Hi, thanks for your question. My name's XXXXX XXXXX I'm going to assist you with it.
Under the Consumer Credit Act 1974 (the CCA) any agreement between an "individual" and "any other person" pursuant to which credit is provided will be a consumer credit agreement and will be regulated by the CCA, unless exempt.
With regard to a loan from a parent to its child, there is a good chance that the agreement will either be: (i) exempt; or (ii) will only be very lightly regulated as a "non-commercial" agreement. In either case, the "creditors" (i.e. the parents) do not need a consumer credit licence and the loan itself is still likely to be enforceable, even though it does not meet all the requirement of the CCA.
So, is it exempt? The most likely reason for a loan between parents and a child to be exempt is due to the low interest rule. If the interest under the loan does not exceed 1%, then the agreement will be exempt under the CCA and none of the rules will apply. In that case, no, the loan is not regulated by the CCA.
If it is not exempt, then it will still likely fall within the defintion of a "non-commercial agreement" as it will not have been made in the course of the creditors' business. In this case the agreement will be partly regulated by the CCA 1974 but, crucially, the agreement will not need to be in the format required by the CCA 1974 and there is no need to serve a default notice before demanding the unpaid balance.
This means that loans from parents to children are unlikely to be anything other than partly regulated by the CCA 1974 (if at all). Even if they are partly regulated, they are unlikely to be vulnerable to unenforceability due to the application of the CCA 1974.
I hope this answers your question but do let me know if you need any clarification.
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This money was 'gifted' to my ex husband and there was no obligation to pay it back. However, the ex in laws raised the money against their property and my ex husband was paying the interest on their mortgage at a rate of 5.5%. Due to the acrimonious state of play, my ex went bankrupt, they said that it was a loan, joint anad several and are therefore suing me for the loan and interest in full. Complication is that I am a mortgage arranger and having failed getting the loan through with their own lender, I managed to get it through for them and also the interest payment was being made from our joint bank account until we split finances and my ex paid the interest himself. the entry to his parents account was just his name!!! Complicated or what?
First, if this was a gift to your husband, there is no obligation for you or him to repay it (although from an evidential point of view, his agreement to meet the mortgage repayments could make it look less like a gift). Regardless, you are certainly not jointly liable under any loan unless you expressly agreed to be bound by it. If it was a loan, the fact that, as soon as you split, the payments moved from your joint bank account to his personal account, does assist in showing that the loan was always his responsibility, as the payments were (at all times) met by him.
In situations like this, often parents try to argue that a loan is on a joint and several basis with an ex-partner and the parents then pick the ex as the borrower to sue. Ordinarily, a good step would be to warn them that you would seek an indemnity or contribution from the ex which would lead his parents into litigation their own child. However, as he is bankrupt this may not be of any practical use.
Another thing to think about is that, with all credit lending, a borrower can ask the court to consider whether there is an "unfair relationship" between the parties under section 140A of the CCA. This not only applies to credit regulated under the CCA but also to credit that is not regulated. If this is raised, the burden of proving that there is no unfair relationship rests with the lender (i.e. the parents).
There is very little guidance in the CCA with regard to what an unfair relationship is but the general view is that the court can revisit the agreement if the borrower has been taken advantage of. The court will look at the creditors actions both before and after the loan was made and the way in which they have exercised and/or enforced their rights. This might be something to think about and/or raise with a solicitor, if it's not been considered already.
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Thank you, XXXXX XXXXX my thoughts entirely but my barrister was a little more sceptical which did frighten me somewhat. However, he only thought about CCA etc yesterday and I will now have a chat to my solciitor. Thank you very much.
You're very welcome. Whether this was a gift and any agreement to be jointly liable will obviously turn on its facts. Advance knowledge of the loan (and assistance with obtaining the financing) isn't helpful but is also not definitive. The fact that payments were made from his sole account after the split could also assist, depending on the exact circumstances. Your solicitor, who should have all the facts, will be able to advise you fully.
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