Law Report: Advertised interest rates correct: National Westminster Bank plc v Devon County Council. Devon CC v Abbey National plc - Queen's Bench Divisional Court (Lord Justice Kennedy and Mr Justice Macpherson) 25 June 1993.

In calculating, for the purposes of an advertisement, the annual percentage rate (APR) on a fixed rate mortgage, for which the interest rate was fixed for an initial period but then changed to another fixed rate or reverted to the current fluctuating rate, a lender was entitled to assume that the interest rate would remain the same throughout and to base the APR on the initial fixed rate, not on the fluctuating rate.

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.

Start your day with The Independent, sign up for daily news emails
Have you tried new the Independent Digital Edition apps?
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Recruitment Genius: Senior Environmental Adviser - Maternity Cover

£37040 - £43600 per annum: Recruitment Genius: The UK's export credit agency a...

Recruitment Genius: CBM & Lubrication Technician

£25000 - £27500 per annum: Recruitment Genius: This company provides a compreh...

Recruitment Genius: Care Worker - Residential Emergency Service

£16800 - £19500 per annum: Recruitment Genius: Would you like to join an organ...

Recruitment Genius: Senior Landscaper

£25000 - £28000 per annum: Recruitment Genius: In the last five years this com...

Day In a Page

The long walk west: they fled war in Syria, only to get held up in Hungary – now hundreds of refugees have set off on foot for Austria

They fled war in Syria...

...only to get stuck and sidetracked in Hungary
From The Prisoner to Mad Men, elaborate title sequences are one of the keys to a great TV series

Title sequences: From The Prisoner to Mad Men

Elaborate title sequences are one of the keys to a great TV series. But why does the art form have such a chequered history?
Giorgio Armani Beauty's fabric-inspired foundations: Get back to basics this autumn

Giorgio Armani Beauty's foundations

Sumptuous fabrics meet luscious cosmetics for this elegant look
From stowaways to Operation Stack: Life in a transcontinental lorry cab

Life from the inside of a trucker's cab

From stowaways to Operation Stack, it's a challenging time to be a trucker heading to and from the Continent
Kelis interview: The songwriter and sauce-maker on cooking for Pharrell and crying over potatoes

Kelis interview

The singer and sauce-maker on cooking for Pharrell
Refugee crisis: David Cameron lowered the flag for the dead king of Saudi Arabia - will he do the same honour for little Aylan Kurdi?

Cameron lowered the flag for the dead king of Saudi Arabia...

But will he do the same honour for little Aylan Kurdi, asks Robert Fisk
Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

Humanity must be at the heart of politics, says Jeremy Corbyn
Joe Biden's 'tease tour': Could the US Vice-President be testing the water for a presidential run?

Joe Biden's 'tease tour'

Could the US Vice-President be testing the water for a presidential run?
Britain's 24-hour culture: With the 'leisured society' a distant dream we're working longer and less regular hours than ever

Britain's 24-hour culture

With the 'leisured society' a distant dream we're working longer and less regular hours than ever
Diplomacy board game: Treachery is the way to win - which makes it just like the real thing

The addictive nature of Diplomacy

Bullying, betrayal, aggression – it may be just a board game, but the family that plays Diplomacy may never look at each other in the same way again
Lady Chatterley's Lover: Racy underwear for fans of DH Lawrence's equally racy tome

Fashion: Ooh, Lady Chatterley!

Take inspiration from DH Lawrence's racy tome with equally racy underwear
8 best children's clocks

Tick-tock: 8 best children's clocks

Whether you’re teaching them to tell the time or putting the finishing touches to a nursery, there’s a ticker for that
Charlie Austin: Queens Park Rangers striker says ‘If the move is not right, I’m not going’

Charlie Austin: ‘If the move is not right, I’m not going’

After hitting 18 goals in the Premier League last season, the QPR striker was the great non-deal of transfer deadline day. But he says he'd preferred another shot at promotion
Isis profits from destruction of antiquities by selling relics to dealers - and then blowing up the buildings they come from to conceal the evidence of looting

How Isis profits from destruction of antiquities

Robert Fisk on the terrorist group's manipulation of the market to increase the price of artefacts
Labour leadership: Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea

'If we lose touch we’ll end up with two decades of the Tories'

In an exclusive interview, Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea