under the Consumer Credit Directive read Legal Beagles

& Ref CCA 1974/2006

THE DETERMINATION: The Determination (which is signed by the Director of Fair Trading) is made under section 74(3) of the Act. 21 December 1989.

"1. Under the powers conferred upon me by s.74(3) and (3A) and s.133 of the Consumer Credit 1974, I, the Director General, being satisfied that it would not be against the public interest to do so, hereby revoke with effect from 1st February 1990 the Determination made by me in respect of Section 74(1)(b) and dated 3 November 1983 and now determine that with effect from 1st February 1990 Section 74(1)(b) shall apply to every debtor-creditor agreement enabling the debtor to overdraw on a current account, under which the creditor is a bank.
2. This Determination is made subject to the following conditions:-
(a) that the creditor shall have informed my Office in writing of his general intention to enter into agreements to which the Determination will apply;
(b) that where there is an agreement between a creditor and a debtor for the granting of credit in the form of an advance on a current account, the debtor shall be informed at the time or before the agreement is concluded:
- of the credit limit, if any,
- of the annual rate of interest and the charges applicable from the time the agreement is concluded and the conditions under which these may be amended,
- of the procedure for terminating the agreement;
and this information shall be confirmed in writing.(c) that where a debtor overdraws his current account with the tacit agreement of the creditor and that account remains overdrawn for more than 3 months, the creditor must inform the debtor in writing not later than 7 days after the end of that 3 month period of the annual rate of interest and charges applicable.
3. In this Determination the terms 'creditor' and 'debtor' shall have the meanings assigned to them respectively by Section 189 of [the Act]. The term 'bank' includes the Bank of England and banks within the meaning of the Bankers' Books Evidence Act 1879 as amended."

Extracted from OPSI website:

Consumer Credit Act 2006

Section 140B Powers of court in relation to unfair relationships

(1) An order under this section in connection with a credit agreement may do one or more of the following—
(a) require the creditor, or any associate or former associate of his, to repay (in whole or in part) any sum paid by the debtor or by a surety by virtue of the agreement or any related agreement (whether paid to the creditor, the associate or the former associate or to any other person);
(b) require the creditor, or any associate or former associate of his, to do or not to do (or to cease doing) anything specified in the order in connection with the agreement or any related agreement;
(c) reduce or discharge any sum payable by the debtor or by a surety by virtue of the agreement or any related agreement;
(d) direct the return to a surety of any property provided by him for the purposes of a security;
(e) otherwise set aside (in whole or in part) any duty imposed on the debtor or on a surety by virtue of the agreement or any related agreement;
(f) alter the terms of the agreement or of any related agreement;
(g) direct accounts to be taken, or (in Scotland) an accounting to be made, between any persons.
(2) An order under this section may be made in connection with a credit agreement only—
(a) on an application made by the debtor or by a surety;
(b) at the instance of the debtor or a surety in any proceedings in any court to which the debtor and the creditor are parties, being proceedings to enforce the agreement or any related agreement; or
(c) at the instance of the debtor or a surety in any other proceedings in any court where the amount paid or payable under the agreement or any related agreement is relevant.
(3) An order under this section may be made notwithstanding that its effect is to place on the creditor, or any associate or former associate of his, a burden in respect of an advantage enjoyed by another person.
(4) An application under subsection (2)(a) may only be made—
(a) in England and Wales, to the county court;
(b) in Scotland, to the sheriff court;
(c) in Northern Ireland, to the High Court (subject to subsection (6)).
(5) In Scotland such an application may be made in the sheriff court for the district in which the debtor or surety resides or carries on business.
(6) In Northern Ireland such an application may be made to the county court if the credit agreement is an agreement under which the creditor provides the debtor with—
(a) fixed-sum credit not exceeding £15,000; or
(b) running-account credit on which the credit limit does not exceed £15,000.
(7) Without prejudice to any provision which may be made by rules of court made in relation to county courts in Northern Ireland, such rules may provide that an application made by virtue of subsection (6) may be made in the county court for the division in which the debtor or surety resides or carries on business.
(8) A party to any proceedings mentioned in subsection (2) shall be entitled, in accordance with rules of court, to have any person who might be the subject of an order under this section made a party to the proceedings.
(9) If, in any such proceedings, the debtor or a surety alleges that the relationship between the creditor and the debtor is unfair to the debtor, it is for the creditor to prove to the contrary.

21 Interpretation of ss. 140A and 140B of the 1974 Act
After section 140B of the 1974 Act (inserted by section 20 of this Act) insert—140C Interpretation of ss. 140A and 140B
(1) In this section and in sections 140A and 140B ‘credit agreement’ means any agreement between an individual (the ‘debtor’) and any other person (the ‘creditor’) by which the creditor provides the debtor with credit of any amount.
(2) References in this section and in sections 140A and 140B to the creditor or to the debtor under a credit agreement include—
(a) references to the person to whom his rights and duties under the agreement have passed by assignment or operation of law;
(b) where two or more persons are the creditor or the debtor, references to any one or more of those persons.
(3) The definition of ‘court’ in section 189(1) does not apply for the purposes of sections 140A and 140B.
(4) References in sections 140A and 140B to an agreement related to a credit agreement (the ‘main agreement’) are references to—
(a) a credit agreement consolidated by the main agreement;
(b) a linked transaction in relation to the main agreement or to a credit agreement within paragraph (a);
(c) a security provided in relation to the main agreement, to a credit agreement within paragraph (a) or to a linked transaction within paragraph (b).
(5) In the case of a credit agreement which is not a regulated consumer credit agreement, for the purposes of subsection (4) a transaction shall be treated as being a linked transaction in relation to that agreement if it would have been such a transaction had that agreement been a regulated consumer credit agreement.
(6) For the purposes of this section and section 140B the definitions of ‘security’ and ‘surety’ in section 189(1) apply (with any appropriate changes) in relation to—
(a) a credit agreement which is not a consumer credit agreement as if it were a consumer credit agreement; and
(b) a transaction which is a linked transaction by virtue of subsection (5).
(7) For the purposes of this section a credit agreement (the ‘earlier agreement’) is consolidated by another credit agreement (the ‘later agreement’) if—
(a) the later agreement is entered into by the debtor (in whole or in part) for purposes connected with debts owed by virtue of the earlier agreement; and
(b) at any time prior to the later agreement being entered into the parties to the earlier agreement included—
(i) the debtor under the later agreement; and
(ii) the creditor under the later agreement or an associate or a former associate of his.
(8) Further, if the later agreement is itself consolidated by another credit agreement (whether by virtue of this subsection or subsection (7)), then the earlier agreement is consolidated by that other agreement as well.”
22 Further provision relating to unfair relationships

(1) After section 140C of the 1974 Act (inserted by section 21 of this Act) insert—
140D Advice and information

The advice and information published by the OFT under section 229 of the Enterprise Act 2002 shall indicate how the OFT expects sections 140A to 140C of this Act to interact with Part 8 of that Act.”
(2) In section 16 of that Act (exempt agreements) before subsection (8) insert—
“(7A) Nothing in this section affects the application of sections 140A to 140C.”
(3) Sections 137 to 140 of that Act (extortionate credit bargains) shall cease to have effect.
(4) In section 181 of that Act (power to alter monetary limits etc.)—
(a) in subsection (1) before “155(1)” insert “140B(6),”;
(b) in subsection (2) before “shall” insert “or 140B(6)”.

[Curlyben]

Re: Overdrafts & CCA

Page 5/6 of this would be useful as well.

[Amethyst]

Re: Overdrafts & CCA

bumping temporarily


page 5/6 of Curlys document thus

Consumer Credit Act: overdrafts
The Court of Appeal considered whether an overdraft in
excess of an agreed limit met the conditions set out in a
determination made by the OFT under the Consumer Credit
Act 1974 in Coutts & Co v Gabriel Oscar Alan Sebestyen
[2005] EWCA Civ 473.
By letter dated 5 April 2002, Coutts offered Mr Sebestyen an
overdraft facility of £2,000 on his current account at an interest rate
of 4% above base rate, then equating to 8% per annum. There were
2 footnotes to the letter: the first explained that the overdraft facility
was subject to review and was repayable on demand; and the second
reserved Coutts’ right to vary its base rate from time to time.
Mr Sebestyen accepted Coutts’ offer. On 24 June 2002, the
overdraft balance first exceeded the agreed £2,000 limit but Coutts
nevertheless continued to make payments out of the account to
meet direct debits and standing orders.
By letter dated 26 June 2002, Coutts informed Mr Sebestyen that
the current overdrawn balance on the account was £7,497.67 and
that it was incurring interest at 26%. By a further letter dated 28
June 2002, Coutts informed Mr Sebestyen that the overdrawn
balance had risen to £10,656.32 and that no further debits would be
allowed on the account. Notwithstanding the terms of those 2
letters, however, Coutts continued to make payments out of the
account to meet direct debits and standing orders.
By 6 January 2003, the overdrawn balance on the account had risen
to £16,475 plus interest and Coutts brought proceedings claiming
repayment.
There was no dispute that the overdraft in the terms of Coutts’ letter
of 5 April 2002 was a regulated debtor-creditor agreement within
the meaning of the Consumer Credit Act 1974 (the “Act”) and that,
as such, it was subject to the requirements of Part V of the Act save
in so far as it could be considered to be excluded or exempted from
such requirements. Sections 57 to 63 of Part V of the Act contain
requirements as to the inclusion of specific documentation, without
which a regulated agreement will be held to be “improperly
executed”. Section 65 of the Act provides that an “improperly
executed” regulated agreement can only be enforced by Court
order. However, Section 74 of the Act provides for the exclusion of
certain agreements from Part V where the OFT has so determined.
A determination (the “Determination”) was made under Section 74
of the Act on 21 December 1989 subject to 3 conditions:
“(a) that the creditor shall have informed [the OFT] in writing of
his general intention to enter into agreements to which the
Determination will apply;
(b) that … the debtor shall be informed at the time or before the
agreement is concluded:
– of the credit limit, if any;
– of the annual rate of interest and charges applicable from the
time the agreement is concluded and the conditions under
which these may be amended;
– of the procedure for terminating the agreement
and this information shall be confirmed in writing.
(c) that where a debtor overdraws his current account with the tacit
agreement of the creditor and that account remains overdrawn
for more than 3 months, the creditor must inform the debtor in
writing not later than 7 days after the end of that 3 month
period of the annual rate of interest and charges applicable”.
It was common ground that condition (a) had been satisfied but
there was a dispute over whether Coutts had satisfied conditions (b)
and (c). Coutts argued that each of the additional payments out of
the account in excess of the agreed overdraft limit constituted
“modifying agreements” which were exempted from Part V of the
Act by Section 82(4) and in consequence that conditions (b) and (c)
in the Determination no longer applied.
Section 82 provides:
“(2) Where an agreement (a “modifying agreement”) varies or
supplements an earlier agreement, the modifying agreement
shall for the purposes of this Act be treated as –
(a) revoking the earlier agreement, and
(b) containing provisions reproducing the combined effect of
the two agreements,
and obligations outstanding in relation to the earlier
agreement shall accordingly be treated as outstanding instead
in relation to the modifying agreement.
(3) …
(4) If the earlier agreement is regulated agreement for runningaccount
credit, and by the modifying agreement the creditor
allows the credit limit to be exceeded but intends the excess to
be merely temporary, Part V ..... shall not apply to the
modifying agreement.”
Coutts further submitted that, in any event, even if conditions (b)
and (c) continued to apply, condition (b) had been satisfied by
Coutts’ letter of 5 April 2002 and condition (c) had been met by its
letters dated 26 and 28 June 2002.
5
6
At first instance, the Judge held that, whilst Section 82(4) did not
have the effect of disapplying the Determination, Coutts had
complied with conditions (b) and (c).
Mr Sebestyen appealed, arguing that the true construction of
condition (c) required that the specified information be given to the
debtor within the 7 day window referred to in the condition and
that, accordingly, the condition could not be satisfied if the
information were given at some time prior to the commencement of
that window. The Court of Appeal was wholly unpersuaded by this
argument, holding that Mr Sebestyen’s construction would lead to
an absurd result in that the condition would require a bank which
had given the debtor all the requisite information prior to the
commencement of the 7-day period to repeat that process during
that period. Mr Sebestyen’s appeal was therefore dismissed.
Practical implications
The Consumer Credit Act is a minefield for banks and other
lenders. This case, however, was a triumph for common sense but it
does serve to emphasise the importance of complying with the
letter of the Act and any applicable determinations in all lending to
which they may conceivably apply.

[ed.]

Re: Overdrafts & CCA

Interesting read.

[Amethyst]

Re: Overdrafts & CCA

another bump Seems banks are pretending the CCA doesnt apply to them so just for info to help peeps with their arguments to the contrary.

[pizemirth]

Re: Overdrafts & CCA

Hum. Overdrafts are very complicated. They are undoubtedly "running account credit" for the purposes of S10 of the Consumer Credit Act, and are thus caught by S78 regarding "information requests". They are subject to (some) exemption to Part V of CCA, PROVIDED that they have complied with the Determination, before 1st Feb 2011, of the OFT, dated 21 December 1989. Three things are required by the OFT (assuming that the bank has notified the OFT of its intention to offer "overdrafts", which inevitably, it will so have done), (1) any credit limit (2) annual rate of interest, applicable charges and amendment conditions (3) termination procedure. All 3 things must be provided to the debtor by the time of the agreement, and confirmed in writing. Nothing needs to be signed by the debtor. The provision is banking indulgence, for which you, the debtor, will pay through the nose. Section 74(1) (b) provides that the strict formality requirements of sections 55 to 74 (apart from S56), do not apply, IF the OFT Director's Determination, above, is complied with. BUT, if the 3 things, or any one of them, are not complied with by the bank, the default position presumably applies, i.e., that s65 "bites", as does s127 (1), BECAUSE the "regulated agreement" for the overdraft facility is thus "improperly executed", and, under s127 (1), may not be "enforced" without court order; and the court is required to dismiss the bank's application for enforcement only if it considers it "just to do so", having regard to (i) prejudice caused to any person by the contravention and degree of culpability for it, and (ii) the court's own remedial powers to amend such agreements (if it is just so do do). If the s78 "information request", upon payment of fee of £1 to the bank, is not (properly) complied with (e.g., merely referring to "leaflet enclosed" purportedly originally setting out the interest rate", is not included in answer to the s78 request, then the bank may not "enforce" under s78(6) until they procedurally comply. Moreover, it may be possible that the original agreement is substantively unenforceable IF the leaflet separately setting out the interest rate said to be "enclosed", never was in the first place.