Watch out for potential consumer issues when settling with an individual
Published on 8th Apr 2021
Where a contract falls under the Consumer Credit Act 1974 (CCA), there are various requirements which must be satisfied in order for it to be enforceable against the consumer. The CCA only applies to individuals, not companies. However, a recent case demonstrates that a settlement agreement with an individual, giving him/her more time to pay, can fall within the CCA even though the original contract with the individual was not a loan or credit agreement.
In CFL Finance v Laser Trust, an individual acted as a guarantor. When he became liable to pay under the guarantee, the creditor entered into a settlement agreement with him, giving him more time to pay. When he failed to comply with the terms of the settlement, the creditor sought to enforce the settlement agreement, but the guarantor argued that it was unenforceable under the CCA. The Court of Appeal has now agreed with him that there was a "genuine triable issue" on this point and so the CCA was currently unenforceable.
That was because agreeing to defer a debt can amount to "credit" under the CCA, provided there is a "debt" in the first place. If the debtor disputes that there is a debt owed, but this defence objectively lacks substance, the Court of Appeal said that that situation can fall within the CCA. But each case will turn on its particular facts.
Even if there is credit, there must also be an "agreement" for the CCA to apply and so consideration from the debtor is required. That can arise where the debtor pays interest or contributes to the creditor's costs (provided the debt is not disputed). However, there is no consideration if the debtor only gives up a defence which he/she knows has no fair chance of success.
As a result, it will be easier to determine if the CCA applies to a settlement agreement where the debtor does not dispute what is owed. Where he/she does dispute that, though, the situation will be more complicated and will require an objective determination of the chances of the debtor's arguments succeeding.