At Your Debts Cleared we want to explain the truth about Consumer Credit Claims especially after recent developments with regards to High Court Rulings and would like to make consumer’s aware of companies that charge upfront fees to ‘wipe off credit balances’.

We have compiled some FAQs to help explain the current situation, with references to the judgement of His Honour Judge Waksman QC in the High Court case of Emma Carey (and others) v HSBC Bank plc (and others) handed down on 24th December 2009.

The information on this page informs you of the current situation concerning making or defending claims relating to credit cards and consumer loan agreements.

Please find below a list of questions that we have attempted to address in this area:

• Are some loans and credit agreements unenforceable in their entirety?
• Why are some loans and credit agreements unenforceable?
• How can I obtain a copy of my agreement to check whether it is enforceable?
• What happens if my lender fails to provide my agreement?
• What does unenforceable mean?
• Will there be an effect to my credit rating if I stop paying an unenforceable loan?
• What is a “cancellable” agreement?
• What claims or defences may arise in relation to a “cancellable” agreement?
• What are “unfair relationships” and why are they relevant to credit card agreements and consumer loan agreements?
• If a “secret commission” has been paid by a lender to a broker, how will this affect any claim?
• What issues might there be with PPI taken out with my credit agreement?
• What was the Judgement of His Honour Judge Wacksman QC (sitting as a Judge of the High Court) in Emma Carey (and others) v HSBC Bank plc (and others) handed down on 24th December 2009?

By reading the answers to the above questions, we hope that you will be able to make an informed choice about how you wish to proceed with any claims. Please do not hesitate to contact Your Debts Cleared if you want any further assistance or to discuss your circumstances in further details:

Are some loans and credit card agreements unenforceable in their entirety?

The answer to this question is “yes”! 

Some loan agreements and credit card agreements are unenforceable in their entirety.

Your Debts Cleared has heard a lot of news and media reports regarding other companies who seem to make claims “too good to be true” and charge money up front. This has led to complaints being expressed by organisations such as the British Bankers Association, who promote the voluntary Banking Code; the Ministry of Justice, who are responsible for regulating these companies and the Solicitors Regulation Authority who regulate solicitors. The concerns mainly relate to bad practices that may mislead consumers into parting with their money. These include invalid advertising claims, for example that 80% of all credit agreements are unenforceable, payments being taken for services by some companies where there are no provisions in place for their delivery, and failing to properly notify potential claimants of the risks and potential drawbacks of making a claim.

The truth behind it all that Your Debts Cleared wants to get across is that no one can state with confidence what percentage of claims are unenforceable. What is apparent is that a considerable amount of credit agreements are affected by the issues discussed on this page and may result in a possible valid claim or defence. 

We at Your Debts Cleared wants you to know all of the problems, including any risks and potential drawbacks, before deciding whether or not to make a claim, and you should be sure that there is provision in place for the promised services to be delivered.

What nobody, including the banks and credit companies, credibly dispute is that in certain situations, consumer credit agreements are unenforceable so Your Debts Cleared can assist you with that by advising you accordingly. 

Why are some loans and credit agreements unenforceable in their entirety?

You need to think a lot before being enticed to part with money to another company that claims a “secret process” or “magic formula” to render your loan or credit agreement unenforceable. Such companies may claim to have found a “loophole” in the law in this regard. The truth is we at Your Debts Cleared want to tell you up front and the truth behind it all. Companies charge money up front and then money along the process whereas with Your Debts Cleared we do not charge any money up front.

In reality the truth is that some loans and credit agreements are unenforceable is not as a result of a loophole at all. We say this because a “loophole” suggests some unintended consequence that is being exploited. The truth is that when the Crowther Committee considered the protections intended for consumers that became included in the Consumer Credit Act 1974, they always proposed that in certain circumstances, if the banks failed to provide certain key information or “prescribed terms” within a credit agreement, the lender would face a reasonably draconian consequence: the agreement would be unenforceable all together against the borrower. 

Your Debts Cleared work with Solicitors who specialise in Consumer Credit Law and will be common with the provisions that may render a loan agreement or credit card unenforceable and if you instruct us to act for you, we will be happy to explain the provisions to you, rather than pretend to be protecting a secret and the truth behind it all.

For those interested in the procedure of why certain agreements are unenforceable, here is a very brief clarification of the relevant provisions in the Consumer Credit Act:

Section 61 of the Consumer Credit Act provides that an agreement is not properly executed unless a document in the prescribed form itself containing all the prescribed terms and conforming to regulations made under section 60(1) is signed in the prescribed manner.

Section 60(1) requires the Secretary of State to make regulations as to the form and content of documents embodying regulated agreements including details of “the amount and rate of total charge for credit”.

The prescribed terms for the purposes of section 61(1)(a) are set out with Schedule 6 of the Consumer Credit Act (Agreements) Regulations 1983. 

The effect of any omission or failure to state correctly any of the prescribed terms is to render the agreement improperly executed.

Under section 65 of the Consumer Credit Act 1974 an improperly executed agreement is only enforceable against the borrower on an order of the court obtained under the provisions of section 127 of the Act.

For agreements entered into before 6th April 2007, section 127(3) of the Consumer Credit Act provides that a court may not make an enforcement order unless a document containing all of the prescribed terms was signed by the debtor.

Accordingly, where the borrower has not signed a document containing all the prescribed terms, the agreement is not enforceable without an order of the court and section 127(3) requires the court to dismiss the application for an enforcement order.

In such situations an agreement may be considered to be irredeemably unenforceable.

This has been found at the highest levels in the courts, for example by the Court of Appeal in the case of Wilson v First County Trust.

The recent case of Southern Pacific Personal Loans Limited v Mr Michael Walker & Anr [2009] EWCA Civ 1176 provided guidance as to which items may be treated as amounts of credit and which items may be treated as charges for credit. It was determined in that case that it was not prohibited to charge interest on a "charge for credit" and that in that particular case the amount of credit had been correctly stated on the agreement, and so the agreement was not enforceable. Comments within the judgement reaffirmed the finding in Wilson v First County Trust that in those cases where the amount of credit and charge for credit were considered by the court to be incorrectly stated, then the agreement would be unenforceable. The judgement expresses the highly practical nature of apparently easy questions such as "what is an amount of credit?" and "what is a charge for credit?" and emphasises the need for expert professional advice in cases of this nature. 

How can I obtain a copy of my agreement to check whether it is enforceable?

Sections 77 and 78 of the Consumer Credit Act 1974 impose an duty upon the creditor to provide a copy of your credit agreement to you upon your request and payment of the statutory fee (currently £1.00).

You can apply for a copy of your own credit agreement if you do not already have it.

Under the provisions of the Consumer Credit Act 1974 your creditor is obliged to give a copy of your credit agreement within 12 days.

What happens if my creditor fails to provide my agreement?

If your creditor fails to supply a copy of your agreement within 12 days, then the agreement is unenforceable until such time as they provide the agreement.

Please note the following important points:

if your creditor provides your agreement at a later stage it will become enforceable from the point at which they provide the agreement; and
unenforceable has a different meaning to invalid. See below for the meaning of unenforceable and how this will affect your agreement.
Helpful explanation has been provided by His Honour Judge Waksman QC in the case of Emma Carey (and others) v HSVC Bank plc (and others) clarifying the banks duties in provisions of what constitutes a "true copy" of the agreement. For further details, contact us at Your Debts Cleared.

What does unenforceable mean?

From the information above provided to you, it is important to note that a credit agreement may be unenforceable either because it breaches section 60 or section 65 of the Consumer Credit Act 1974, in which case it may be considered irredeemably unenforceable.

Alternatively, it may be temporarily unenforceable for the reason that your creditor has failed to supply a copy of the agreement following a request pursuant to section 77 or 78 of the Consumer Credit Act 1974. 

Your Debts Cleared want you to know the truth in both cases, the fact the agreement is unenforceable restricts but does not eliminate all the rights of your creditor. 

The following is a list of things that your creditor may continue to do even if your agreement is unenforceable:

• Report or threaten to report information about the agreement to a credit reference agency;
• Disseminate or threaten to disseminate information about the agreement to a third party;
• Demand payment from you;
• Issue a default notice to you;
• Threaten legal action;
• Instruct a third party to seek to procure payment.

Your creditor may not, in the case of an unenforceable credit agreement:

• obtain a court judgement against you;
• enforce the court judgement against you (for example by instructing bailiffs, placing a charge over your property, or obtaining an attachment of earnings order against you);
• enforce your agreement in any other way.

Therefore, your creditor may take steps towards enforcing the agreement, but may not carry through with the enforcement of the agreement. 

In any event, whether your agreement is enforceable or unenforceable, your creditor must not, whether by themselves or instructing a third party:

• call on you either in person or by telephone early in the morning or late at night;
• threaten to blacklist you (as opposed to merely record information with a credit reference agency);
• threaten to report you to your employer;
• report you to your employer; or
• despatch vans to your property carrying signs prominently indicating that they are from a debt collecting agency. 

If they do so, they will be in breach of section 40 of the Administration of Justice Act 1970 and may be committing an offence. If you are being harassed in this manner, you will be able to obtain an injunction against your creditor or their appointed debt collector.

Will there be an effect to my credit rating if I stop paying an unenforceable loan?

Your Debts Cleared would like to explain In the case of temporarily unenforceable agreements, following the judgement of The Honourable Mr Justice Flaux in the recent case of Phillip McGuffick v The Royal Bank of Scotland plc [2009] EWHC 2386 (Comm), your creditor is entitled to report your failure to pay to a credit reference agency. Failure to pay may therefore influence your ability to obtain credit in the future.

The case of Phillip McGuffick v The Royal Bank of Scotland was limited to consideration of a temporarily unenforceable agreement. The judge specifically declined to make a ruling in relation to irredeemably unenforceable agreements. The situation with regard to irredeemably unenforceable agreements is therefore at the current time, there has been no ruling, and a court may consider depending on the facts of a particular case that it is unfair for a creditor to report circumstances to a credit reference agency. However, there is no guarantee that the courts will rule in your favour in relation to this point and therefore you must accept that there is a real risk that if you stop making payments in relation to an irredeemably unenforceable credit agreement, that information may be reported to a credit reference agency and may influence your ability to obtain credit in the future.

The result of this to you is that if the detriment of having adverse information recorded with a credit reference agency outweighs the benefit of your credit agreement being unenforceable, then you should continue to make payments in respect of your credit agreement regardless of the fact that the credit agreement may be unenforceable. 

What is a “cancelable” agreement?

A regulated consumer credit agreement is a cancelable agreement if (and only if) the agreement was:

• signed following oral representations made by the lender or their broker in the presence of the borrower;
• is not secured on land or a debtor-creditor-agreement to secure land; and
• was not signed at premises where the creditor was carrying on any business (whether on a temporary or permanent basis).

What claims or defences may arise in relation to a “cancelable” agreement?

If an agreement is a cancelable agreement, then the Consumer Credit Act 1974 requires that a notice is contained within the agreement. If the correct notice is not included within the agreement, then pursuant to section 64(5) of the Consumer Credit Act 1974, the agreement has not been properly executed. 

in addition, in the case of a cancellable agreement, it is possible to argue that the borrower may serve notice of cancellation of the agreement up until a short time after they obtain a copy of the agreement containing the correct cancellation notice.

The result of the borrower serving the cancellation notice are that on the cancellation of a regulated agreement, any sum paid by the borrower will become repayable to the borrower. Pursuant to section 71 of the Consumer Credit Act 1974 the borrower will be liable for repayment of the capital sum only (no interest) if repayment is made within one month of service of notice of cancellation. After that time, the lender must serve notice stating the amounts of remaining payments but these must exclude any sum other than capital or interest.

What are “unfair relationships” and why are they relevant to credit card agreements and consumer loan agreements?

The provisions of sections 140A to 140D of the Consumer Credit Act 1974, which were introduced by the Consumer Credit Act 2006 empower the courts to make a wide range of orders if it finds that the relationship between the creditor and the debtor arising out of the credit agreement is unfair to the debtor. The relationship may be unfair because of the way in which the creditor has exercised or enforced any of its rights or anything else done by or on behalf of the creditor whether before or after the making of the agreement or any related agreement. 

The courts powers in relation to unfair relationships are very wide and discretionary.

If a “secret commission” has been paid by a lender to a broker, how will this affect any claim?

Ordinarily, the introducer or broker will be treated as an agent of the borrower. As such they owe a fiduciary duty to their client including the duty not to make a secret profit. 

Provided that it is disclosed to the client, there is nothing wrong in principle in an intermediary charging a broker’s fee. However, the commission must be disclosed and a general statement that “a commission may be paid in certain circumstances” is not adequate. 

The receipt of a secret commission by a broker is a species of fraud and is actionable both against the broker or introducer and the lender who paid the secret commission. 

In the Court of Appeal case of Hurstanger v Wilson [2007] EWCA Civ 299, Lord Justice Tuckey commented as follows:

Clearly if there has been no disclosure the agent will have received a secret commission. This is a blatant breach of fiduciary duty but additionally the payment or receipt of a secret commission is considered to be a form of bribe and is treated in the authorities as a special category of fraud in which it is unnecessary to prove motive, inducement or loss up to the amount of the bribe. The principal has alternative remedies against both the briber and the agent for the money had and received where he can recover the amount of the bribe or for the damages for fraud where he can recover the amount of any actual loss sustained by entering into the contract in respect of which the bribe was given (Mahesan v Malaya’s Housing Society [1979] AC 374, 383). Furthermore the transaction is voidable at the election of the principal who can rescind it . . . (Panama & South Pacific Telegraph Co v India Rubber, Gutta Percher and Telegraph Co [1875] 9 Ch App 515, 527, 532-3).”

What issues might there be with PPI taken out with my credit agreement?

There are two separate problems regarding Payment Protection Insurance.

Firstly, if the details of the Payment Protection Insurance and the interest upon it are included incorrectly in your credit agreement, this may render your credit agreement irredeemably unenforceable.

Secondly, the Payment Protection Insurance may not have been appropriate for you, which may give rise to “mis-selling” claims.

Your Debts Cleared are able to carry out a full check in relation to any PPI that you have been sold and advise you of any possible remedies.

If your PPI has been mis-sold, you may consider seeking assistance from us at Your Debts Cleared as opposed to issuing court proceedings in certain cases. We will be able to advise you of the advantages and disadvantages in relation to your particular case. 

What was the judgement of His Honour Judge Wacksman QC (sitting as a Judge of the High Court) in Emma Carey (and others) v HSBC Bank plc (and others) handed down on 24th December 2009?

The issues in this significant decision related to those claims being pursued on the basis of failures to comply with "true copy" provisions, as well as providing some additional clarity regarding which terms would be considered to be "included" within a signed agreement.

Your Debts Cleared thinks that there seems to have been a general view emerging prior to this judgement being handed down that other companies pursuing volumes of cases based solely on a lenders failure to comply with their obligations to provide a "true copy" of an agreement have been on a mission to "manufacture" claims.

The following is a short summary of the principal findings and conclusions of His Honour Judge Wacksman, together with comments:

1. A creditor can satisfy its duty to provide a "true copy" of the credit agreement under s78 of the Consumer Credit Act 1974 by providing a reconstituted version of the executed agreement which may be from sources other than the actual signed agreement itself.

Comment: This decision is very helpful in clarifying the decision regarding which documents the creditor must provide. There has been a dispute in this regard, with some other companies acting for consumers (wrongly) putting forward the view that the agreement obtained must be a photocopy of the original agreement itself and that nothing else would suffice. Your Debts Cleared have never taken that incorrect view and have always advised on the basis that a reconstitued agreement is sufficent for the creditor to comply with their obligations and should be assessed for potential prescribed term breaches and other breaches.

2. The s78 copy (the copy provided by the creditor upon request) should contain the name and address of the debtor as it was at the time of the execution of the agreement. However creditors can provide the name and address from whatever source it has of those details. It does not have to take them from the executed agreement itself.

Comment: In practice, a creditor will in the vast majoirtiy of cases be in a situation to comply with this requirement and include the name and address in a reconstituted version of the agreement in any event. If an address is not included, it will normally be an easy matter for the creditor to insert the name and address from other records so as to comply in this regard.

3. The creditor need not, in complying with s78, provide a document which would comply (if signed) with the requirements of the Consumer Credit (Agreements) Regulations 1983 as to form, as at the date the agreement was made.

Comment: The reconstituted information may be in one or more documents and this will not in itself provide any remedy to the consumer.

4. If an agreement has been varied by the creditor under a unilateral power of variation, the creditor must still provide a copy of the original agreement as well as the original terms.

Comment: It is significant when providing advice to clients that both the original agreement and any subsequent or amended agreements are thoroughly reviewed and analysed to ascertain whether there are any aspects of the agreements that may render the agreements unenforceable or unfair. This judgement ensures that the creditor must supply a copy of the original agreement as well as the up to date terms and conditions, where the original terms and conditions have been varied or replaced, to enable each individual credit agreement in respect of a credit facility to be examined separately.

5. If a creditor is in breach of section 78 this does not of itself give rise to an unfair relationship within the meaning of section 140A.

Comment: Unfair dealings under section 140A of the Consumer Credit Act 1974 are fact sensitive and will depend very much on the individual circumstances of a particular credit agreement. It is perhaps not surprising that a failure by the creditor to provide a copy of the credit agreement is not in itself evidence of an unfair relationship. The failure to provide the agreement would of course render the agreement unenforceable until such time as the creditor was able to furnish a copy (including a reconstituted copy) of the agreement.

6. The court has jurisdiction to declare whether in a particular case, there has been a breach of section 78. Whether it will be suitable to grant such a declaration depends on the conditions of a case.

Comment: Previous cases suggested that the courts jurisdiction under s142 of the Consumer Credit Act 1974 to make a declaration was restricted when considering an unenforceable credit agreement. The court has inherent jurisdiction provided in the CPR to make a declaration in appropriate circumstances, and this clarification is useful. A note of caution, however, is that it would be inappropriate to seek a declaration where the creditor admits their breach and the unenforceability unless there is some other feature of the case to justify this.

7. Whether the prescibed terms are "contained" within the agreement is a question of fact in each individual case, and the following principles were agreed by the parties in this regard:

(1) It is not sufficient for the piece of paper signed by the debtor merely to cross-refer to the Schedule 6 Agreement Regulations terms ("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.

Comment: An example was provided for consideration, which included an agreement for signature which was printed off at the same time as terms and conditions, all of which were stapled together. In this case, perhaps unsurprisingly, it was considered that the prescribed terms were contained within the document. Of relevance to this decision were the facts that the first page of the document was "incomplete" and could only make sense if read in conjunction with the terms and conditions; the fact that it made reference to the terms and conditions "attached" and the agreement being provided as a package. His Honour Judge Wacksman QC however went on to comment that "The word "attach" connotes to me some physical attachment which is obviously [how it was used] in the assumed facts given. The word might conceivably be used in some other way, for example to denote terms supplied as part of the package, lying separate but with page numbering sequential to page 1. Judge Wacksman QC declined to comment on this different set of circumstances.