When is a bank’s relationship with its customer unfair?

Section 140A Consumer Credit Act 1974 allows the Court to reduce or discharge any sum payable under a credit agreement if it finds the relationship is unfair to the debtor. That can be in relation to not only the terms of the agreement, but the way it is enforced as well.

Clydesdale Bank provided a facility to Mr Samra drawn down as two loans, both repayable after 5 years. The capital sum was not repaid in 2012 and an overdraft facility put in place, during which time negotiations took place over repayment. No agreement was reached and the overdraft cancelled in 2015 with the bank reserving its right to pursue Mr Samra for the outstanding debt at any time. Clydesdale then assigned their debt to Promontoria who sought to recover it.

When Promontoria brought proceedings against Mr Samra, they were defended on the basis the relationship had been unfair because, amongst other matters, there had been a common intention between him and the Bank that after 5 years, the Bank would offer a further 10 year facility, not simply an overdraft. Mr Samra also argued that it was unfair that the bank had then assigned its debt to a third party (in this case, a non-bank).

The court did not accept this. There is no universal definition of “unfair” under Section 140A and the Court had to consider all of the relevant facts. Once asserted, it was for the creditor to prove the relationship was not unfair, but it was still for the debtor to prove (on the balance of probabilities) the facts on which it relies. Mr Samra had not provided any evidence consistent with the Bank agreeing to extend the facility by another 10 years and there was no evidence of the bank putting Mr Samra under any pressure.

In relation to a creditor conduct leading to enforcement, factors the Court can consider are whether a demand was prompted by an improper motive, or whether the creditor has in fact taken steps in the hope of reaching an accommodation. In this case, the fact that the bank chose to assign the debt to someone else did not make it “unfair”, not least because he was in no worse position because of the assignment.

Although this case failed on the facts, it is a reminder that, in credit agreements, with individuals, the way a debt (or guarantee) is enforced can potentially result in this section being invoked. 

Promontoria (Henrico) Ltd v Samra [2019] EWHC 2327

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