The Facts

Ms Heath had an existing mortgage with Halifax with an outstanding balance of £19,000. She wished to borrow more money and so applied to a different lender for a loan. The lender advanced just over £28,000. It was a term of the mortgage offer that Ms Heath’s existing mortgage with Halifax was discharged. The Halifax mortgage was repaid and Ms Heath was left with a surplus of £9,000 to use for her own purposes. The lender subsequently assigned the mortgage to Southern Pacific (“SPML”). Ms Heath fell into arrears and SPML brought possession proceedings against her.

At the time of the transaction, because the mortgage advance was in excess of £25,000, the loan agreement assigned to SPML was not regulated by the Consumer Credit Act 1974 (“the Act”). The agreement did not comply with the provisions of the Act in terms of the form and content of the loan agreement.

The Law

Credit can be supplied by a lender to a borrower for different uses. For example, a lender may lend money to a borrower in order to redeem an existing loan and it may be a term of the new loan that the existing loan is repaid. This term restricts the purposes for which the lender is prepared to make the loan and credit of this nature is defined by the Act as ‘restricted use’ credit.  In the alternative, a lender may agree to lend money to a borrower to use as the borrower sees fit. This sort of credit would be defined as ‘unrestricted use’ credit under the Act.

Section 18 of the Act provides for situations in which lenders may try to combine what are, in reality, two or more separate credit agreements in order to bring the combined agreement outside of the protection of the Act (classified as a ‘multiple agreement’).  As at the date of Ms Heath’s loan, the Act provided that credit agreements supplying credit of less than £25,000 would be regulated by the Act.

Section 18 also makes provision for credit agreements that could fall within more than one category but which cannot be dissected. For example, a borrower may enter into a credit card agreement under which he is able to draw cash to use as he sees fit (i.e. ‘unrestricted use’ credit) or he may buy goods with his credit card (i.e. ‘restricted use’ credit). Although the credit card agreement provides for different types of credit, Section 18 of the Act provides that it is nevertheless a single or ‘unitary’ agreement.

The Present Case

Ms Heath argued that her loan agreement was one which fell into two different categories under the Act as £19,000 was ‘restricted use’ credit (to repay her existing borrowing) and the balance was ‘unrestricted use’ credit because she could use this as she pleased.  She argued that there were actually two separate agreements, both of which should be regulated by the Act. Ms Heath suggested that, as she had not signed any agreement that complied with the Act in terms of form and content, both agreements were unenforceable under Section 18.

SPML argued that the question of whether a credit agreement is a ‘multiple agreement’ depends upon the terms of the agreement. In this case, they said that Ms Heath’s loan agreement would only be categorised as a multiple agreement under the Act if the different types of credit were stated separately and were supplied under different terms. SPML pointed out that there was a single advance involved and that the same terms applied to this advance, irrespective of the nature of the credit supplied. SPML contended that it was not a multiple agreement for the purposes of Section 18.

The Court of Appeal found in favour of SPML. In interpreting Section 18, the Court held that the starting point should be the terms of the credit agreement. Ms Heath’s agreement could fall into two categories under the Act (restricted use credit and unrestricted use credit). However, because the terms of the agreement applied in the same way to each category; it was not a multiple agreement under Section 18. If the terms of the agreement had placed one part of the agreement into one category and another part of the agreement into another category, it would have been caught by Section 18 and deemed to be a multiple agreement.


The decision may represent a turn in the tide of litigation arising from the Act in favour of lenders.  The Court decided that Ms Heath’s argument, although inventive, was based upon an inaccurate interpretation of the statute. This case may lead lower Courts to be more sceptical regarding technical challenges made by borrowers and claims managers. Much of the argument before the Court involved attempts to explain the meaning of Section 18.  At the very least, the decision provides some useful judicial clarity on how that Section should be interpreted.

For further information please contact Georgina Squire or the Partner with whom you usually deal