Unenforceable Credit Agreements - Our Position - May 2010

Following recent developments in both the Supreme and Manchester High Courts we have made the decision to withdraw from offering claims for potentially unenforceable credit agreements. The main issues are explained below.

Bank Charges

On 25th November 2009 the Supreme Court ruled in favour of the banks and overturned earlier court rulings that allowed the Office of Fair Trading to investigate the fairness of charges for unauthorised overdrafts.  The Supreme Court ruling came as a bitter blow to the consumer organisations who had campaigned against what they considered to be unfair overdraft charges. Up to one million bank customers were due to receive substantial refunds of banking charges they had incurred whilst conducting day to day banking. The Supreme Court ignored general public opinion of what was generally deemed to be unfair, instead blamed the Office of Fair Trading for taking the wrong course of action. 

Check the details here:   Unfair Bank Charges

Unenforceable Credit Agreements

In December 2009, Judge Waksman, sitting in the Manchester High Court, presided on 6 selected test cases in relation to unenforceable credit agreements whereby the banks had failed to provide a copy of the original loan or credit agreement as requested. Judge Waksman upheld that credit card companies need only provide a "reconstituted" copy of the original loan agreement. He ruled that if the lender no longer had the original executed agreement it is not therefore, itself a bar to compliance with the Consumer Credit Act. The absence of a copy of a signed executed agreement is no evidence that such an agreement was not made. Basically, if they have lost the originals then they can make it up to what an original agreement may have looked like, if they have anything with your signature on it that will suffice!

Many claims management firms had relied on the inability of the banks to provide the original agreement as a defence to have the balance written off on the loan or credit card agreements. It was clear that the majority of lenders either did not have the original agreement or a legible copy of the agreement and in most cases what they were producing did not comply with the requirements of the Consumer Credit Act 1974. In order to be able to enforce a debt in Court the Law states that  "a single document, containing all of the prescribed terms of the Act, must be signed by the Debtor."

In view of the Manchester Test cases, the likelihood of a debtor successfully taking action against a bank for non compliance of section 78 of the Act, in terms of not providing the 'reconstituted' paperwork when requested, is nil.

However, the Judge did confirm that if a lender could not supply a copy of the credit agreement, then this automatically prevented them from using the courts to chase a debt until such time as they could come up with a copy. This is perhaps why we know of very few cases being taken to County Court for non payment of credit card and personal loan type debt. The bank will run the risk in such cases of non compliance that not only a judgement may not be made, but the outcome of such a ruling may make the debt legally unenforceable.

Check the details here:    Unfair Credit Agreements

Claims Management Firms are closed

Given that claims management firms main income was derived from reclaiming bank charges and unfair credit agreements, the two Court rulings above have had a disasterous effect on their business models.

Cartel Client Review, the largest claims management firm, were closed by the Ministry of Justice on 18th March 2010 as clients were not returned funds to which they were due.  Cartel Close 

Ratio Money, the second largest claims management firm, announced just two weeks later that it was to close and the business was to be placed into the hands of the administrators. (please read full report on 'In the News' tab above)

Naturally, this is disappointing as Ratio Money provided the full audit services for all our clients.

The Future

At this point it is clear that we are in a position of stalemate with regards to unenforceability. The Solicitors will not put the lender in Court for non compliance in most cases as it is unlikely to be a successful action. The lender is unlikely to put a debtor in Court due to fear of unenforceability and the related press that would follow. The likelihood is that out of Court settlements may be the way forward with a reduction in outstanding debt the most satisfactory remedy. There are further test cases going through the Courts in April, May and June of 2010 that will clarify exactly what breaches can be put before the Courts.

Please check the Ratio Money tab above to establish the best course of action depending on where you are with your individual claims.

We shall update this site as soon as any new relevant information is known.