Consumer credit – claims management companies fail to rock the boat
Encouraged by claims management companies (CMCs), many consumers have requested copies of their own credit card agreements under section 78 of the Consumer Credit Act 1974 (the Act). When their lenders allegedly failed to comply, the CMCs helped the consumers bring proceedings seeking (amongst other things) declarations that the lenders could not enforce the agreements.
In Carey v HSBC Bank plc the High Court considered a series of claims brought by consumers against lenders under the Act. Those claims were concerned with (amongst other things) requests for copy agreements, proper execution of agreements and unfair relationships.
Sections 77-79 of the Act entitle a consumer to make a formal request to the lender for a copy of their agreement. The lender cannot enforce the agreement until it provides a copy. But what, exactly, must be provided? Can a lender’s section 78 response, by itself, be relied on to support allegations that the agreement was improperly executed at the time it was entered? And does the absence of a fully compliant response give rise to an unfair relationship?
- A lender may provide a copy of the original executed agreement or a reconstituted version. (Failure to produce the original does not of itself mean non compliance). The reconstituted agreement must be an “honest and accurate” copy of the original, but can be compiled from any source of information held by the lender. Crucially, the reconstituted copy must contain the correct heading under the Act, the debtor’s original name and address, the creditor’s name and address and the applicable cancellation notice (provided they were in the original agreement);
- A section 78 response must also include a copy of the original terms and conditions in force at the time the agreement was entered, together with the latest statement of account;
- If the lender has varied the agreement unilaterally, its response must also include a statement of the current terms and conditions applicable together with a copy of the latest notice of variation;
- The court may declare that the lender has breached section 78, but this depends on whether the consumer seeks other relief, the extent to which that relief is connected with the section 78 issue and whether the consumer demonstrates there will be real utility in having the declaration made;
- A breach of section 78 does not of itself give rise to an “unfair relationship” under section 140A of the Act;
- In assessing whether prescribed terms were contained in an agreement, several principles must be applied, e.g. it is a question of substance not form as to whether separate pieces of paper containing the consumer’s signature and the prescribed terms constitute one document;
- A bare allegation that an agreement (as per the section 78 response or otherwise), was improperly executed (within the meaning of section 61 of the Act) is insufficient to support such a claim; and
- The absence of a document signed by the consumer and containing the prescribed terms is not of itself enough to argue an unfair relationship.
The court struck out many of the claims and several others have been discontinued. The judgment provides guidance for lenders about how to comply with section 78 and similar requests (a read across can be used for sections 77 and 79 of the Act) and is catastrophic for CMCs, who have orchestrated thousands of claims which may be doomed (despite press reports to the contrary, based on their PR).
Consumers have also failed in other recent decisions under the Act:
- McGuffick v The Royal Bank of Scotland Plc  EWHC 2386 (Comm), where the High Court clarified the phrase “enforce” (not defined by the Act);
- Teasdale v HSBC Bank plc  EWHC 612 (QB) where the High Court applied the usual costs rule and made various consumers liable for costs after they brought proceedings against lenders for a breach of section 78, then discontinued when the lender produced information to discharge its duty;
- Brophy v HFC Bank Limited  EWHC 819 (QB) where the High Court confirmed the definition of “credit limit” in the credit card agreement (expressed as “Your credit limit will be determined by us from time to time and notified to you”) complied with both Schedule 1 and Schedule 6 of the Consumer Credit (Agreements) Regulations 1983; and
- Brooks v Northern Rock (Asset Management) plc (unreported 16 April 2010) where His Honour Judge Tetlow determined that a credit agreement could contain a “nominal” or “effective” rate of interest and that both would comply with the Act, and that lenders could round the rate of interest included within a credit agreement without the agreement becoming non-complaint.
These cases and Carey are a welcome indication that opportunist claims by consumers who allege technical breaches of the Act, aiming to avoid repayment obligations, are likely to fail.
A team from Addleshaw Goddard’s Finance Disputes department, led by Ian Hastings and Naomi Simpson, represented HSBC Bank plc. Carey v HSBC Bank plc  EWHC 3417 (QB)
Source: Addleshaw Goddard