Using the Consumer Credit Act

In some cases, a creditor may not be able to obtain judgment against you in court, even when the amount is due. This can happen when the creditor cannot produce the necessary documents or the documents produced do not comply with the requirements of the Consumer Credit Act.
Unenforceable agreements
Consumer Credit CasesCredit agreements such as credit cards, loans, catalogue accounts and hire purchase agreements are regulated by the The Consumer Credit Act (CCA) 1974 and the Consumer Credit (Agreements) Regulations 1983 (SI 1983/1553). This means the agreements must be drawn up according to the regulations to be enforceable in court.

The Consumer Credit Act also stipulates that creditors have a duty to supply information to debtors upon request. Failure to comply may render the account unenforceable.

Unenforceability does not apply to debts that do not fall under the CCA, regardless of start date.
Unenforceability does not apply to secured loans. If you don’t keep up payments on your mortgage or a secured loan, your property my be repossessed.
Unenforceability is not an easy way to avoid paying your debts, but it can be an alternative to more drastic solutions such as bankruptcy.

Unenforceability may be a viable option if you have old, unsecured debts that fall within the CCA, mostly where the account was opened before April 2007.  A change in the Consumer Credit Act with effect from April 2007 means that accounts opened after that time can still be enforced even if they do not comply with the requirements.

What is enforcement?

enforcementThe Consumer Credit Act does not state what constitutes enforcement, however, it is commonly accepted that obtaining judgment against the debtor (a CCJ) constitutes enforcement.

On McGuffick v RBS, it was established that the following actions do not amount to enforcement:

  • reporting to CRAs without also telling them that the agreement is currently unenforceable
  • disseminating or threatening to disseminate the debtor’s personal data in respect of the agreement to any third party
  • demanding payment from the debtor
  • issuing a default notice to the debtor
  • threatening legal action
  • instructing a third party to demand payment or otherwise to seek to procure payment
  • bringing proceedings.

The above means you cannot argue against credit defaults recorded for unenforceable debts.

A more recent case established that defaults can be removed when the agreements are unenforceable, however, that only applies to accounts that have been ruled unenforceable by a court or where both parties agree that the agreement is unenforceable.

Grace -v- Blackhorse

Finally, although there is some force in the submission that the sanction of unenforceability should not be extended by a sidewind, it fails to address the real question, which arises under the DPA, not the CCA. The real question is whether it was accurate to describe Mr Grace as a defaulter, once his agreement has been declared unenforceable.

As can be seen by the last paragraph above, unlike McGuffick, the question for the Court to consider was not whether the default amounted to enforcement under the CCA, this was squarely a case to be determined under the data protection act and as the Court pointed out at para 40, the real question is whether it was accurate to describe Mr Grace as a “Defaulter”.

The Court unanimously found that it was not accurate to report to Mr Graces credit file that he was a Defaulter.

It was also confirmed that the fact the CRA system couldnt register anything other than the “default” was not a Defence that the banks could hide behind.The Court made this clear at para 38 of the Judgment. I have not been persuaded that the shortcomings in the CRAs’ registration systems can excuse a registration which is in substance inaccurate because of an omission (namely that the ‘default’ related to an unenforceable agreement). If an accurate registration cannot be accommodated, then the answer is for the industry to change its registration systems, and in the meantime for inaccurate registrations not to be made

The clear message coming out of this case is that where a credit agreement is found to be unenforceable or where the parties accept the agreement is unenforceable, the creditor should not seek to argue that the debtor is a defaulter without clarifying that the agreement is unenforceable and if the system cannot support such recording then the Default should not be registered at all.

Clearly the banking industry needs to carefully consider this ruling, if they fail to heed the warning from the Court of Appeal then there will no doubt be damages claims under s13 Data Protection Act 1998!!

What debts fall under the CCA?
  • These fall under the CCA
    • Bank loans
    • Credit agreements with finance companies
    • Credit cards
    • Storecards
    • Hire purchase agreements
    • Catalogue accounts
  • These do not fall under the CCA
    • Utility bills
    • Mobile phone contracts
    • Service contracts in general (landline, broadband, hosting)
    • Government debts: taxes, fines, benefit overpayments
    • Student loans
    • Debts to service providers such as web designers, tradesmen, etc.
Special rules apply to bank account overdrafts and short-term loans such as payday loans.
Is it an option for me?
Unenforceability may be suitable in the cases below.
  • You have several debts totaling several thousand;
  • Your most substantial debts are unsecured;
  • Most of your debts, or at least the most substantial ones, are old, i.e. dating back prior to April 2007;
  • Most of your debts fall under the CCA, such as credit cards, personal loans and catalogues;
  • You have already been defaulted, i.e. a default has been recorded on your credit files;
  • Your debts have been sold to debt purchasers (DCAs);
  • You are making reduced or token payments;
  • You are in a Debt Management Plan (DMP);
  • You haven’t paid in a few months (or years);
  • You are considering a form of insolvency such as bankruptcy, a DRO or an IVA.
Unenforceability may not be suitable in the cases below.
  • You have only one small debt or your overall debt is small;
  • Your debts are mostly new, taken out after April 2007;
  • Your debts are secured on your home or other property or assets that can be repossessed (such as your car);
  • Your debts don’t fall under the CCA. Examples are: utilities (gas, electricity, water, etc.), service contracts (mobile phones, landlines, broadband, web hosting, etc.);
  • Your debts are priority debts (such as council tax, mortgage/rent arrears);
  • Your debts are short-term loans such as payday loans;
  • You are still up-to-date with your payments and have a clean credit record (although if you are struggling, you may have no option but to default);
  • You are looking to buy a property or remortgage in the near future, before your defaults drop off your credit file (but see above).
Upsides and downsides
On the plus side:
  • If some of your debts are unenforceable, you may not have to make any payments towards them at all.
  • You may be able to stave off action until your debts are statute barred.
  • Some creditors may be less inclined to take you to court if you have sent a CCA request and challenged the enforceability of the account. They may decide to concentrate their efforts on people who are more likely to repay or admit the debt.
  • Your creditor may default you quicker if you stop paying altogether than if you make reduced payments, meaning the default will also drop off your file earlier.
  • Tokens and small monthly payments do not clear the debt but they stop it from becoming time barred under the Limitations Act. If you don’t make any payments, the debt will eventually become time barred.
  • Unenforceability can be a suitable alternative to a DMP that could last for the rest of your life, especially when creditors are still adding interest and charges.
  • Unenforceability can be an alternative to a more drastic insolvency solution such as bankruptcy, a DRO or an IVA.
On the minus side:
  • Ultimately, only a court can establish whether an account is enforceable or not.
  • If your creditor has provided you with a reconstructed copy of your agreement, they may be able argue that the account could be enforced.
  • You are likely to receive letters and phone calls from creditors and you will have to deal with them until the debt is statute barred. However, after the initial flurry of activity, most debtors experience long, quiet periods lasting several months or even years.
  • A default will be recorded on your credit file and will remain in place for six years, making it difficult to obtain credit. Defaults can also affect other areas of your life, such as renting a property and obtaining certain types of employment, particularly in the financial sector. However, if you have already been defaulted, this is not an issue.
History, myths and realities

credit cardsThere was a time when debtors were able to challenge their credit agreements in court and have them declared unenforceable. This was usually done with the assistance of a claims management company (CMC) or a solicitor or law firm. After the Carey vs HSBC case, this course of action has been largely abandoned, and these days, unenforceability is used as a defence as opposed to debtors becoming claimants against creditors. It should be noted that, in the above case, Carey and the others involved in the case were CLAIMANTS, not defendants.

A number of myths have been associated with unenforceability:

Unenforceable debts can be wiped or get written off.
In reality, the debt still exists even if it cannot be enforced through the courts.
A creditor who keeps pursuing a debtor for unenforceable debt would be committing an offence if they kept pursuing the debtor.
In reality, creditors are allowed to chase you even if the debt is unenforceable.
A default should not be recorded with the CRAs for unenforceable debt and, if it had been recorded, it should be removed.
It has been established that recording a default does not amount to enforcement although a recent case stated that a default can be removed if the account is deemed unenforceable by a court or both parties agree that the agreement is unenforceable.
Unenforceable debts cannot be sold or assigned.
Debts can be sold regardless.
Where do I start?

credit agreementTo assess whether your accounts are enforceable, you need to start by sending out a CCA request for each account. This request should be sent to whoever is chasing you for the debt, whether it’s the original creditor or DCA. A DCA or debt purchaser has a duty to obtain this information from the original lender (usually a bank, finance or credit card company).

They should respond within 12 working days (+ 2 allowed for service). Most DCAs are unable to comply within this time frame because they need to go back to the original lender to request the documents. This can work to your advantage, as the account becomes unenforceable whilst they are in default of your request.

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