Section 75 of the Consumer Credit Act 1974 has been applauded by consumers and consumer groups yet criticised severely by the credit industry, arguing that it is unjust and flawed.

Critically evaluate s 75 in the light of the above.

Answer

This question examines your knowledge of s 75 CCA 1974. This section makes a lender liable for a seller’s misrepresentation or breach of contract. You should explain in your answer that where the borrower has any claim against the supplier in respect of a misrepresentation or breach of contract, he shall have a “like claim” against the lender, who, with the supplier, shall be jointly and severally liable to the borrower.

In Durkin v DSG Retail Ltd and HFC Bank Plc [2014] UKSC 21 the Supreme Court had to consider whether the ‘like claim’ provision in s 75 entitled a consumer to terminate a credit agreement where the goods purchased were defective or not in accordance with the contract of sale so as to relieve him from the obligation to make any further payments under the credit agreement. The Court held that the consumer was entitled to rescind the credit agreement but not as a result of the ‘like claim’ provision in s 71(1) but because the court will imply a term into the credit agreement to make it conditional upon the survival of the supply agreement. Therefore, the borrower, on rejecting the goods and thereby rescinding the supply agreement for breach of contract, may also rescind the credit agreement by invoking this condition.

It is important to explain that the protection provided by s 75 applies only to “borrower-lender-supplier” (“debtor-creditor-supplier”) agreements; that is, where there exists some business connection between the lender and the supplier. This must fall within s 12(b) CCA 1974 which means it must be made under pre-existing arrangements or in contemplation of future arrangements between the lender and the supplier. Furthermore, this protection only applies in the case of a single item costing more than £100 but less than £30,000 (s 75(3)(b) CCA).

One, as yet unresolved, problem lies with the protection provided to second cardholders. The problem with a second cardholder (the authorised user) can be simply stated. s 75 (and s 56) confer rights only on the debtor. The authorised user (typically the partner of the principal cardholder) is not liable to pay the debts incurred and they are not (in ordinary parlance anyway) the borrower (debtor). However, s 189 defines ‘debtor’ rather widely as “the individual receiving credit under a consumer credit agreement ...”. Credit “includes a cash loan and any other form of financial accommodation” (s9 (1)). It could be argued, therefore, that the authorised user is a borrower for the purpose of s 75 (and s 56); although it could also be argued that since it is only the principal cardholder who is liable for the debts incurred, they are the person who receives the financial accommodation. There are, as yet, no decided cases on the matter and it is therefore uncertain whether or not a second cardholder will receive the same protection under s 75 as if they were the principal cardholder.

Not only will the lender be liable to the borrower (and possibly to second cardholders as well) but this liability also extends to foreign transactions. After some doubt whether s 75 provided protection to creditors in respect of foreign transactions it was held by the House of Lords in Office of Fair Trading v Lloyds TSB Bank Plc [2008] 1 AC 316 that it does subject only to the credit agreement being a UK credit agreement. This decision makes it plain that s 75 can assist a customer who makes a purchase abroad using his UK credit card.

The lender’s liability under s 75 is not limited to the amount of the credit. A lender will be liable for all losses provided they are not too remote. The lender may, if they wish, join the seller as a party into any claim brought by the borrower and to claim an indemnity from them (ss 75(2) and 75(5)).

It is therefore not difficult to see why s 75 has been applauded by consumers and consumer groups yet criticised severely by the credit industry which makes them jointly liable for the seller’s misrepresentation or breach of contract.