At the end of last year, I wrote a blog on claims management companies, and mentioned a legal loophole that allows people to write off their debts.
At the time, the issue was the subject of a court case hearing in Manchester High Court. This centered on whether consumers should have to pay their debts if the lender fails to produce an original agreement within a certain time limit.
The Court has now reached a decision, ruling that lenders only need to provide a ‘reconstituted’ copy of the original loan agreement. The decision means that the absence of a copy of a signed executed agreement is not evidence that such an agreement was not made.
The case has set a precedent for an estimated 150,000 cases currently sitting in other courts around the country. In the majority of theses cases, consumers were trying to avoid payment of their credit card and loans on the grounds that the bank had either lost or destroyed the original signed agreements.
Claims management companies representing consumers have previously argued that if no agreement is produced then the debt is unenforceable – this has understandably led to disputes between lenders and customers about what constitutes a ‘true copy’.
Previous High Court ruling
A previous High Court ruling in London ruled that borrowers could still be held liable for their debts even if bank cannot produce a copy of the original agreement.
The judge decreed that claimants should not stop paying back their loans or credit cards while the claim was ongoing, as the loan may become fully enforceable in future.
Any non-payment could be recorded on the claimant’s credit files - which would not breach data protection law.
The previous High Court ruling also clarified ‘enforcement’ by the lender. It ruled that starting legal proceedings it is not actually enforcement but a step towards enforcement.
This basically means that any steps the lender takes before commencing legal proceedings - such as demands for payment, issue of default notices and or threatening legal action – do not construe enforcement.
Have consumers been exploited?
Some people feel that those with debt problems have been exploited through their desperation and vulnerability as many consumers have been cold called by claims management companies claiming they can write off credit card and personal loan debts by using this legal loophole.
For this service consumers usually pay upfront fees of between £195 and £495 per agreement, in the hope they will become debt free. In some cases, these fees have been added to the credit card debt they are trying to wipe out.
The way forward
There will still be some lenders that cannot produce a ‘true copy’ of the agreement, which may lead to the debts not being enforced. But this is expected to be restricted to just a small proportion of the banking industry.
To produce a ‘true copy’, all the lender needs to do is insert the correct credit amount, the credit rate and the original terms and conditions onto the original loan agreement, or if they know the original terms and conditions.
