Credit Agreements still unenforceable in the wake of Carey v HSBC and others?
Much of the recent publicity about unenforceable credit agreements and cases brought by claims management companies, some of whom who have now reportedly been shut down by the Solicitors Regulation Authority, may have led many consumers to believe that they can no longer pursue their creditors on the basis that their credit agreements are unenforceable.
However, Leigh based solicitors Stephensons are urging consumers, especially those in difficult financial circumstances, not to write off the possibility that their debts can indeed be written off or at least reduced where the agreement fails to either comply with the Consumer Credit Act 1974 or the Unfair Relationship Provisions contained within the Consumer Credit Act 2006.
The recent test case heard at the Manchester Mercantile Court, Carey v HSBC and others related to the application of section 78 of the Consumer Credit Act (the Act) and whether the failure of a creditor to produce an actual copy of the credit agreement would make the agreement irredeemably unenforceable or at the very least create an unfair relationship.
Section 78 of the Act is the provision under which a debtor can make a request for a true copy of their credit agreement.
The test case appears to have made it clear that creditors are entitled to produce a reconstituted version of the credit agreement from the information they hold on the debtor. The reconstituted version does not need to include a signature box or indeed the actual signature but must contain the debtor’s name and address at the time it was executed.
However, these requirements are not new and consumer solicitors at Stephensons have always maintained that a creditor does not need to produce the actual agreement or a copy of the actual agreement in order to comply with section 78 of the Act. In addition the creditor’s failure to produce a true copy of the agreement was always considered to simply be a bar to enforcement and was never sufficient for the debtor to bring a claim for unenforceability.
The Carey case has clarified that the court has the power to declare whether there has or hasn’t been a breach of section 78 and each case will be considered on its own facts. It has clarified that a mere breach of section 78 will not of itself create an unfair relationship but that is not to say that such a breach is never going to be capable of creating an unfair relationship.
The emphasis in the Carey case on section 78 appears to have obscured the real claim that exists under section 61(1)(a) and 127(3) of the Act. These sections dictate that a creditor must be able to produce a signed document (not necessarily the credit agreement) that contains the prescribed terms. The document must include the credit limit, the interest rate and details of how and when a debtor is to discharge his payment obligations. A failure to produce such a document is still capable of rendering the agreement irredeemably unenforceable.
In addition the case of McGuffick v RBS  EWHC 2386 may have also put many debtors of the idea of challenging their agreements. It’s true that this case has confirmed that enforcement does not include normal collection activities such as reporting to the credit reference agencies or even issuing court proceedings.
However consumers should remember that should a creditor issue court proceedings against them, without first locating a signed document, they would have a defence to that action. Without a signed document the creditor will have to convince the court that on balance a document signed by the consumer containing the prescribed terms would have been produced at the time of execution. The onus is on them to prove this.