In the past year we have seen a considerable amount of activity in the courts of England and Wales.
Much of this has been generated by the emergence of a claims industry intent on finding ways to write off debt taken out by individuals in the era of prosperity.
But now it seems it will not be so easy for borrowers to avoid paying back their debts.
First came the High Court decision in the case of McGuffick versus the Royal Bank of Scotland, swiftly followed by a Court of Appeal decision in the case of Southern Pacific Personal Loans versus Walker.
The Walker case hinged on the construction of Section 9(4) of the Consumer Credit Act 1974.
The relevant section states that “an item entering into the total charge for credit shall not be treated as credit even though time is allowed for its payment”.
The prosecution argued that in charging interest on a broker administration fee of £875 which was added to the loan to be repaid over the term the lender had treated the sum as if it were credit when in fact it was a charge for credit.
It was said that this contravened the letter of the legislation and as a result both the amount of credit and the amount of the repayments in the agreement were mis-stated.
The claims industry is intent on finding ways to write off debt taken out in the era of prosperity
As these were prescribed terms for the purposes of the 1983 Agreements Regulations it was argued that the court was unable to make an enforcement order by virtue of Section 127(3) of the act and that the loan was therefore unenforceable.
The judge hearing the case agreed and the lender appealed.
In the subsequent Court of Appeal hearing Lord Justice Mummery concluded that Section 9(4) does not prohibit interest being charged on an item that is defined by the act as a charge for credit.
His reasoning was that interest is not a necessary indicator of credit, and anyway Section 9(4) has nothing to do with interest.
The original purpose of Section 9 was to define credit rather than to regulate the charging of interest on it. Sub-section 4 specifically sets out what is excluded from credit for the purposes of the act.
He ruled that had Parliament intended to exclude the charging of interest on those items it would have done so expressly.
The judge said it therefore followed that there was no contravention of Section 9(4) or the regulations and the agreement was enforceable.
Whether this case will be taken to appeal before the new Supreme Court remains to be seen.
In the meantime it seems that if the wheels have not exactly come off the consumer credit claims bandwagon, it is at least starting to
For now, this and other recent decisions have come as a welcome tonic for a beleaguered lending industry.