Broker Fee Inclusion Does Not Make Debt Unenforceable

The inclusion of the mortgage broker’s fee in the ‘total amount financed’ did not make a debt unenforceable, according to the Supreme Court.

The Court was considering the case of a Mr and Mrs Walker, who took out a loan of £17,500 in 2005, secured against their house. When they subsequently fell into arrears, a judge, in June 2007, granted a suspended order for possession of their property, a decision which the couple successfully appealed at Chester County Court in 2009.

This judgment was overturned by the Court of Appeal, and it was against that decision that Mr and Mrs Walker appealed to the Supreme Court.

The credit agreement between the Walkers and the finance company, Southern Pacific Securities, clearly specified the ‘Amount of Credit’ as being £17,500, and the ‘Total Amount Financed’ as £18,375. The amount financed included the loan amount and a ‘Broker Administration Fee’ of £875. The agreement also made it clear that an interest rate of 13.98 per cent was payable on the total amount financed.

Lawyers for the Walkers argued that the true amount of credit was not £17,500 but the £18,375 shown in the agreement as the Total Amount Financed.

Under the Consumer Credit Act 1974, agreements predating 6 April 2007 are only enforceable if they contain certain prescribed terms. These include a term stating the ‘amount of credit’. Section 9 of the Act defines ‘credit’ as including ‘a cash loan, and any other form of financial accommodation’ and provides that for the purposes of the Act, ‘an item entering into the total charge for credit shall not be treated as credit even though time is allowed for its payment’.

The Court held that, even though the £875 was to be considered part of the total advance, and as such was interest-bearing, it did not form part of the ‘amount of credit’ as defined by the Act. Had the fee been expressed in the agreement as part of the amount of credit, so that the amount of credit was shown as £18,375, the agreement would have been unenforceable. As it had not, the Supreme Court dismissed the appeal, leaving the agreement to be enforced against the Walkers.