IN THE MATTER OF THE CARE ACT 2014

AND IN THE MATTER OF THE CONSUMER CREDIT ACT 1974

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ADVICE

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  1. I am asked on behalf of the National Association of Financial Assessment Officers to comment upon the following:

There is conflicting views around whether the deferred payment scheme falls under the consumer credit act or not. The Department of Health have stated that they feel if only land or property is taken into account that they will not fall under consumer credit act, but that if they take other forms of security into account they will. Can you give counsels opinion on what direction local authorities should be considering.

  1. The Care and Support Statutory Guidance relied upon by the Department of Health states:

9.81. Local authorities will need to consider whether the deferred payment agreements they enter into are regulated activities to which the Consumer Credit Act 1974 (CCA) and Financial Services and Markets Act 2000 (FSMA) apply.

9.82. The scope of regulated activities and credit agreements is set out in article 60B of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (‘the RAO’). A credit agreement is regulated unless exempt, and there are a number of exemptions in articles 60C to 60H of the RAO. It is likely that most DPAs will fall within such an exemption. If the agreement is regulated, it will need to comply with all applicable requirements of the CCA. In addition, the local authority will need a relevant permission from the Financial Conduct Authority (FCA), and to comply with the FCA’s rules and principles, unless the exclusion in article 72G of the RAO applies ( if the credit agreement is within the scope of the Consumer Credit Directive FCA authorisation is required).

  1. The first question that must be addressed is whether entering into the deferred payment agreement proposed is a regulated activity.
  2. By s. 8 of the Consumer credit Act 1974 (“the CCA”) any agreement whereby a loan is made or some financial accommodation is afforded is a credit agreement. Every credit agreement is regulated if it is a ‘regulated credit agreement’ for the purposes of Chapter 14A of Part 2 of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (“the RAO”).
  3. Art. 60B of the RAO defines a ‘regulated credit agreement’ as any credit agreement which is not an exempt agreement. Arts 60C to 60H then set out the classes of credit agreements that constitute exempt agreements. Art 72G(4) of the RAO excludes from art. 60B any activity which is carried on by a local authority in so far as the credit agreement is of a kind to which Directive 2008/48/EC of the European Parliament and of the Council of 23 April 2008 on credit agreements for consumers (“the CCD”) does not apply by virtue of Art. 2(2) of that Directive.
  4. Art 2(2) of the CCD provides that the Directive shall not apply to credit agreements that are secured on land. Consequently, I agree with the Department of Health that a ‘standard’ deferred payment agreement where the deferred amount is to be secured against the former home, or other land, is not a regulated activity.
  5. A local authority is only required to enter into a deferred payment agreement pursuant to r. 2 of the Care and Support (Deferred Payment) Regulations 2014 (“the DPR”) where there is adequate security. By r. 4(2) for the purposes of r. 2, adequate security is a charge by way of legal mortgage for an amount which is at least equal to the deferred amount and any interest or administration costs which are to be treated in the same way as the adult's deferred amount and which is capable of being registered as a first legal charge in favour of the local authority in the land register. So mandatory DPAs will always be secured by a first charge against land and thus not regulated by the CCA (being exempt agreements under Art 60C or 60E).
  6. Difficulties could, however, arise for local authorities in respect of discretionary DPAs under s. 3 of the DPR as in that caseadequate security may mean a charge against land or it may be “any other security which the local authority considers is sufficient to secure payment of the deferred amount and any interest and administration costs which are to be treated in the same way as the adult's deferred amount.” This would permit a local authority to enter in to a DPA that was secured against a share-holding, for example.
  7. Taking the example of a DPA secured against shares; the local authority would no longer be able to rely on art. 72G of the RAO because the loan was no longer of a kind listed in art. 2(2) of the CCD and making it would constitute a regulated activity. Unless one of the exemptions in arts. 60C to 60H applied, then the DPA would also be a regulated credit agreement. It may be possible to bring this example DPA within one of the exemptions in art. 60G of the RAO but that would depend very much on the terms being offered by the local authority.
  8. If entering into the DPA is a regulated activity, then the local authority will need to apply to the Financial Conduct Authority (“FCA”) for permission to enter in to regulated credit agreements and to exercise the lender’s rights under those agreements. The provisions of the CCA will need to be complied with in respect of any regulated credit agreements.
  9. Given these onerous requirements, it seems unlikely that a local authority would wish to exercise its discretion to enter in to a DPA that was not secured against land. However, it would be likely toamount to an unlawful fetter upon the exercise of its discretion if a local authority adopted a blanket policy of not agreeing to a DPA where the security offered was something other than land. Each case would have to be considered on its merits.
  10. Where I foresee much greater problems arising are where the local authority wishes to bring proceedings in respect of assessed contributions that have not been paid. By s. 69(2) of the Care Act 2014 (“the Act”), the sums assessed are not recoverable as a debt where a DPA could have been entered into unless it has been offered and refused.
  11. In effect, this removes the local authority’s discretionin respect ofcases where thecriteria for mandatory DPAsare not met. My reading of the Act together with the Statutory Guidance is that the fact that the local authority does not have permission from the FCA to enter into a regulated credit agreement will not be relevant in determining, for the purposes of s. 69(2) of the Act, whether a DPA could have been entered in to. If that is right, provided that the value of the security being offered is sufficient to secure payment of the deferred amount together with the interest and charges so that the test in r. 3 of the DPR is met, a DPA could have been offered. The result is that the local authority cannot recover the debt unless and until it makes such an offer and the DPA is refused even where that would require the local authority to enter into a regulated credit agreement.

Christine Cooper

Field Court Chambers

18th December 2014

Amended 13th May 2015