UK consumers should use statutory rights to reduce interest on credit agreements

Financially vulnerable consumers across the UK taken to court for defaulting on high interest credit - including 'second charge' mortgages - are unaware of powerful statutory rights which can help, according to Glasgow's Govan Law Centre. 

Section 136 of the Consumer Credit Act 1974 (CCA) permits the court to amend 'any agreement or security' in making a time order under section 129 of the Act as it considers just, having regard to the means of the debtor.  That includes the right to ask the court to reduce the rate of interest within a consumer credit agreement.

Most consumers are completely unaware of these statutory rights, which are seldom used, which have the scope to help make unmanageable, spiralling debts, manageable and affordable. Govan Law Centre's Mike Dailly said:

"The reason we believe section 136 of the Consumer Credit Act is so important right now is because of the disparity between interest rates in inter-bank lending and the wholesale market, and what UK consumers are being charged in many credit agreements. The Bank of England's base interest rate is 0.5% and the standard variable rates of most UK banks are around 2.5% at present. Yet many consumers will have second mortgages (regulated under the CCA) with interest running at 11 or 12%, or unsecured loan and credit agreements running at 18 to 30% APR".

"To give a typical example, a client facing repossession through default of a second charge mortgage borrowed £96k at 11.2% APR, resulting in monthly interest payments of £873. The client is eligble for some DWP help with housing costs while in receipt of benefits, but there is a major shortfall. If her rate of interest was 2.5% the differential in monthly payments would be a whopping £674 per month. Accordingly, consumers in financial difficulty should be asking the court to reduce or freeze the rate of interest on credit agreements to a fairer level so they can meet their financial obligations".

Consumers can make an application under sections 129 and 136 on the 'time to pay' form that comes with court papers, or as part of any legal defence to proceedings raised by a creditor. Always obtain independent legal advice from a community law centre or other local advice agency or firm of solicitors.