Financial institutions often treat borrowers who invest in property or shares as commercial or business customers. In this decision, the Court questioned whether an individual who borrows for investment purposes may still be classified as a "consumer" within the Consumer Credit Act 1995. While the decision is not definitive, the commentary regarding the real test for determining whether an individual is a consumer, and entitled to avail of the protections within the Act, is noteworthy.
Ulster Bank Ireland Limited v Healy (28 February 2014)
The defendant, an accountant by profession, borrowed from Ulster Bank to invest in property in the UK. The defendant defaulted on the loans and Ulster Bank issued proceedings in the High Court to recover circa €600,000. The defendant sought leave to defend the proceedings claiming that he was a consumer for the purposes of the Consumer Credit Act 1995 (the "Act") and that the bank had breached its obligations under the Act.
The defendant's argument centred on the fact that the investments were personal in nature and entered into outside of his business, trade and profession thus bringing him within the definition of consumer within the Act. The Court considered the amount of the funds advanced, the nature of the investment and the occupation of the defendant. It concluded that, it was at least arguable, that the defendant was a consumer as it did not feel that the investments were of such significance to lead to the defendant being classed as a professional or property investor.
For the most part, the bank's argument that the defendant should be classified as a commercial consumer focused on how the bank treated the customer i.e. as a business customer who was served by a commercial manager. While the Court found the bank's arguments to be of interest, it nonetheless was of the opinion that it was not of determinative significance in the assessment of whether the defendant was a consumer for the purpose of the Act.
Pending further clarification on this point by the Courts, banks should be alive to a possible claim by borrowers that they have been misclassified as commercial customers. A breach of the Act could, in certain circumstances, lead to a loan agreement being unenforceable, or being enforceable on such terms as the Court considers fit to impose.
Banks would be well advised to carefully consider whether borrowers are consumers and, in doing so, to consider the occupation of the proposed customer, the nature of the investment and the quantum of funds being advanced.
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