On 6th April 2007, the Consumer Credit Act 1974 (“CCA”) introduced the concept of an “unfair relationship” in respect of banking and credit agreements. The unfair relationship concept replaced the former extortionate credit bargain test found in sections 137 to 140 of the CCA which was repealed by the Consumer Credit Act 2006.
Over a decade later, there has been considerable development of the concept of an unfair relationship and how the courts have interpreted the scope and application of the unfair relationship provisions. This article will summarise the unfair relationship test and how it has been applied by the courts, particularly since the Supreme Court decision in Plevin v Paragon Personal Finance Ltd .
The test for an unfair relationship can be found in section 140A of the CCA and applies to natural persons. It allows the court to make an order under s.140B if it determines that the relationship between the lender and the borrower arising out of the credit agreement (or related agreement) is unfair to the borrower because of one or more of the following :
- Unfairness of any term of the agreement or of any related agreement;
- The way in which the lender has exercised or enforced any of his rights under the agreement or any related agreement; or
- Any other thing done (or not done) by, or on behalf of, the lender (either before or after the making of the agreement or any related agreement.
How does the test apply?
The test applies to both regulated and unregulated credit agreements and the court has a broad discretion to “have regard to all matters it thinks relevant” when deciding whether to make a determination.
The matters the court can consider include those relating to the borrower and the lender. For example, the court can consider the borrower’s characteristics, sophistication/vulnerability, the facts the borrower could reasonably be expected to know, the range of choices available to them and the degree to which the lender was or should have been aware of these matters .
The court will focus on the relationship as a whole and not whether the agreement itself was unfair . Accordingly, the court may review the relationship between the lender and borrower after the agreement has concluded and the review could extend to consider the entire history of the banking or credit relationship.
In 2014, Plevin v Paragon Personal Finance Ltd  established that it is not necessary for the lender to have breached a duty to the borrower before the relationship could be found to be unfair . The Supreme Court revisited the issue of unfair relationships in relation to PPI mis-selling claims. In particular, the court was concerned with the non-disclosure of commissions payable out of a PPI premium where the lender had committed no breach of the ICOB regulations. Prior to Plevin, the finding of an unfair relationship was based on the standard imposed by the regulatory authorities pursuant to their statutory duties . Plevin viewed this basis in the wider context of the standard of commercial conduct reasonably to be expected of the creditor . This wider context now allows the court to consider the fairness or unfairness of the banking relationship even in circumstances where the lender has complied with their duties to the borrower.
Once the borrower has alleged that a relationship is unfair, the burden of proof shifts to the lender, and it is for the lender to prove that the relationship is not rendered unfair by what it did or failed to do .
The unfair relationship test provides powerful sanctions that, since Plevin, are even broader in their application to banking and credit relationships. The test allows the court to act when the Rules and legislation governing these relationships cannot and so provides a valuable form of additional protection for borrowers.
If you are seeking legal advice in regards to an unfair relationship, please contact the Barrister for Me clerks on 01273 81 00 11 or fill in our simple online contact form.
By Kate Richmond | Contracts and Debt Recovery
  UKSC 61
 See Section 140A(1)(a) – (c)
 Paragraph 17 of Lord Sumption’s judgment in Plevin v Paragon Personal Finance Ltd  UKSC 61
 Patel v Patel  EWHC 3264(QB)
  UKSC 61
 Plevin v Paragon Personal Finance Ltd  UKSC 61 at  which overturned the Court of Appeal decision in Harrison v Black Horse Ltd  EWCA Civ 1128
 Harrison v Black Horse Ltd  EWCA Civ 1128
 Plevin v Paragon Personal Finance Ltd  UKSC 61 at 
 Section 140B(9)
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