Cinderella and the CCA high net worth exemption

Cinderella and the CCA high net worth exemption




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When it comes to the issue of regulation, most people automatically think of FSA regulation, but what about Consumer Credit Act (CCA) regulation? Clive Whitfield-Jones, Partner at Jeffrey Green Russell Solicitors, offers us an overview of the high net worth exemption…

 

The high net worth (HNW) exemption is a Cinderella exemption often passed over in favour of her two ugly step-sisters, the business purpose and the investment properties exemptions. Both ugly step-sisters are marred by uncertainty: for example, what is a business? How can a lender ever be sure that a borrower never intends to use the property as or in connection with a dwelling for himself or connected persons?

Like Cinderella, the HNW exemption has a certain beauty. It’s more of a tick-box exemption. Comply with the rather tedious statutory requirements and the exemption applies. Get them wrong and even a fairy godmother won’t prevent the credit agreement from being regulated.

The CCA does not regulate certain consumer credit agreements or a consumer hire agreements where the debtor or hirer is a person of high net worth. The exemption only applies if a list of technical conditions is met, too lengthy to set out in full here. Broadly, the exemption applies to consumer credit agreements only if all the following conditions are met:

a) The debtor is a natural person;

b) In the case of a consumer credit agreement, other than an agreement secured on land, the agreement is for credit which exceeds £60,260;

c) The agreement includes a declaration made by the individual in a prescribed form that he agrees to forego the protections and remedies that would otherwise be available under the CCA;

d) The agreement (or the declaration) must be signed by the individual;

e) A statement of high net worth in the prescribed form has been made in relation to the individual by a specified person. The specified person is often the borrower’s accountant;

f) That statement of high net worth was made during the period of one year ending with the day on which the agreement was made. The statement confirms that, in the opinion of the person making it, the individual received during the previous financial year an income of not less than £150,000 or had throughout that year net assets of not less than £500,000. Income is net of income tax and NI contributions. Assets exclude the debtor’s primary residence, certain insurance policies and pensions or other benefits payable on death or retirement;

g) Where there are joint debtors, a separate statement is made in relation to each of them. Thus, where there are two debtors, both must satisfy  the HNW requirements;

h) Before the agreement was made a copy of that statement was provided to the debtor and, if the statement was not made by the creditor, to the creditor.

What if, after the loan is made, it turns out that the HNW statement is incorrect?

This probably does not affect the exemption which appears to depend on compliance with technical requirements, not the true financial condition of the debtor. 

Case Study:

Husband (H) and wife (W) are joint registered proprietors of their dwelling. H is HNW, W is not HNW. H wishes to take out a loan for the purposes of a car dealership business carried on by H. The loan may be made to H in reliance upon the HNW exemption or the business purpose exemption.

In either case, W provides a guarantee for the loan. The guarantee is outside CCA regulation. H and W grant a second legal charge over the dwelling to secure H’s obligations under the loan agreement and W’s obligations under the guarantee. The lender must require confirmation that W has received independent legal advice. 

Where there is no uncertainty as to the applicability of the business purpose exemption, it is sensible to rely upon that exemption rather than the more tedious HNW exemption. However where there is any uncertainty as to the applicability of the business purpose exemption, the lender should consider the availability of the HNW exemption. 

If the property is registered in the sole name of H, W should enter into a deed of consent and waiver of any interest that W may have in the property and the lender should require confirmation that W has received independent legal advice before W enters into that deed.

Clive is the Partner in charge of lender services at Jeffrey Green Russell and has many years of experience in property and secured lending. He has knowledge of property finance including short term lending, buy-to-let finance, mortgage recoveries and receivership. If you'd like to get in touch with Clive you can email him or contact him on 0207 339 3999.

 

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