1 prevailing interest rates;
2 the age, experience, business capacity and state of
health of the debtor;
3 the degree of financial pressure put on the debtor and
the nature of that pressure;
4 the degree of risk accepted by the creditor;
5 the creditor’s relationship with the debtor;
6 whether the cash price quoted for the goods was true
or ‘colourable’, i.e. inflated to make the credit charges
appear more reasonable.
In Barcabe vEdwards(1983) the court held that a loan
with an APR of 319 per cent was, prima facie, extortionate.
It re-opened the agreement and substituted a flat rate
of interest of 40 per cent which is equivalent to an APR
of 92 per cent! In A Ketley Ltd vScott(1981), a bridging
loan with an estimated APR of 57.35 per cent was held
not to be extortionate. The court took into account the
high degree of risk taken by the creditors and the busi-
ness experience of the debtor.
If the court finds that the credit bargain is extortion-
ate, it may:
1 direct a state of account between the two parties to
be taken to establish, for example, how much money
has been paid by the debtor and the amount still
outstanding;
2 set aside any obligation under the agreement;
3 require the creditor to repay all or part of any sum
paid under the agreement;
4 direct the return of any property provided as secur-
ity; or
5 alter the terms of the credit agreement.
Reform of the extortionate credit provisions
Background
The 2003 White Paper (Fair, Clear and Competitive – The
Consumer Credit Market in the 21stCentury) identified a
number of reasons why the extortionate credit provisions
were in need of reform:
■very few cases had reached the courts because the
Act’s requirements were too high, and the courts have
applied a restrictive interpretation;
■the courts had concentrated on interest rates rather
than considering all the elements of the agreement,
e.g. the security required;
■the legislation did not deal with unfair practices, such
as high pressure sales and ‘churning’ of agreements;
■as we have seen in the Paragoncase, the courts tended
to focus on the agreement when it was entered into,
rather than considering subsequent events which may
have made the agreement unfair;
■those who were most at risk of entering into an unfair
credit bargain were least likely, either financially or
culturally, to be able to pursue legal action.
The White Paper proposed replacing the existing ex-
tortionate credit provisions with a much wider ‘unfair-
ness’ test, which would be able to take into account all
aspects of the transaction both at the outset of the agree-
ment and in the light of subsequent events.
The 2006 Act
The 2006 Act repeals the extortionate credit provisions
contained in ss 137–140 of the 1974 Act and replaces
them with new provisions in ss 140A and 140B which
provide the power for a court to consider whether the
relationship between the creditor and debtor is unfair to
the debtor because of:
(i) any of the terms of the agreement or any related
agreement;
(ii) the way in which the creditor has exercised or
enforced any of his rights under the agreement or
any related agreement;
(iii) any other thing done (or not done) by or on behalf
of the creditor before or after the agreement or any
related agreement was made.Part 3Business transactions
396
street lenders. In deciding whether a loan agreement
amounted to an extortionate credit bargain, the transac-
tion must be looked at when it was entered into rather
than in the light of subsequent interest rate rises.Paragon Finance plcv Nash and
Staunton(2002)
The defendants, the Nashes and the Stauntons, had
taken out variable rate mortgages with the claimant,
Paragon, secured on their homes. The defendants had
fallen into arrears and the claimant was seeking posses-
sion of their homes. The defendants were seeking to have
the agreements re-opened under s 139 of the Consumer
Credit Act 1974, arguing that the mortgage agreement
was an extortionate credit bargain because the claimant
had not reduced the interest rate in line with the Bank
of England’s prevailing rate. The Court of Appeal held
that a mortgage lender was under a limited duty not to
vary interest rates dishonestly, improperly, arbitrarily or
unreasonably. The claimant was not in breach of this
duty simply because its rates were higher than high