UK: Finance Mis-Selling Under The Consumer Credit Acts & PPI/PPP/ASU Insurances

Last Updated: 27 October 2009
Article by Keith Turner

Do you have a Loan with a lender which was signed before 6th April 2007 and which was for £25,000 or less (and which was a private loan ie not for business purposes)?

If so it may be wholly unenforceable against you !!

80% of such agreements are unenforceable !

The topic of finance mis-selling by lenders (including the high street banks) is certainly a very hot topic on consumer websites and consumer media programmes.

It is estimated that there are some 50 million loan agreements in existence which are unenforceable either because there are basic defects in the documentation or because the way in which the PPI/PPP/ASU insurance policies were sold impacted on those agreements making them unenforceable.

There are, essentially, two sorts of unenforceability (at least prior to April 2007 when the Consumer Credit Act 2006 took effect) and these can be conveniently referred to as "irredeemably" unenforceable agreements and "discretionally" unenforceable agreements.

The Technical Stuff

Section 65(1) of the Consumer Credit Act 1974, states that regulated agreements are enforceable only by order of the Court if they are improperly executed. By sections 61(1)(a) and 127(3) if they are improperly executed they are wholly unenforceable if the agreement does not contain all the terms prescribed by law and in the prescribed form. A breach of Section 65 creates "discretionally" unenforceable agreements and a breach of sections 61 and 127 create "irredeemably" unenforceable agreements. In the latter case the Court has no discretion whatsoever other than to declare the agreement unenforceable. The authority for this statement is both the Consumer Credit Act 1974 itself and the case of Wilson v First Counties both in the Court of Appeal ([2001] EWCACIV633) and in the House of Lords ([2003] UKHL40).

But this is for your Lawyers to get to grips with !

"Traffic Lights"

It may be convenient to consider such cases using a "traffic lights" approach. Some case will be "reds" others "ambers" and some "greens".

A "red" is a loan agreement which is "irredeemably unenforceable" (ie the Court has no jurisdiction whatsoever to enforce such an agreement, even if they really want to or feel they ought to). This occurs where the breaches are breaches of what is described in the Act as "Prescribed Terms".

An "Amber" is a loan agreement which contains breaches of the 1974 Act but the Court has a discretion as to whether to enforce or not (and on appropriate terms). This occurs where the breaches of a type known as "Other Terms".

A "green" is a loan agreement which contains no breaches.

De Minimis (ie. tiny amounts)

It may come as something of a surprise to discover that even if a Prescribed Term is wrong by even a pound (or less) that the Court still may not enforce the Agreement. This point is made in the Wilson v First County case.

Wilson v First County

The Wilson case is interesting in that it involved a loan of £5,000 from moneylenders who charged Mrs Wilson a fee of £250 for putting the loan together. Mrs Wilson did not have the money and therefore it was added to the loan. By virtue of regulation 4 of the Consumer Credit (Total Charge for Credit) Regulations 1980, the £250 should not have been added to the amount of credit (and therefore should not have had interest charged on it) and by so doing the agreement was rendered irredeemably unenforceable. That meant she got her car back, did not have to make any further monthly payments and no longer had to pay back the remainder of the £5000 borrowed !

Human Rights

The case went to the House of Lords on a Declaration of Incompatibility by the Court of Appeal That Court felt that the effect of such a Judgment was that Mrs Wilson could get her car back (securities taken on irredeemable loan agreements must be returned) and she would have to pay no further sums to the money lenders. This seemed too much of a windfall to the Court of Appeal. In common parlance: a "double whammy"! Interestingly neither Mrs Wilson nor First Counties appeared in the Lords.

The House of Lords, in essence, said that the purpose of the Act was to protect the unsophisticated borrower against the sophisticated lender and all the lender had to do to make his agreement enforceable was to comply with the requirements of the Act. If he failed to comply then it was entirely right that he suffered in the way provided by the Act. The House of Lords effectively said that there was no human rights point at issue.

What is the trigger for a claim?

Most claims come via Case Management Companies to solicitors (but there is no reason why a client should not go to a solicitor directly) because the prospective client believes he may have been mis-sold a PP/PPI/ASU policy. Oddly, even if this is the case, this is not, of itself, likely to be the trigger for a claim through the Courts. It may be that the best advice to someone who has had such a policy sold to them is to go through the Financial Ombudsman Service . The reason for this is that "if it looks like a duck and quacks like a duck" the Financial Ombudsman will recognise that it is a duck ie. he will know a mis-sold policy when he sees one. The same does not necessarily apply in the Court. Firstly, there has, obviously to be a "cause of action" (that is "the legal hook" on which the claim is based). This may be "misrepresentation" or "negligence" etc but there are many cases when the client was not even aware that such an insurance policy had been sold to him and it is very difficult, in those circumstances, to allege misrepresentation or negligence or the like. The procedure for a claim through the Financial Ombudsman is relatively straightforward and in cases where such a claim is possible, this would seem to be the preferable route. There are however many cases where the Financial Ombudsman service is not able to help. For example, if the lender, at the time of the loan, was not regulated by the Financial Ombudsman then the Ombudsman has no jurisdiction. Since 2005 the Ombudsman scheme became compulsory for all Lenders.

From the perspective of the Loan Agreement, however, the Court's jurisdiction is likely to be invoked because the lender who has added the premium for this policy to the amount of loan and treated this premium as "credit" will risk having made the loan agreement irredeemably unenforceable and therefore it has become a "legal" dispute as opposed to merely a "mis-selling" issue.

An example situation

Take a loan of say £10,000. It is quite likely that the lender will have sold to the borrower a PPI/PPP/ASU insurance policy and the premium can easily be as much as £4,000 or more. The premium is, invariably, a "single premium", paid upfront and almost invariably added to the amount of the loan. It is difficult to justify such insurance policies in any circumstance whatsoever and the only reason that they are sold is because the commissions on such policies are always surprisingly high (and in some cases are as much as 80% of the premium!). There may be circumstances in which a PPP/PPI/ASU policy may be of benefit to the customer but, almost certainly, that customer ought to have bought a "monthly paid" policy. On the example used above the premium for such a policy would be likely to be in the order of £60 per annum. There are many further downsides to the single premium policy, for example, they are frequently sold to people who could never have made any claim on those policies (how can you have an unemployment insurance policy for someone who is self-employed?). Similarly those polices frequently will not pay out if at the time that they came into existence the insured was say under 18, not working, had an illness or was over 65. Yet huge numbers of such policies have been sold by lenders to such persons. It is hard to avoid the thought that these single premium policies are almost fraudulent and are on an industrial scale. (The "Breakfast" program on BBC1 said recently that of all the profits made by Banks that 10% came from the sale of these policies).

Citizen Advice Bureau

The Citizen Advice Bureau has found that PPI is overpriced, difficult to claim on and often sold to the wrong people. They say that it adds between 13% and 56% to the cost of the loan and that only 6% of people ever claim on a PPI and 85% of those claims are then rejected (ie. less than 1% actually successfully claim). A large number of lenders have already been fined large sums of money by the Financial Ombudsman (eg a division of HSBC was fined £1 million and the Alliance & Leicester more than £7 million in 2008). It seems likely that the sale of further such policies will be outlawed by the FSA in due course.

The 2006 Act

For completeness it should be remembered that the 2006 Act which affects loan agreements made after April 2007 does away with "irredeemably" unenforceable agreements and now all agreement are only "discretionary" unenforceable if there are breaches. ie we now only have "Ambers" and "Greens" with effect from 6th April 2007.

"Upside" and "Downside" to a claim

The "upside" to a successful claim for unenforceability is that no more money is payable to the Lender. The "downside" is that although the loan is "unenforceable" through the Courts it remains a legal and binding debt. So you cannot be sued but the Lender can pinch any money standing to your credit in any account with that Lender (or even add it to any agreed overdraft). So if you have an unenforceable loan make sure you do not have any money with that same Lender (or even an overdraft facility with them).

Also at present there seems nothing to stop the Lender registering your non-payment of the unenforceable debt with the Credit Referencing Agencies (although this point is the subject of Court cases).


So, if a bad credit reference is not too important to you and you have a loan agreement under the Consumer Credit Act 1974 then getting specialist legal advice may be very beneficial to you, particularly as your Lawyers will probably agree to take your case on a no-win, no-fee basis (ie. it costs you nothing win or lose). They may have to obtain a report on your agreement to find out the "ins and outs" of the agreement and that does costs a bit and you may be asked to pay (or contribute towards) it.


Similar law applies to credit cards too !!

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.