English Student Loan Contract is Unenforceable
Franklin Evans
December 2016
By the end of this article you will see fourteen areas which individually or combined make the student declaration a simple application form and not a contract.
To say English student loan contracts are not legally binding is a bold statement to make.
It is my opinion gained from using the law and Small Claims Court for things such as
Sale of Goods Act, unfair dismissal, redundancy, breech of contracts and parking tickets.
I also taught consumer law in a 6th form QNVQ marketing course.
I want to show you why I think the loan contract is flawed by breaking it down into individual pieces. In doing so,
A contract must state which laws are applicable. In this case English.
English law covers a wide range of subjects so we using contract law and unfair terms in consumer contract regulations to apply to this student loan contract.
As this is a financial transaction you would naturally assume that it is governed by Financial Conduct Authority Regulations. FCA.
Purposely hidden in the FCA’s regulation are clauses exempting Student loans.
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We now have to determine what type of document the student is signing.
Is this document:
a) declaration, a formal statement of facts.,
b) an application which is a formal request to the loan company who then makes an offer.
c) an invitation to treat by the loan company asking the student to make an offer.
d) a binding contract.
A declaration and an application are similar and both are not contracts.
They simply provide the loan company with sufficient information to offer the student a loan.
The Student Loan document has the title “Student Declaration” in bold at the top of the form
1. Th e contract is unenforceable as it is a simple statement of facts
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The document uses the terms “Declaration” and “Contract” in various places.
Contracts cannot use terms having different meanings and implications without explanation within the document.
Defining the legal status of a document is a primary issue and cannot be ambiguous.
2. Th is contract is unenforceable due to the uncertainty of terms
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Terms E hidden on the Declaration Form says once a student signs the declaration they are actually forming a binding irrevocable contract with the loan company even though they have no knowledge of the value of the loan or interest.
Term E must be regarded as unfair
irrevocably binding the consumer to terms with which he had no real opportunity of becoming acquainted before the conclusion of the contract;
The Unfair Terms in Consumer Contracts Regulations 1999 SCHEDULE 2.1 (i)
3. The contract contains unfair terms
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Now lets look at the first two fundamental “Loan Contract” terms A and B in the declaration.
Term A tells the student to go to a website to read and understand the guide to terms and conditions. Ts & Cs
This is an unfair term as it discriminates against those who have no computer.
The website link does not contain the Ts & Cs only another link
The Guide to Ts & Cs is what it say “a guide to “ not the actual Ts & Cs to be specified in the contract.
Loan information can be found on three different websites. How confusion?
To be a contract, all Terms and Conditions must be fully expressed in writing and cannot be implied by referring to other documents. All relevant Ts & Cs must be physically attached to the contract.
4 . The contract is void as fundamental terms are not physically attached
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Second of the two fundamental terms is B
Do you understand what is being said or implied by terms B?
Is it reasonable for an average 18 year old to have to pay legal fees for advice to explain the terms?
The Student Loan Company had the opportunity to fully explain Terms A and B in their Guide Notes but choose not to.
5 . The contract is void as it is unintelligible to student s
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What do these words in Term B actually mean?
It refers to the fact that all the fees, interest rates , threshold values and termination dates can be altered by the Secretary of State at will without consultation or approval.
It implies that all terms can be changed “as may be prescribed from time to time”
This is an unfair term under schedule 2.1. (k)
enabling the seller or supplier to alter unilaterally without a valid reason any characteristics of the product or service to be provided;
6. Terms B are Unfair
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Terms A has values found in the guidance notes with specified interest rates and threshold amounts with a loan termination date. The terms are fixed.
Terms B states all terms can be changed “as may be prescribed from time to time” without agreement by the student. The terms are variable.
7 . The contract is unenforceable as Terms B negate terms A
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Act Section 22 (5) of terms B refers to the recovery of loan amounts due;
These innocuous few words in the Act are fundamental to this loan, as it forces employers to remove loan fees directly from the student’s salary and pay the taxman.
The student loan is a Primary loan and will be paid before any others.
FCA are now saying that student loans must be taken into account in any application for other types of loans or mortgages.
The implication of section 22 (5) has not been highlighted to the student before signing the declaration.
8. The contract void as fundament al term s are bei ng withheld from the student.
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Now to Section 23 of terms B.
The Secretary of State can sell this loan to a Debit Management Company
UTCCR schedule 2.1.(p)
giving the seller or supplier the possibility of transferring his rights and obligations under the contract, where this may serve to reduce the guarantees for the consumer, without the latter’s agreement;
The contract terms are designed to facilitate the sell off.
The government is already selling off their student loans but will not say for how much.
20p in the ￡ has been suggested. What happens to the other 80p? Just disappears?
9. This term is unfair
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Signing a contract
The contract is not complete until both parties have read and agreed the same document.
It is formed when the student and an individual legally representing the loan company sign the same document.
10. The contract is void as both parties must sign the same document.
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Contract must be voluntary
The government, schools, colleges, parents and society are collectively pressurising pupils to go to university. A degree will get you more money. Student’s must have “Right of passage” into adulthood.
Taking out a student loan is the only way students can go to university. Very few will be able to pay cash or find an alternative method.
This loan has profound consequences for student’s future wellbeing.
It is similar to the PPI scandal.
11. The contract is void as it is not voluntary
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Breach of contract
The Student Loan Company is registered Company with all the liabilities that it infers.
Under English contract law, the contract binds both parties and neither can make changes.
If they make changes to the contract without agreement, the student has the legal right to repudiate the contract. ie cancel.
At the very beginning I said that the Student Loan Contract is exempt from Financial Conduct Authority Regulations. These are wide ranging regulations designed to protect consumers from financial irregularities.
The effect of not complying with the regulations means the Student Loan Company does not need to supply financial information about the validity and implications of the loan.
This information is crucial for the student to make an informed decision.
Student Loan Company fails to warn students that their total loan repayment could be about twice the initial loan due to the added compound interest.
The Student Loan Company has failed to mention the fundamental fact that student’s have no legal protection given by the FCA.
12. The contract is void as it omits that FCA regulations do not apply
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Even though it chooses to ignore FCA regulations, the loan company still has to comply with elements as they are inherent in English contract law.
a) Clear, fair and not misleading information
b) Uses plain intelligible language
c) Balanced and emphasising potential benefits
d) F air and prominent indications of risk
The risk element in this loan is vitally important.
13. The contract is void as real and potential financial risks withheld .
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14. The contract is unenforceable as it shows no economic value.
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Contract is unenforceable as
is a simple statement of facts (1)
requires “certainty of terms” (2)
terms b negate terms a (7)
shows no economic value. (the Consideration). (14)
fundamental terms are not physically attached (4)
unintelligible to students (5)
fundamental terms being withheld from the student (8)
both parties must sign the same document (10)
not voluntary (11)
vital regulatory term has been withheld (12)
real and potential risks withheld (13)
Point of Interest
The Student Loan Company knowingly sells loans to students who have no means of repaying the loan and the contract is not voluntary.
This loan is a combination of “sub-prime” mortgage and PPI scandals.
Links
Student Application form page 23/24
Link to 2015/16 Ts & Cs
Guide notes to 2015/16 Tc & Cs
CONC Consumer Credit sourcebook
The Unfair Terms in Consumer Contracts Regulations 1999 SCHEDULE 2
Section 22 Teaching and Higher Education Act 1998
Section 23 Teaching and Higher Education Act 1998
FCA Regulated activities:
Exclusions applicable in certain circumstances. PERG 2.9.24 (3) (3B) (3B L)
Financial Conduct Authority Regulations. FCA [CONC]
a) Information must be clear, fair and not misleading and uses plain intelligible language.
b) Contract offer is clearly identifiable, accurate, balanced emphasising potential benefits and giving a fair and prominent indication of any relevant risks. Does not disguise, omit, diminish or obscure important information, statements or warnings.
c) SLC must highlight the features of the agreement which may operate in a manner which would have a significant adverse effect on the student in a way which the student is unlikely to foresee;
d) Any assumptions regarding (student’s) future income should be reasonable and capable of substantiation in the individual case and the products should be designed in a way to minimise the risk to the student.
FCA [CONC] 1.1.4 - 3.3.1 R - 3.3.2 R - 3.3.3 R - 3.3.7 G - 4.2.5 R , 2a, 2b - 5.2.5 G - 5.3.1 G