The provisions apply to credit agreements entered into after April 6th 2007 and to agreements made before this date unless the account was closed (consolidated or paid in full) before April 6th 2008. The court has new powers to re-open a closed account if it considers that there was an unfair relationship.
Although the Consumer Credit Act does not define what constitutes an unfair relationship, it can refer to:
S.140 of the Consumer Credit Act 2006 deals with unfair relationships.
The following situations could be regarded as indicative of an unfair relationship:
Payment protection insurance is intended to cover your loan repayments or credit card minimum payments in case of sickness or unemployment. Most policies only cover repayments for a set period of time, usually a year and they are conditional. This means you may not be covered if you are unable to work due to an illness arising from a preexisting condition and will only cover you for redundancy but not if you leave your job voluntarily (resign) or are sacked for alleged gross misconduct. In cases of unfair dismissal, the insurers may ask for a transcript from the Employment Tribunal which would make claiming on the policy impractical due to the time it takes for a claim to be heard.
Insurance was administered differently for various credit products. With revolving credit such as credit cards, the premiums were added monthly to the card balance and were a certain percentage of the amount outstanding on the card. For loans, insurance was often paid for as a single premium which was included as part of the amount borrowed and interest charged on it. Mortgage insurance was often charged as a fixed monthly amount which was completely separate from the mortgage.
In many cases, the lender or broker made it a condition of the loan to take out single premium insurance, which could have made the whole agreement unenforceable if taken out before April 6th 2007 (provided it was a regulated agreement). If a debtor can establish that the insurance was mandatory to be approved for the loan, a court could well find that there was an unfair relationship and the court can take into account any failure to disclose the commission paid by insurance companies to those who sold the policies.
When insurance has been mis-sold, the first step would be to complain to the lender itself before taking it to the Ombudsman. With defaulted accounts, any redress is likely to be offset from the amount outstanding rather than being paid back to the debtor, however, in some cases where the debt has been assigned in absolute (sold), redress has been paid directly to the debtor.