The Consumer Credit Act 1974 (as amended by the Consumer Credit Act 2006) is designed to regulate a wide range of credit-based agreements. This article focuses on section 75 of the Act and its practical effect on consumers.
Buying a car on a credit card
For the Consumer Credit Act to apply, three key parties must be involved: a debtor, a creditor and a supplier. This would be the case when an individual buys a car from a dealership and pays on a credit card. In this example, the buyer is the debtor, the dealership the supplier and the bank that provided the credit card is the creditor.
The above example is a common (and relatively straightforward) one and it should be noted that a huge variety of credit agreements exist, some of which might trigger the act, some of which may not. If you are unsure as to whether your own situation means you will be able to take advantage of the Act, you should seek independent legal advice.
Debit cards and the Consumer Credit Act
It should also be noted that the act does not apply if a debit card is used. This is because the individual is paying using his or her own money and is therefore not being provided with credit, as required by the Consumer Credit Act. In order to be potentially able to rely on the act, some form of credit (such as a credit card) must be used.
Breach of contract
If the above relationship can be established, then any action that the debtor has against the supplier because of a breach of contract or misrepresentation can also be brought against the creditor. To return to the above example, if the person buying the car finds that it is not fit for purpose or that the dealership has misrepresented the car, the individual can bring their claim against both the dealership and the bank that supplied the credit.
What does it mean in practice?
The primary effect of Section 75 of the Consumer Credit is to provide an alternative defendant to pursue, in the event that the first is difficult or impossible in practice to bring an action against. So, in terms of the previous example, if the owner of the car dealership went bankrupt, or if the dealership was a limited company that became insolvent, the car buyer would be able to bring an identical action against the bank that supplied the credit card; probably a more realistic target for the recovery of damages.
This is particularly beneficial if an individual is pursuing a claim while being funded under a legal expenses insurance (LEI) policy. It is a common term of LEI policies that any claim must have reasonable prospects of winning and recovering costs from the other side. A claim that has a good legal basis but poor financial prospects of recovery against the primary defendant can still be pursued if the Consumer Credit Act 1974 in effect facilitates access to a secondary, solvent, defendant.
In order to be successful, however, the individual who brings a claim against a creditor on the basis of Section 75 must still be able to prove their legal claim against the supplier on the balance of probabilities. So, if the matter went to court, the court would still require, for example, the supplier’s breach of contract to be sufficiently demonstrated. In short, the Consumer Credit Act 1974 will not transform a case’s legal prospects from bad to good, but it will provide an alternative avenue for the practical recovery of damages.
It is interesting to note that the creditor is liable under Section 75, despite the fact that the action is rarely (if indeed ever) the creditor’s fault. This is a principle known as “strict liability”, which arises regardless of fault. It can be explained on the basis that major credit providers are themselves able, under the same piece of legislation, to pursue the original supplier (who, it must be remembered, is the party at fault) to recoup any money paid out in settlement or following a court order. Major credit providers may ultimately be unable to recover funds, but they are much more likely to be able to do so than individual consumers and are also more capable of absorbing or writing off financial losses that could be devastating to an individual.
Section 75 of the Consumer Credit Act 1974 is by no means a piece of legislation that will save every consumer. A claimant who wants to take advantage of it must not only prove their legal case but also the credit relationship required by the law. Anyone who can show these elements, however, will be greatly assisted in cases where an action against the primary defendant is unlikely to result in any practical recovery of funds.
For more information contact our Civil Litigation specialists or call us on 0117 904 6000.