The Consumer Credit Act 2006 (Sections 140A to 140C) introduced the concept of an “Unfair relationship” between a borrower and a creditor. This enables a borrower to challenge a credit agreement in court on the grounds that the relationship between the lender and the borrower in connection with the agreement is unfair to the borrower. This provision is in addition to an enhanced ability for consumers to take disputes to the Financial Ombudsman Service (FOS).

Unfairness is not defined and the test will cover all aspects of the creditor/debtor relationship both before and after an agreement is made, as well as the terms of the agreement.

The unfair relationships test does not cover FCA regulated mortgages or hire agreements.

If a court finds a relationship to be unfair to a debtor, it can:

  • Order the creditor to repay money to the debtor

  • Order the creditor to do or not do anything

  • Order the creditor to reduce or discharge any amount payable by the debtor

  • Order the creditor to return any property to the debtor

  • Amend the terms of the agreement, for example by reducing the rate of interest.

The borrower would need to raise the action in their local sheriff court and as there is no formal form they would have to use the Summary Application Procedure which does not allow for lay representation. An alternative would be for the borrower to ask the sheriff to consider if the agreement was unfair when the creditor raises an action.