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'Unfair’ loans haunt lenders - Blemain Finance v Peter Bentley
publication date: Feb 18, 2010
T he case of Blemain Finance and Peter Bentley was settled with a Judge’s Order on 28th October 2009. To summarise the facts, Peter Bentley had taken a second mortgage over his property for £40,000 but struggled to maintain repayments following the death of his mother and his father’s onset of Alzheimer’s. The loan went into arrears and by the time he was able to return to work again, the recession had set in and he was unable to earn enough money to pay the loan; his caring responsibilities meant his working hours were slashed from 48 hours per week to a mere 19 hours, which led to a dramatic drop in income, causing him to fall behind with his loan repayments. Blemain Finance took repossession proceedings against him. CCLS, Peter Bentley’s solicitors, argued that the loan agreement was an unfair relationship under s.140A of Consumer Credit Act 1974. This section was added into the 1974 Act by the Consumer Credit Act 2006, which repealed sections 137-140, extortionate credit bargains. Unfair relationships are seen as covering a wider ambit than extortionate credit bargains.
CCLS claimed that Blemain Finance had lent to Peter Bentley irresponsibly and claimed they took advantage of the unfortunate situation Peter Bentley found himself in. They questioned the checks that Blemain Finance had carried out on Peter Bentley, such as his ability to afford such a loan.
The matter was settled out of court, but the terms of the Order have been the topic of much discussion. The terms of the Order allowed for the reduction in the monthly payment from £550 t o £150. In addition, no further interest was to be added to the loan. By the time this case settled the loan of £40,000 was worth around £47,000. Crucially, there is a five year stay on mortgage repossession proceedings and after this period, Blemain Finance would only be allowed to take possession of the property if there have been at least 12 months of arrears at the new monthly payments. In the High Court in Cardiff Judge Milwyn Jarman added a further provision that no charges or legal costs could be levied against Peter Bentley.
It is important to note that this case did not end up going to trial, therefore no legal precedent was made. Many have viewed Blemain Finance’s out of court settlement as a means of avoiding the setting of a legal precedent. If this case had gone to a trial on the facts, it could have dealt a heavier blow to the finance sector. It is unlikely that Blemain Finance have made this compromise purely out of compassion to Peter Bentley’s circumstances but rather from analysing their chance of success, as well as the commercial risk if they were to lose.
With this in mind, what impact will this case have on the industry as a whole? Lenders may now want to proceed with a more cautious approach to lending to avoid similar actions from taking place. It has been reported that CCLS, Peter Bentley’s solicitors, have many other claims of a similar nature. It is unknown how many other claims management companies will now plan to take up similar action with lenders. Although no legal precedent has been set, lenders may now find that they are being drawn into these sorts of claims. Following this out of court settlement, does this mean that the flood gates are going to open to the masses? Some would argue that it is only a matter of time before the court will have to make a judgement on these types of cases.
In the meantime, borrowers will view this as a huge victory and it may even encourage those who find themselves in a similar situation to try to argue that their loan is an unfair relationship. In the end though, there is no certainty that all claims of unfair relationships will be meant with a sympathetic ear. The reason there has been so much media attention in relation to this case is because it is widely inconsistent with the increased numbers of repossessions and debt recovery actions that we hear about almost daily in the news.
The banks may remain victorious over the recent unauthorised overdrafts judgement in the Supreme Court but it remains by no means certain who is going to win in the next battle between the consumer and the finance sector.
David Foster, Dispute Resolution Partner, Barlow Robbins
Tel 01483 464243.