Loans to Beneficiaries and the Consumer Credit Act

We are acting for a professional trustee of a trust which has made a number of unsecured interest bearing loans to beneficiaries. There is no set term to the loans but they are repayable on demand. The loans are for between £5,000 and £25,000.

It has been suggested by another practitioner that these loans are covered by the Consumer Credit Act and so the trust must be regulated by the FCA and, if not, the loans are unenforceable.

I’d be grateful for everyone’s thoughts about the application of the Consumer Credit Act to loans from trusts to beneficiaries.

Cara Hughes
Kingston Smith

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The following may be helpful, and would seem, on the limited facts stated, to point to the loans in question not being caught by the Consumer Credit Act 1974.

Under CCA s 40 a regulated agreement is not enforceable against the debtor or hirer by a person acting in the course of a consumer credit business unless licensed.

Under s 189 (1) ‘consumer credit business’ means any business being carried on by a person so far as it comprises or relates to the provision of credit by him, or otherwise his being a creditor, under regulated consumer credit agreements; and by s 189 (2) A person is not to be treated as carrying on a particular type of business merely because occasionally he enters into transactions belonging to a business of that type.

The most useful guidance is in Tamimi v Khodari, [2009] EWCA 1109 : [35] “So the features of the transactions between the parties must be weighed in order to discern whether, taken as a whole, they entitled the judge to conclude that they were not made in the course of a business carried on by the Claimant.”

The CA listed a multitude of factors that were relevant either way in that case and held that despite the making of several loans, the lender had not made them in the course of a consumer credit business .

Likewise in Bassano v Toft [2014] EWHC 377 QBD Popplewell J held among many other things that a loan by a music dealer Toft (who was not in the habit of lending to his customers) to Mrs Bassano was not made in the course of a consumer credit business. The agreement between Toft and Bassano was fully documented by solicitors, was for a loan of £100 000 secured by an equitable charge over a valuable viola, and at a rate of 2.5% p.m. (30% p.a.). These facts were not sufficient in themselves to turn the loan into a loan made in the course of a consumer credit business.

Clifford Payton
Alpha Court Chambers