Writing off your credit card debt?
Over recent years a number of businesses have sprung up offering to help consumers become 'debt free' by challenging lenders' credit card agreements and getting the debts written off. So confident are some of these companies of success that they will refund the fees you pay them (less a small administration charge) if your claim does not succeed. These new businesses, known as 'claims management companies', seem to be flourishing.
So how easy is it to get a credit card debt written off?
The relevant law is to be found in the Consumer Credit Acts 1974 and 2006 and associated regulations. On the face of it this legislation looks very promising.
Section 78 of the 1974 Act provides that a lender "shall give the debtor a copy of the executed agreement (if any) and of any other document referred to in it" on a request by the debtor (the customer) and the payment of a £1 fee. In the event that the lender fails to do this "he is not entitled, while the default continues, to enforce the agreement".
Sections 127 and 140B of the Act provide power for the court to "reduce or discharge any sum payable by the debtor" and "require the creditor, or any associate or former associate of his, to repay (in whole or in part) any sum paid by the debtor".
So that's the law. Where the lender cannot produce a copy of the original signed agreement the debt is written off and anything paid by the customer has to be refunded, right?
Not so fast!
This analysis has slid across the wording of the sections and made some leaps from one section to another which, in truth, the courts may be disinclined to make.
Recent cases have looked more carefully at the Acts and regulations and show them in a rather less positive light for the customer.
Section 78 is now understood to be a section designed to ensure that the customer can readily obtain information about his agreement with the lender. Note that carefully - INFORMATION ABOUT HIS AGREEMENT. The section, it has been held, does NOT require the lender to produce a signed copy of the original agreement. The requirements of the section are satisfied if the lender can produce sufficient information ABOUT the agreement by way of a note of the customer's name and address and a copy of the standard terms of such agreements which the lender was using at the time the customer's agreement was made. In most cases lenders will not have too much difficulty in doing that.
What is more, failure to satisfy section 78 makes the agreement unenforceable - but only while that failure continues. As soon as the lender is able to find and produce the required information any implications of his earlier failure evaporate.
And there's more. Although an agreement may be unenforceable that is not the same as writing off the debt. It only means that the lender cannot (for the time being) enforce the debt through the court, or get a charge on the customer's property or make him bankrupt. The debt however remains very much alive. The lender can still press the customer for payment, can add interest, can employ debt collectors and can notify credit reference agencies of any non-payment by the customer (without informing those agencies that the debt is currently unenforceable).
The court's powers under sections 127 and 140B to reduce or write off a debt are NOT automatically triggered by a failure to comply with section 78. On the contrary section 127 applies where there has been an 'improperly executed agreement' and section 140B applies where a credit agreement is "unfair to the debtor".
The mere absence of information about the credit agreement does not itself show that the agreement has been improperly executed or is unfair. So a section 78 failure does not, of itself, lead on to any reduction in the debt or repayment arising for the customer. In fact, it does not even begin to get the customer there. A recent case taken by a customer on the basis of a failure to comply with section 78 was described by the judge as "hopeless" - and he promptly awarded costs of the action against the customer and in favour of the credit card company.
It is now clear that a customer who claims that a credit agreement has been 'improperly executed' or is 'unfair' has to produce evidence to support that claim, for example by showing that the original agreement failed to include all the prescribed information concerning the interest to be applied to the account or the repayment terms, or that the terms of the agreement were unreasonably onerous.
So it now seems likely that only a small proportion of customers will achieve 'success' in terms of having debts written off or obtaining refunds of payments made to lenders.
Where does that leave the claims management companies with their money back guarantees to customers? I will look at them in a further article.