June 2010 Question 3

H opened a new electrical shop in a town centre. He placed an advertisement in a local newspaper
as follows:

Unable to get credit? We can help you buy anything electrical. 200 cash-back or
free digital radio. Great choice of goods, and easy credit terms.

J saw a large flat-screen television and asked H the price, as none of the goods had prices
displayed. The television he wanted cost 2,300, but when J enquired about the 200 cash back, he
was told that the offer only applied to goods costing more than 3,000. Despite this, he entered into
a five year credit agreement with an APR of 40 percent per annum. J signed the agreement, but
there was nothing in the documentation concerning cancellation rights. Three days after the
television was delivered to his home, J realized that he would not be able to afford the monthly
repayments, and he telephoned H to ask if he could cancel the deal. H told him that it was too late
because he had been viewing the television and had derived some benefit from it.

Advise J as to whether he can cancel the agreement, and if so how he should proceed.


The legal issue in this case is to determine whether a valid Consumer Hire Agreement was made between
the parties [H and J], and if so what legal remedies are available to J under Consumer Credit Legislation.
The Consumer Credit Act [1974] defines credit as including the provisions of a cash loan and any other
financial accommodation to an individual. Section 189 of the Act defines individuals as individuals in the
normal sense and thus J will fall within this category.
The Act covers two types of Agreements:
1. Consumer Hire Agreements
2. Consumer Credit Agreements
The case at hand deals with a Consumer Hire Agreement.

Name: Alana Gunasekera
Class: AS Arts


AS



In a valid Consumer Hire Agreement, the Dealer[H] makes an offer to a Finance Company to sell the good
[Television] to the Finance Company. At the same time the Consumer [J} makes an offer to the Finance
Company to take the good [television] on hire purchase. When the Finance company accepts both offers,
then the Hire Purchase Agreement is complete.
In this case, in order to determine what legal protection is available to J, and whether he can cancel the
agreement, it must be determined if it was a valid Consumer Hire Agreement.
Certain strict requirements must be met for an agreement to be a valid Consumer Hire Agreement.
Firstly, The agreement must be a Consumer Credit Agreement under Section 8 of the Consumer Credit
Act [1974]. As any hire purchase agreement made between a consumer and a dealer is deemed to be a
consumer credit agreement under Section 8, this requirement does not pose an issue in this case.
The second requirement that must be satisfied is that the credit must not exceed 25,000. This limit was
set at 15,000 under Section 8 of the 1974 Act but was increased to 25,000 under the 2006 Consumer
Credit Act, [Hunpast Vs. Leadbeater]. In Southern Pacific Mortgage Vs. Heath [2009] the credit loan
obtained was for 28,000. This exceeded 25,000 and therefore the agreement made was held not to be a
valid Consumer Hire Agreement. However in this given question the value of the television set is 2,300,
which falls within the limit.
Dealer Sell the Good
Finance company
[Creditor/Owner]
Consumer
[Debtor/Hirer]
The third requirement is that the agreement must be capable of lasting more than 3 months. The
agreement made between H and J was intended for a five year period. Therefore this requirement is
fulfilled unlike in the case of Dimmond Vs. Lowell where the P hired the car for 8 days and the HP
agreement was to be for 28 days. This was held not to be a valid CHA.
This transaction between H and J is also not exempt under Section 16 of the Act.
Another requirement under the same section is that the agreement must be in writing in a signed and
legible document. This requirement is strict and has been emphasized further in the Consumer Credit
[Agreements] Regulations (2010). It requires the document to be clear and contain all the relevant
information including price, HP terms, monthly instalments, rights to terminate the contract etc.
In this case the documentation of the agreement given by H did not contain cancellation rights, which
means this requirement is not fulfilled.
Another requirement under Section 16 and Section 93 is that the consumer must be given at least one copy
of the agreement, and if it is something that is more extensive such as a car, then two copies should be
given. In this particular case J is given a copy of the agreement.
Finally, as seen in the cases of R. Vs. Priestly and Brookes Vs. Retail Credit Cards Limited, the ancillary
credit businesses must be licensed. This means that both H and the Finance Company must be licensed
for the agreement to be valid.
In conclusion, even though most of the requisites for a valid CHA has been satisfied, we are unable to
conclude with certainty because the 5
th
requirement appears to be incomplete [writing/required information]
and also because no information has been given regarding the licensing of H and the Finance Company.
Therefore, if courts conclude that there is no valid CHA between H and J to begin with, then J will be
protected by law in any case and would be able to vitiate the contract and get his money back.
However if courts conclude that there is a valid CHA between H and J, then it must be determined if
whether J can cancel the agreement.
A CHA can be cancelled after acceptance in certain circumstances as provided in Section 67 to Section 73
of the Consumer Credit Act 1974. However, certain requirements must be satisfied in order for J to
effectively cancel the agreement.
Firstly, the dealer [H] should have necessarily made an oral representation to the consumer [J]. The facts
of the case show that H did make an oral representation to J.
Secondly, the agreement can be cancelled where it was not signed at the business premises of either the
dealer [H] or the Finance company. In this particular case the agreement was signed at the Store owned by
H.

In relation to the second requirement of cancellation, another issue that arises is canvassing off trade
premises. The Crowther Committee recommended that doorstep canvassing be completely prohibited in
the UK. It is now considered an offense in the UK, R. Vs. Chaddha.
However doorstep canvassing only occurs when there is no written invitation to visit the consumer or where
the dealer has not informed or obtained permission from the consumer before visiting. However in this
case, advertisement was via a newspaper advertisement and J visited Hs store to sign the agreement
before the television was delivered to Js home, therefore this does not fall under canvassing off trade
premises and H will not be liable for the offense of canvassing off trade premises.
In relation to cancelling CHAs, the third requirement that needs to be satisfied is that the consumer should
provide a written notice about the cancellation to the dealer or to the Finance company, as explained in the
case of Blackhored Vs. Lang Ford [2007]. In this case we do not have sufficient information to conclude
whether J has given H written notice, merely stating that J called H regarding cancellation.
Finally for cancellation it is also essential that the consumer cancels within the cooling off period. The
cooling off period is a period of time given to consumers such as J who have been subject to sales
pressure [cash back or free radio] to reconsider their position. Section 68 provide that the generally where
the agreement is signed off business premises, the cooling off period is 5 days, beginning since the
moment the consumer receives a copy of the agreement. In this case, since J contacted H after 3 days, it
does not pose an issue.
Therefore, in this given case since an oral representation was made by H, and since the agreement was
signed off business premises and also since J attempted to cancel within the cooling off period, J will be
able to successfully cancel the agreement provided that J gives written notice to H or the Finance
Company.
The effects of such a cancellation, under Section 70, is that J will be entitled to the return of his money and
any sums which have become payable to the company will cease to be payable and the finance company
will be entitled to take the television back.
J can bring this case under a county court as per Section 141[2] of the Consumer Credit Act 1974. This
position has been confirmed in the case of Barclays Bank Vs. Brooks, which provides that cases relating to
CHAs must be brought to the county court and not in the High Court.
In addition to cancellation, J could bring a case against H for the offense of Extortionate Credit Bargaining.
Sections 137-140 of the CCA 1974, provides that a consumer can claim the agreement is extortionate, if it
requires the consumer to make payments which are either grossly exorbitant or grossly contravening to the
ordinary principles of fair trading.
The factors courts take into consideration when determining whether a credit agreement is extortionate
include: interest rates, consumers age, experience, state of health etc.
In this case, the courts will take into consideration the interest rate of 40% per annum that J was expected
to pay over a period of 5 years. Similar to the case of Ketley Vs. Scott where an interest rate of 48% per
annum on a loan with little security was held to be extortionate, here too the courts will likely hold that this
agreement is extortionate.
Turner can bring a case for extortionate credit bargaining at either the county court or the high court, as
provided under Section 139[5] of the CCA 1974.