The OFT has published draft guidance for lenders and borrowers as part of a consultation exercise about the enforceability of loan agreements.

The consultation has been launched as a result of concerns that some debtors/borrowers are being misled, mainly by some claims management companies, into thinking that they can get their debts written off using the Consumer Credit Act.  There is also concern that some lenders are not following their legal obligations to provide information to customers.

The draft guidance centres on the rules laid down by the Consumer Credit Act (the CCA) and the recent Manchester High Court ruling. In this ruling Judge Waksman clarified what constitutes a true copy of a loan agreement, see below for more details.

Dispute over loan agreement 

Upon a request from the consumer, lenders are obliged to supply a copy of the credit card or loan agreement within 12 days. In previous cases some organisations representing consumers have cited that if no agreement is produced then the debt is unenforceable, which has led to disputes between lenders and customers about what constitutes a true copy. 

The High Court in Manchester ruled that 

• a copy of the loan agreement must contain the name and address of the borrower as it was at the time it was signed 

• if an agreement has been subsequently varied by the lender, then the lender is obliged to supply a copy of both the original agreement as well as the current one.

The lender is allowed to provide a reconstituted agreement, as long as that version is accurate and contains all the original information, apart from the few exceptions that the law allows, which include the signature, signature box and date of signature.

OFT guidance will restrict debt collection activities

The OFT guidance makes it clear that if a lender cannot comply with the sections of the CCA - making an agreement unenforceable - then it is restricted in the debt collection activities it can undertake.

Whilst lenders are able to request repayment and to record any arrears or default with a credit reference agency, the OFT considers it would be wrong to threaten court action if the lender knows that it is not possible. This is in line with Judge Waksman ruling.

Borrowers still liable under previous High Court ruling.

Even if banks cannot produce a copy of the original agreement, borrowers could still be held liable for their debts due to a previous ruling at the High Court in London. Here Mr Justice Flaux 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 consultation document is available on the OFT website with the deadline for responses on 21 April 2010.

Ministry of Justice - Claims Management Companies (CMCs)

Firms that provide regulated claims management services must be authorised by the Regulator. You can easily search on-line to see if the 'claim management firm' is regulated.  

You can search by business name, trading name or authorisation number and the search result will give all these details and the principal place of business. Click here to do a search. 

Misleading adverts or statements

Below is a list of the types of statement that are causing concern, along with an example of each. If a firm makes such statements and are unable to provide evidence to justify them, then they could be considered misleading.

Potential outcomes
"We can write off all your outstanding debt, all previous payments could be returned and you could keep any goods purchased."

Scale of unenforceability market
“80% of credit agreements are unenforceable”; “50 million credit agreements are created every year, at least 25 million are unenforceable”.

Timescales
"We'll get your credit cards written off within 6 weeks!"; "Fast results guaranteed!"

More examples can be found here 

I wish to contact a firm to see if my agreements are unenforceable, what questions should I be asking them?

When you contact a firm you may wish to ascertain the following;

• what their fees are and what is payable up front per agreement
• whether they take a percentage of any compensation you may receive
• if they are able to represent you in any harassment issues
• will they look to see if you have been mis-sold Payment Protection Insurance, often referred to as PPI. 
• will they protect your credit file whilst the claim is in dispute

Debtwizard comment

Borrowers will still be able to employ the services of a claims management company (CMC) and pay fees for their services but there is no reason why they cannot do this themselves and obtain a copy of their agreement for a nominal fee. After this they can then consider approaching a CMC for further advice.

If you are struggling to repay your debts, then think about getting some professional advice on how you can manage the payments. There is no guarantee you will be successful in getting the debts written off and there is also the moral issue of repaying the lender that initially advanced you the money in good faith.

SEEK ADVICE with a view to how to restructure your finances. This may include entering into a repayment programme that you can afford such as a debt management plan, Individual Voluntary Arrangement (IVA) or even bankruptcy.

We have some useful links for you below;

Debt comparison table

Six option guide to getting out of debt

DIY debt guide

Free Budget Wizard