Storecards turned credit cards
Holders of storecards from a number of shops had their cards automatically upgraded to a general use credit card. There are several million upgraded cards in the UK, many still live. If you have one such card, you should be aware that, in April 2012, a judge ruled that a creditor could not collect the outstanding balance on one such credit card. This was because the borrower was never supplied with an agreement for the credit card.
Although this is a County Court judgment and does not set precedent as such, it paves the way for other cardholders to argue that their cards were improperly upgraded.
Judge Henrietta Manners ruled at Clerkenwell and Shoreditch county court that Santander could not collect a debt of £5,126 on a Harrods card. Furthermore, legal costs of around £50,000 were awarded against Santander.
Anyway, there were two issues arising out of this case that affected the enforceability of the agreement.
The first issue was the original store card agreement. Ms Mayhew said that she had been visiting Harrods and in the banking hall as she called it there was an area where there were numerous flyers, much like you see in most bank branches, and she saw a store card application for a Harrods card.
She recalled taking the application and took it home with her, she filled it in and posted it off. She took a photocopy of the application as she said that there was not a copy for her to keep.She said there were no separate terms and conditions booklet, and if there was terms available they were in a separate holder and thus if we look at what the 1974 Act requires, the agreement must “contain” the prescribed terms as set out in s61(1)(a) CCA 1974. Now then the High Court helped the banks by setting out how to construe the word contain and i quote from HHJ Waksman QCs judgment in Carey v HSBC Bank Plc (paragraphs 173 & 174)
- (1) It is not sufficient for the piece of paper signed by the debtor merely to cross-refer to the Prescribed Terms without a copy of those terms being supplied to the debtor at the point of signature;
- (2) A document need not be a single piece of paper;
- (3) Whether several pieces of paper constitute one document is a question of substance not form. In particular a physical connection between several pieces of paper is not necessary in order for them to constitute one document;
- (4) Additionally, a physical connection (or one or more physical connections) between several pieces of paper does not necessarily constitute them as one document;
- (5) Accordingly, where the debtor’s signature and the Prescribed Terms appear on separate pieces of paper, the questions of whether those pieces of paper together constitute one document is a question of substance and not form.
- As a matter of law, those principles appear to me to be correct, in the context of s61.
So clearly if someone leaves the premises with an application form and is unaware there are a nice shiny booklet of terms and conditions sat in a nice plastic holder, then they are NOT CONTAINED in the agreement clearly. This is not some technicality but a major error on the creditors part for failing to understand the proper construction of the Consumer Credit Act 1974 in my7 opinion.
So Gwyn drew the conclusion that any one knowledgeable in Consumer Credit Litigation would conclude, that the agreement was unenforceable for lacking the prescribed terms. Now just to say the prescribed terms for a credit card for an agreement executed before 6th April 2007 are
3. Agreement for running-account credit. A term stating the credit limit or the manner in which it will be determined or that there is no credit limit.
Rate of interest
4. Agreement for – A term stating the rate of any interest on the credit to be provided under the agreement.
5. Consumer credit agreements. A term stating how the debtor is to discharge his obligations under the agreement to make the repayments, which may be expressed by reference to a combination of any of the following – …”
And “the following” deals with the repayment.
So there we are, the agreement failed to contain the prescribed terms and thus was unenforceable. So Di Mayhew had a defence to run in this case.
Gwyn then looked at the issue of the “upgrade” as people refer to it, well it was more than an upgrade in my view. It was an entirely new agreement, the terms varied so wildly from the original store card that there was no way you could call this an upgrade. The store card only worked in Harrods, the credit card was used world wide, the differences were huge. Judge Manners saw this was the case too as can be seen from her Judgment.
Now its worth noting that Di was unaware of the legal implications of the errors made by Santander, so to suggest that she used the CCA 1974 to avoid a debt is wide of the mark. If i was paying my debt and the creditor agreed to accept my payments then sued me, I’d darn well use whatever legislation to protect me too.
Fresh agreement required
Santander argued in court that GE Capital, which ran the Harrods store card business at the time, had not needed to send new terms and conditions for the newly issued credit card.
But the judge disagreed, saying that even though Diana Mayhew had activated the unsolicited credit card, regulation 7 of the Consumer Credit (Agreements) Regulations of 1983 still required the bank to supply fresh terms and conditions.
“Compliance with the regulation requires a copy of the fresh agreement containing the relevant prescribed information to be served on the debtor,” the judge said.
Opportunity for debtors
As a county court judgement, the ruling is not binding on other courts.
But it opens the way for other defaulting card users in a similar situation.
They too may be able to argue in court that their cards were also upgraded improperly and that their debts are therefore similarly unenforceable.
Paul Tilley, who works for Diana Mayhew’s solicitors, Watsons of Llandudno, said: “The upgrade was not just a simple variation of the terms, but was a completely new creature, it turned the store card into a credit card. The whole structure of the agreement changed.”
“It wasn’t just a variation, which is what Santander said it was. It was a modifying agreement [but] there was no new signed agreement.
“If they [customers] weren’t provided with a copy of a new agreement, with the new card, to agree to and sign and return, it would lead to unenforceability,” Tilley added.
The 2003 upgrading process involved several million credit cards being sent by GE Capital, unsolicited, to holders of Debenhams as well as Harrods store cards, in an example of mass inertia selling.
This attracted critical attention, especially from the Office of Fair Trading (OFT).
In January 2004, it told GE to stop telling its store-card holders that their cards would automatically be changed to a credit card unless they objected.
The OFT also challenged part of GE’s store-card agreement, which suggested the bank had an unrestricted right to change the terms and conditions of the agreement.
In the light of Diana Mayhew’s victory, an OFT spokesman said: “This judgement supports a previous challenge by the OFT that a standard term in the GE store card agreement, purporting to give GE an unrestricted right to change the terms of the agreement, is legally unfair.”
Santander v Mayhew judgment
B e f o r e :
DISTRICT JUDGE MANNERS
| SANTANDER CARDS (UK) LTD
|– and –
Karin Tampion (instructed by Howard Cohen) for the Claimant
Paul Brant (instructed by Watsons) for the Defendant
Hearing date: 8th March 2012
- This is a claim for the recovery of a debt accrued on a credit card.
- The starting point here must be a reminder that this is a case where a major commercial enterprise is seeking judgment against a consumer. It is true that the underlying “merits” undoubtedly favour the Claimant but it is also true that it is and was incumbent on Santander to get its tackle in order.
- In April 2000 the Defendant went into Harrods and picked up an application form for a Harrods store card. She filled in the form at home and sent it to GE Capital Bank on 5th April 2000. Her application was successful and a card was sent to her. The Defendant began to use the card.
- The card was “upgraded” to a credit card in September 2003. The Defendant was “selected” for the upgrade and an unsolicited card was sent to her in the post. The Defendant voluntarily activated the card and thereafter used it to make some small purchases and to transfer the outstanding balances from several other cards.
- In May 2009 GE Capital Bank became Santander Cards (UK) Limited, the Claimant.
- The Defendant ran into financial difficulties and in July 2009 she failed to make the minimum payment due on the card. She informed the Claimant of her problems in February 2010 and it was agreed that she would make payments of £5.44 a month from March 2010.
- On 12th October 2010 the Claimant served a default notice with a final demand being sent on 11th November 2010. These proceedings were issued on 20th December 2010.
- The Claimant brought this claim and it is for it to prove, on a balance of probabilities that it is entitled to judgment for the sum claimed.
- Evidence for the Claimant was given in the form of the statement of John-Paul Murphy the solicitor with conduct of the case. A hearsay notice was served and although Mr. Murphy was present in court no oral evidence was adduced on behalf of the Claimant. The Defendant herself gave evidence.
- Four issues fall for determination (i) whether the agreement entered into in April 2000 was valid (ii) whether the upgrade in 2003 was valid (iii) whether the default notice complied with the requirements of the Consumer Credit Act and (iv) whether the Defendant’s request under section 78 of the Consumer Credit Act was complied with and, if it did not, whether that rendered the whole agreement unenforceable.
- Was the April 2000 agreement valid? Section 61 of the Consumer Credit Act requires that a valid agreement must contain all the prescribed terms (credit limit, interest rate and repayment terms) and be signed by the debtor and the creditor. The Defendant’s case was that she went into Harrods banking hall and picked up a pre-paid foldable application form which she took home, filled in and sent off. She said there were no terms and conditions other than those printed on one side of the form. She had kept a copy of the form for her records. She also said that when she received the store card there were no terms and conditions with it. It was the Claimant’s case that terms and conditions were supplied, that procedures for providing terms and conditions were automated and that it would be unrealistic to expect that the Claimant could call anyone to give evidence as to the application of those procedures in this case. The Claimant was not able to provide a copy of the documents which it said would have accompanied the application form. The Defendant struck me as a methodical person who had kept a copy of the application form for her records and I have no doubt she would have kept, though possibly not read, any terms and conditions sent to her. I believed her evidence that she had not received any terms and conditions, either when she took the application form or when she received the card. I therefore find that the April 2000 agreement is unenforceable.
- Was the 2003 upgrade valid? In September 2003 the Defendant’s card was “upgraded” to a dual card meaning that it was now a storecard and a Mastercard. The new card was sent unsolicited to the Defendant who needed to sign and activate it before she used it. It was open to the Defendant to decline the new card but she chose to activate it and use it. The new card had an introductory rate of interest for transferred balances and using it would gather loyalty points. The Defendant took advantage of both these features. The Defendant says that the agreement changed from a restricted use debtor-creditor-supplier agreement to being an unrestricted use debtor-creditor agreement and a debtor-creditor-supplier agreement which amounts to a modification of the agreement such that compliance with the requirements set out in regulation 7 of the Consumer Credit (Agreements) Regulations 1983. Compliance with the regulation requires a copy of the fresh agreement containing the relevant prescribed information to be served on the debtor. The Claimant did not allege that any such document was sent to the debtor. It was the Claimant’s case that the new card was supplied under a credit token agreement which remained in force and that there was no modification attracting regulation 7. In my judgment the Claimant’s analysis is wrong and there was a modification of the agreement requiring compliance with regulation7. The Claimant did not argue that it had complied with the regulation.
- Was the default notice valid? Under section 87 of the Consumer Credit Act a default notice must be served before any termination or demand for earlier payment. Section 88 of the Act provides that a default notice must be in the prescribed form. The Claimant served a default notice by post of 12th October 2012. The Defendant says that the notice was defective because it gave the wrong figure for the amount due and no OFT fact sheet was included. The Claimant explains that the difference is the amount by which the Defendant’s credit limit had been exceeded and that error was detrimental to the Claimant rather than to the Defendant. It was the Claimant’s case that the OFT fact sheet would have been included with the default notice and in the event that it was not there was a clear statement at the end of the notice that the Defendant should contact the Claimant so that the sheet could be sent. The Defendant denied that the OFT fact sheet was sent with the default notice, stated that she did not request the sheet and candidly admitted that she might not have read the whole letter. No evidence was adduced before me actively saying the fact sheet had been enclosed. The Claimant invited me to conclude that that the defects in the default notice were de minimis but I do not agree. The whole point of a default notice is that the debtor should know exactly what is owed and it is irrelevant that any defect would be to the detriment of the creditor. I accept the evidence of the Defendant that no OFT fact sheet was enclosed and words inviting her to send for the missing sheet are not sufficient to remedy the defect of its absence. It is unfortunately the case that many debtors in the position of the Defendant in this case do not read to the end of letters thus the importance of documents being enclosed.
- The Defendant’s section 78 request In order to comply with section 78 the creditor must provide a copy, reconstituted if necessary, of the terms and conditions originally agreed between the parties and, if different, those in force at the time of the request within 12 working days, the agreement is unenforceable until the request has been complied with. On 17th November 2010 the Defendant made a section 78 request to Lewis Debt Recovery, a chasing letter was sent on 6th January 2011 and a section 78 request was made to the Claimant on 15th January. The request was replied to on 2nd February. The Defendant sent an entirely disingenuous reply on 4th February alleging that she had received information for the wrong account. She claimed that she needed information for account 5###### not the information she had been sent which related to account 6######. Her evidence was that she had kept the original agreement and a moment’s checking would have revealed to her that the 6#### number related to her original account. In my judgment the Claimant complied with the section 78 request within the stipulated time and is not prevented from enforcing this debt for non-compliance with a section 78 request.
- It follows from what I have said above that the claim is dismissed. The claimant must pay the Defendant’s costs to be subject to detailed assessment if not agreed.
20th March 2012