The Queen's Bench Divisional Court allowed National Westminster Bank plc's appeal against convictions at Plymouth magistrates' court for conveying misleading information in an advertisement, contrary to section 46 of the Consumer Credit Act 1974, and for contravening consumer credit regulations contrary to section 167(2). The court dismissed Devon County Council's appeal against the dismissal, by the same magistrates' court, of similar charges under section 46, against Abbey National plc.
Timothy Walker QC and Thomas Keith (Osborne Clarke, Bristol) for National Westminster; Anthony Scrivener QC and Martin Meeke (Philip Jenkinson, Exeter) for Devon CC; Michael Beloff QC and Nicholas Paines (Deborah Henning, Milton Keynes) for Abbey National.
LORD JUSTICE KENNEDY, giving the judgment of the court, said for some time banks and building societies had offered fixed rate mortgages, where the rate of interest was fixed for an initial period of, say, two years, after which it reverted to the normal fluctuating rate. Cons umer protection law required advertisements to set out not only the initial interest rate but also the APR for the whole term.
Among the applicable regulations was regulation 2 of the Consumer Credit (Total Charge for Credit) Regulations 1980 (SI 51) which required any calculation under the regulations to be made on certain assumptions, including, under regulation 2(1)(d): 'In the case of a transaction which provides for variation of the rate or amount of any item included in the total charge for credit in consequence of the occurrence after the relevant date of any event, the assumption that the event will not occur: and, in this sub-paragraph, 'event' means an act or omission of the debtor or of the creditor or any other event (including where the transaction makes provision for variation upon the continuation of any circumstance, the continuation of that circumstance) but does not include an event which is certain to occur and of which the date of occurrence, or the earliest date of occurrence, can be ascertained at the date of the making of the agreement.'
Applying this assumption, National Westminster and Abbey National calculated their APR by treating the initial fixed rate as though it would be the rate payable for the whole mortage period and would not change at the end of the fixed- rate period. But Devon's trading standards officer took the view that the APR should have been calculated on the basis that the interest rate after the initial fixed rate period would be the fluctuating rate being offered by the lender at the outset.
In their lordships' judgment, the transaction provided for a variation of the interest rate after the initial fixed period, but not 'in consequence of' an event that was certain to occur, namely a change of interest rate, because of the possibility that at the end of the fixed rate period the rate would remain the same.
Thus the end of the fixed rate period was an event which was certain to occur and of which the date could be ascertained at the outset, but it was not an event in consequence of which the borrower would necessarily pay a different rate. So the lender was required to calculate the APR on the assumption that a change of interest rate would not occur.
It followed that National Westminster and Abbey National had correctly calculated the APR in their advertisements.
Devon argued that such an interpretation thwarted the purpose of the legislation, which was to require lenders to advertise their offers in such a way as to enable potential borrowers to make valid comparisons.
But when the tortuous working of regulation 2(1)(d) was unravelled and applied to the type of transaction concerned, it eventually became clear that the lenders' interpretation was correct. Moreover, there were many types of transaction to which regulation 2(1)(d) could be applied with different results.
Finally, these were criminal charges and the prosecution was not entitled to ask this or any other court to adopt a 'purposeful' construction which went beyond the statutory words.