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Debt sale and purchase agreements and the Consumer Credit Act 2006

Whether selling or purchasing live agreements regulated by the Consumer Credit Act (CCA), or debts that have arisen under terminated regulated agreements, the CCA 2006 has undoubtedly had an impact.

Post-contract information:  who is responsible after the debt sale?

When an agreement is assigned, the general rule is that the buyer acquires the “benefit” of the agreement, but not the “burden”.  In other words, under English law, the buyer will not automatically be liable for performing the seller’s ongoing contractual duties under the agreement.  For this reason, where the buyer is to undertake these responsibilities, the debt sale agreement should impose an obligation on the buyer to do this.

However, the CCA imposes various statutory duties on “creditors” and “owners”.  For example, CCA 2006 introduced additional requirements upon creditors to provide debtors and hirers with post-contract information.  These include sending debtors notices of sums in arrears in relation to their accounts, notices of default sums that have become payable (for example, default interest) and some new periodic statements. 

Our customer is in administration: can the administrator sell our goods?

 In certain circumstances, an administrator has the right to sell goods subject to a lease or hire-purchase agreement.  In other situations, the administrator may be personally liable where they have been sold.

Right to sell under the Insolvency Act 1986

 Under the Insolvency Act 1986 (IA 1986), the court may make an order enabling the administrator to dispose of goods which are in the possession of the company under a hire-purchase or lease agreement as if the company had all the rights of the owner under the agreement.  

An order of this kind may only be made on the administrator’s application and where the court thinks that disposal of the goods would be likely to promote the purpose of administration (paragraph 72, Sch B1, IA 1986).  Any such order is subject to the condition that: 

Protecting personal information: the Data Protection Act 1998

The recent undertakings given by Brent Teaching Primary Care Trust and Abertawe Bro Morgannwg University NHS Trust to the Information Commissioner’s Office and to be given by Tees Esk and Wear Valleys NHS Foundation Trust, highlight the current data protection hot topic of data encryption. 

 The Information Commissioner’s Office has legal powers to ensure compliance with the requirements of the Data Protection Act 1998 (the DPA).  Both Brent and Abertawe gave undertakings to the Information Commissioner’s Office to implement appropriate security measures following the theft of unencrypted laptops containing patients’ personal data.  Tees Esk and Wear Valleys was also required to sign a formal undertaking after the “loss of an unencrypted data stick by a contractor with various patient and staff personal data on it”, although the data stick was found and later returned to the Trust.

Recap on some of the relevant DPA requirements

Under the DPA there are various requirements that have to be complied with by “data controllers”.  A data controller is a person who determines the purposes for which and manner in which any “personal data” are to be processed.  An example is an NHS Trust in relation to its patients’ personal data:  the Trust will decide how and for what purposes that patient information would be “processed”. 

Processing is given a very wide meaning by the DPA.  It covers probably everything one can imagine relating to dealing with the relevant information including obtaining, recording, holding, altering, retrieving, using, disclosing and erasing or destroying the information. 

It is important to remember that the DPA only protects “personal data”. 

Consumer Protection from Unfair Trading Regulations: first enforcement order

Hot on the heels of the Consumer Protection from Unfair Trading Regulations that came into force at the end of May, the first enforcement order was made under the Regulations on 31 July.  

The defendants, Jimmy and Shane Stockwell, who engaged in home handy man services were the subject of a number of complaints including for aggressive behaviour and about the quality of their work.  They were ordered by the judge not to breach a range of provisions in the Regulations including: 

• not to act in a misleading manner by presenting false information or presenting it in a manner likely to deceive the consumer
• not to make contracts away from business premises without first giving written notice to the consumer of his/her cancellation rights
• not to act in an aggressive manner either in trying to get the consumer to enter into a contract or by obtaining payment
• not to act without professional diligence.

If they disobey the terms of the order the Stockwells risk being in contempt of court which can attract imprisonment, a fine, or both. 

The new Regulations provide stronger consumer protection measures and this early action should be a warning to those who engage in unfair trading practices.

This article is a general summary only.  If you would like advice on any of the issues raised by it, please contact us.  Please bear in mind that the law may change from time to time and this article may not be (or have been) updated to reflect those changes. © afl Solicitors

 

The big event: removal of the CCA financial limit

They have been talked about for some time.  Now the biggest legal changes for the finance industry of the year are finally here - or, the first part of them at least.  From 6 April 2008, the £25,000 financial limit for consumer credit and consumer hire agreements will be removed.  This means that where there is an agreement between a creditor and an individual for the provision of credit of any amount, it will be a “consumer credit agreement”.  (For these purposes, an individual includes a partnership of less than four people (not all of whom are bodies corporate)). A hire agreement (including a lease agreement) made with an individual for the hire of goods to the hirer, that is capable of subsisting for more than three months and that is not a hire-purchase agreement will be a “consumer hire agreement”.  This is irrespective of the amount of the rentals payable.  Unless exempt, these agreements will be regulated by the CCA.  

New exemptions

 What does this mean in practice?  More agreements will be regulated by the CCA.  The impact is somewhat mitigated by two new categories of exemption from the CCA: the first of for agreements with high net worth individuals, the second relating to agreements for business use.  With each, there are certain conditions that must be satisfied for them to apply. 

 In the case of the business use exemption, for example, it is only relevant where the credit provided exceeds £25,000 (or in the case of a consumer hire agreement, where the hirer is required to make payments exceeding £25,000).  In addition, the agreement must be entered into wholly or predominantly for the purposes of a business carried on or intended to be carried on by the debtor/hirer.

Will existing agreements automatically become regulated?

Does this mean that all unregulated credit and hire agreements entered into with individuals before 6 April will automatically become regulated?  No – the lifting of the financial limit will only apply to new agreements made on or after 6 April.  

However, if an unregulated agreement entered into with an individual before 6 April is subsequently varied then, put simply, this may result in it becoming a regulated agreement.  

NHS Foundation Trust insolvency regime

This year marks the 60th anniversary of the National Health Service in England.  In one way, it is perhaps surprising that for nearly four of these years, the legislation establishing a failure regime for NHS Foundation Trusts ("FTs") has been and still is awaited.  Some in the leasing industry take the view that it doesn't really matter on the basis that because of the political ramifications a FT would not be allowed to fail.  Some agree that while this may be the case, lessors need, for various reasons, to understand the potential implications if this eventuality were to occur.  Whether or not, in practice, it would get to this stage remains to be seen.  The Department of Health has consistently made clear that the Secretary of State will not guarantee the debts of a FT except in the case of PFI contracts and that if a FT does financially fail, Monitor, the FT Regulator, will initiate a failure regime.

The National Health Service Act 2006 (the "NHS Act") makes provision for the Regulator to be able to require the directors of a FT to take steps to obtain a moratorium or to make a proposal for a voluntary arrangement.  In certain circumstances, after other measures have been taken, the NHS Act envisages the possibility of the Secretary of State making an order for the dissolution of a FT.  This is without there necessarily being a transfer of all its liabilities to another body (such as another FT, for example).

Sale and Hire Purchase Back - risky business?

A question that commonly raises its head in the finance industry is whether sale and hire purchase back arrangements should be avoided and why.  A key issue that has often come before the English courts is whether particular documents that purport to record a sale and HP back are, in fact, to be treated as a disguised loan and mortgage of the relevant assets.  If so, then as explained below, this can have dire consequences for the financier.

Consumer credit reform: where are we now and what's on the horizon?

The past year has seen considerable change to consumer credit legislation and there is much more to come.  Now is an opportune time to briefly review where we have reached in terms of Consumer Credit Act reform and what is on the horizon. 

Already here - is your business complying?

The following changes have already taken effect:

·   1 October 2006 - the period allowed to customers under agreements regulated by the Consumer Credit Act to comply with default notices was extended from 7 days to 14 days.  Default notices should have been amended to reflect this.

·   6 April 2007 - change to the definition of “individual” for the purposes of the CCA.  From this date, new credit and hire agreements with partnerships of more than 3 people are no longer regulated by the CCA. Operational procedures (and, depending on their terms, forms of agreement) should have been modified to take account of this.

·   6 April 2007 - good news for creditors.  Previously, in some circumstances, a court could not make an “enforcement order” to allow an agreement to be enforced where the agreement did not comply with certain CCA requirements.  This automatic unenforceability has been abolished in relation to agreements made on or after 6 April 2007.  Courts now have discretion as to whether to allow enforcement in these situations as well.

·   6 April 2007 - “unfair relationships” provisions came into force for new credit agreements.  Subject to limited exceptions, these apply to all new agreements with individuals (including sole traders and partnerships of 3 people or less) irrespective of the amount of the credit being provided.  They allow the court to make a wide range of orders where it determines that a relationship is unfair, including requiring repayment of any sums paid by the debtor.

Financing used printing equipment: dealing with existing secured creditors

One of the reasons finance companies cite for wanting to consider writing sale and hire-purchase back transactions with printing companies rather than loans secured by chattel mortgages is simplicity of documentation and a faster process.  Here we review the need for releases and other arrangements with prior secured creditors in both cases. 

Where a customer owns printing equipment and wishes to release cash using those assets, there are different methods under English law by which this can be achieved.  It could borrow, the loan being secured by a mortgage over the equipment.  It could sell the equipment and if it wanted to have continuing use, potentially hire the assets back under the terms of a hire-purchase or lease agreement.

Where time is a critical factor, then although arrangements with prior secured creditors may need to be put in place with a chattel mortgage, equally, the need for releases of the assets from existing security should not be ignored with sale and HP back and sale and lease back arrangements.

Financial Ombudsman Service - the industry levy

From 6 April 2007, the Office of Fair Trading will be responsible for collecting the industry levy that will fund the Financial Ombudsman Service's role in considering certain complaints relating to standard consumer credit licensees. 

The OFT has announced that for sole traders, partnerships, companies or other organisations applying for a consumer credit licence or that have licences due for renewal on or after 6 April 2007, this levy will be £150.00.  This is payable in addition to the licence fee and must accompany the licence application.

However, the levy does not have to be paid by:

• debt counsellors or debt adjusters, provided that they do not charge a fee or commission for any services; or
• registered loan societies, credit unions or those registered under the Friendly Societies Act; or
• those subject to the compulsory jurisdiction of the Financial Services Ombudsman Scheme.

Further details are available on the OFT website.