The long-awaited conclusion to the debate that has continued for the last two years, regarding whether or not consumer credit agreements (CA) can be ruled as legally unenforceable, has been decided by the High Court in favour of the borrower.
The Test Case action was defended by HSBC Bank PLC, Barclays Bank PLC, Royal Bank Of Scotland PLC, MBNA Europe Bank Ltd and Bank Of Scotland PLC. Judgment was handed down by HHJ Waksman QC on 23 December 2009 at the Manchester High Court and the banks have not appealed the decision.
Banks and credit card companies (CCC) are required to provide a ‘true copy’ of a CA when disputing any breach of the Consumer Credit Act. The Act states that a ‘true copy’ must be provided by the bank but if it cannot locate the original signed agreement a “reconstituted” copy can be made but it must be “honest and accurate”.
Carl Wright, chief executive of Cartel Client Review, a financial claims specialist who precipitated the Test Cases, said that during the last two years, banks and CCCs have delayed or refused to send out copies of CAs and have also sent out incorrectly “reconstituted” CAs. Now banks and CCCs will be forced to submit to a Court a Statement of Truth preventing them from submitting an incorrectly “reconstituted” CA.
A major area of dispute between banks and claims management companies acting on behalf of consumers was the manner in which CAs are unilaterally amended throughout the period of the agreement, by the banks.
The Office of Fair Trading submitted a witness statement and a copy of draft guidance to the Court, which stated that, where changes and variations were implemented by the banks, not only should the terms and conditions of the variations be produced, but also “…a copy of the executed agreement in its original form must also be provided.”
Judge Waksman QC said the debtor has a legitimate interest in seeing a copy of the signed agreement: “If an Agreement has been varied by the creditor under a unilateral power of variation, the creditor must still provide a copy of the original agreement as well as the varied terms.”
The Judge also confirmed what a bank is not permitted to omit from any reconstituted copy of an agreement under Regulation 3 and that any copy should be ‘easily legible’. Some experts believe that many banks will have great difficulty in complying with this part of the Judgment.
Andrew Settle, of Consumer Credit Litigation Solicitors (CCLS), commented: “Our experience shows that many banks and credit card companies have failed to instigate systems and procedures that allow them to comply with the requirements of the Consumer Credit Act; and it is also clear that many agreements did not comply with the prescribed terms of the Consumer Credit Act, when the agreements were originally drafted.”
Wright said this ruling will open the floodgates and claims management experts estimate this Judgment could result in excess of a million claims during 2010. This figure is expected to dramatically increase, once consumers are informed that what was previously a speculative claim, now has the full authority, not just of the Consumer Credit Act, but also of the High Court.
He concluded: “The judgement has demonstrated that both the High Court and the OFT are in complete agreement in respect of consumer financial protection and Claims , especially in areas of unenforceability of credit agreements.”
Even if an unenforceable loan agreement has been declared, lenders can still inform credit reference agencies so adverse information is shown on a borrower’s credit record.
Date: 10th, February, 2010
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