Thread: CCAs and overdrafts

Hi,
Do they apply the same as with loans/credit cards?
cheers

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Newbie to Forums and still unsure about subject of CCA and Overdrafts. Even in FAO still left with unanswered questions.

Is there any one post about overdraft and CCA's please.

Overdrafts come under section 10 of the Consumer Credit Act.

10.—(1) For the purposes of this Act—
(a) running-account credit is a facility under a personal credit agreement whereby the debtor is enabled to receive from time to time (whether in his own person, or by another person) from the creditor or a third party cash, goods and services (or any of them) to an amount or value such that, taking into account payments made by or to the credit of the debtor, the credit limit (if any) is not at any time exceeded; and
(b) fixed-sum credit is any other facility under a personal credit agreement whereby the debtor is enabled to receive credit (whether in one amount or by
instalments).
(2) In relation to running-account credit, " credit limit" means, as respects any period, the maximum debit balance which, under the credit agreement, is allowed to stand on the account during that period, disregarding any term of the agreement allowing that maximum to be exceeded merely temporarily.
(3) For the purposes of section 8(2), running-account credit shall be taken not to exceed the amount specified in that subsection (" the specified amount") if—
(a) the credit limit does not exceed the specified amount; or
(b) whether or not there is a credit limit, and if there is, notwithstanding that it
exceeds the specified amount,—
(i) the debtor is not enabled to draw at any one time an amount which, so far as
(having regard to section 9(4)) it represents credit, exceeds the specified
amount, or
(ii) the agreement provides that, if the debit balance rises above a given
amount (not exceeding the specified amount), the rate of the total charge for credit increases or any other condition favouring the creditor or his associate comes into operation, or
(iii) at the time the agreement is made it is probable, having regard to the
terms of the agreement and any other relevant considerations, that the debit balance will not at any time rise above the specified amount.

Overdrafts have part V exemptions (form and content) from the Act. This does not mean that they are exempt from the Act. The credit agreement would be in the form of a letter from the bank stating the aount of credit, the APR, charges and cancellation rights. This type of agreement would not be signed by the debtor.

To help clarify matters, this is an extract from a Court case Coutts v Sebestyen and this part is part of the summing up by the Judge in relation to overdrafts and The Consumer Credit Act-

THE ACT
It is common ground:


(a) that the agreement for an overdraft of £2,000 in the terms of Coutts' letter dated 5 April 2002 was a regulated debtor-creditor agreement within the meaning of sections 8 and 13(c) of the Act, providing for 'running-account credit' within the meaning of section 10(1)(a) of the Act (in effect, a revolving credit within the agreed credit limit of £2,000); and


(b) that, as such, it was subject to the requirements of Part V of the Act (including the requirements as to documentation set out in sections 57 to 63 of the Act) save and in so far as it was excluded or exempted from such requirements.

Section 65 in Part V of the Act provides that an "improperly executed" regulated agreement is unenforceable by the creditor without a court order. It is common ground that a regulated agreement is "improperly executed" for this purpose if the requirements of sections 57 to 63 have not been complied with.

Section 74 of the Act provides for the exclusion of certain agreements from Part V. It provides as follows (so far as material):

"74. – (1) This part …. does not apply to –

(a) ….
(b) a debtor-creditor agreement enabling the debtor to overdraw on a current account, …
(c) ….
(2) ….
(3) Subsection 1(b) … applies only where the OFT so determines, and such a determination –
(a) may be made subject to such conditions as the OFT thinks fit …
(b) ….
(3A) …. in relation to a debtor-creditor agreement under which the creditor is …. a bank …. the OFT shall make a determination that subsection 1(b) above applies unless it considers that it would be against the public interest to do so.
(4) …."
Part VI of the Act relates to matters arising during the currency of credit agreements. Section 82 in Part VI, which is headed 'Variation of Agreements', provides as follows (so far as material):
"82. – (1) ….

(2) Where an agreement (a "modifying agreement") varies or supplements an earlier agreement, the modifying agreement shall for the purposes of this Act be treated as –


(a) revoking the earlier agreement, and
(b) containing provisions reproducing the combined effect of the two agreements,
and obligations outstanding in relation to the earlier agreement shall accordingly be treated as outstanding instead in relation to the modifying agreement.


(3) ….
(4) If the earlier agreement is a regulated agreement for running-account credit, and by the modifying agreement the creditor allows the credit limit to be exceeded but intends the excess to be merely temporary, Part V …. shall not apply to the modifying agreement.
(5) ….

(6) ….
(7) …."


THE DETERMINATION

The Determination (which is signed by the Director of Fair Trading) is made under section 74(3) of the Act. I set it out in full:
"1. Under the powers conferred upon me by Sections 74(3) and (3A) and 133 of the Consumer Credit 1974, I, the Director General, being satisfied that it would not be against the public interest to do so, hereby revoke with effect from 1st February 1990 the Determination made by me in respect of Section 74(1)(b) and dated 3 November 1983 and now determine that with effect from 1st February 1990 Section 74(1)(b) shall apply to every debtor-creditor agreement enabling the debtor to overdraw on a current account, under which the creditor is a bank.


2. This Determination is made subject to the following conditions:-


(a) that the creditor shall have informed my Office in writing of his general intention to enter into agreements to which the Determination will apply;
(b) that where there is an agreement between a creditor and a debtor for the granting of credit in the form of an advance on a current account, the debtor shall be informed at the time or before the agreement is concluded:
- of the credit limit, if any,
- of the annual rate of interest and the charges applicable from the time the agreement is concluded and the conditions under which these may be amended,
of the procedure for terminating the agreement;
and this information shall be confirmed in writing.
(c) that where a debtor overdraws his current account with the tacit agreement of the creditor and that account remains overdrawn for more than 3 months, the creditor must inform the debtor in writing not later than 7 days after the end of that 3 month period of the annual rate of interest and charges applicable.
3. In this Determination the terms 'creditor' and 'debtor' shall have the meanings assigned to them respectively by Section 189 of [the Act]. The term 'bank' includes the Bank of England and banks within the meaning of the Bankers' Books Evidence Act 1879 as amended."

From the Consumer Credit Act 1974:

Facts. The manager of the C Bank agrees orally with D (an individual) to open a current account in D’s name. Nothing is said about overdraft facilities. After maintaining the account in credit for some weeks, D draws a cheque in favour of E for an amount exceeding D’s credit balance by £20. E presents the cheque and the Bank pay it.
Analysis. In drawing the cheque D, by implication, requests the Bank to grant him an overdraft of £20 on its usual terms as to interest and other charges. In deciding to honour the cheque, the Bank by implication accept the offer. This constitutes a regulated small consumer credit agreement for unrestricted-use, fixed-sum credit. It is a debtor-creditor agreement, and falls within section 74(1)(b) if covered by a determination under section 74(3).

Facts. F (an individual) has had a current account with the G Bank for many years. Although usually in credit, the account has been allowed by the Bank to become overdrawn from time to time. The maximum such overdraft has been is about £1,000. No explicit agreement has ever been made about overdraft facilities. Now, with a credit balance of £500, F draws a cheque for £1,300

Analysis. It might well be held that the agreement with F (express or implied) under which the Bank operate his account includes an implied term giving him the right to overdraft facilities up to say £1,000. If so, the agreement is a regulated consumer credit agreement for unrestricted-use, running-account credit. It is a debtor-creditor agreement, and falls within section 74(1)(b) if covered by a direction under section 74(3). It is also a multiple agreement, part of which (i.e. the part not dealing with the overdraft), as referred to in section 18(1)(a), falls within a category of agreement not mentioned in this Act.

Facts. Under an oral agreement made on 10th January, X (an individual) has an overdraft on his current account at the Y bank with a credit limit of £100. On 15th February, when his overdraft stands at £90, X draws a cheque for £25. It is the first time that X has exceeded his credit limit, and on 16th February the bank honours the cheque.
Analysis. The agreement of 10th January is a consumer credit agreement for running-account credit. The agreement of 15th-16th February varies the earlier agreement by adding a term allowing the credit limit to be exceeded merely temporarily. By section 82(2) the later agreement is deemed to revoke the earlier agreement and reproduce the combined effect of the two agreements. By section 82(4), Part V of this Act (except section 56) does not apply to the later agreement. By section 18(5), a term allowing a merely temporary excess over the credit limit is not to be treated as a separate agreement, or as providing fixed-sum credit. The whole of the £115 owed to the bank by X on 16th February is therefore running-account credit.

Facts. The G Bank grants H (an individual) an unlimited overdraft, with an increased rate of interest on so much of any debit balance as exceeds £2,000.
Analysis. Although the overdraft purports to be unlimited, the stipulation for increased interest above £2,000 brings the agreement within section 10(3)(b)(ii) and it is a consumer credit agreement.

Thanks Rory32 a lot more transparent. It seems I may have a complaint to an Ombudsman. HSBC have illegally closed my account.

Does this mean that the bank can send the CRA's missed payment entries without the signed CCA (i.e. a written letter form).

This has happened to me... twice. I have had 2 x "1 month missed payment" recorded onto my credit file for going over my agreed limit for 3 days. Is that legal??
Andy

so what's the conclusion ... is an overdraft covered by the Act and the creditor has to send some sort of documentation, or it is covered but they have to send nothing?

The 'Determination' seems to be that from 1st Feb 1990, s74(1) does apply to debtor-creditor arrangements where the creditor is a bank and s.189 applies.

I found that the most affective way of getting this sorted with my bank was writing personally to the CEO.
It actually worked!

Can anybody help regarding this as I am not sure how to reply to the DCA after reading the above.
The DCA have replied by sending all my statements and stated the OD's re exempt from Part V of the CCA relation to the form and content of regulated agreements as suhc there is no statutory requirement to enter into a formal agreement. the letter also states "that when you I opened the account I entered into an agreement to abide by the terms and conditions of the account. One condition of the account was the creditors was the creditors right to demand repayment of any agreed OD at any time.

It also states the CCA states we cannot enforce the debt whilst the default continues. As we have provided you with the available, relevant info to the type of agreement you entered into we have satisfied our obligatiuons under the act and are permitted to enforce the dbt.



They have not supplied me with the application form to open an acount, the account I opened was a basic account with no OD facility and no debit card, some years later it was upgraded and I did not sign anything to upgrade the account or anything to do with an OD.

After reading Rorys posts as above, it seems, I believe, taht I do have a case but am unsure how to reply to the DCA, unless I just send a letter quoting all that Rory has posted.

Any help/advice very much appreciated, thanks

nmp you really need to start your own thread on this. If the overdraft is made up enterily of charges (which should be the case with a basic bank account) then you can simply claim these and interest that has been applied back.

Well if it's a basic account they are in breach of their own terms and conditions. As previously stated you need to start your own thread.

Originally Posted by rory32

To help clarify matters, this is an extract from a Court case Coutts v Sebestyen

hereby revoke with effect from 1st February 1990 the Determination made by me in respect of Section 74(1)(b) and dated 3 November 1983 and now determine that with effect from 1st February 1990 Section 74(1)(b) shall apply to every debtor-creditor agreement enabling the debtor to overdraw on a current account, under which the creditor is a bank.

I can't find this case on Bailii and it may be useful to my case with HSBC.

Coutts & Co v Sebestyen [2005] and CCLR and 4 and [2005] and EWCA and Civ and 473

HSBC are saying s.78 does not apply to overdrafts as the CCA 1974 does not apply to the current account and because of this the OFT debt collection guidelines also don't apply.

They are quoting s74(1)(b) of the CCA 1974 and the OFT determination of 21 December 1989 and that s.78 does not apply because there is no executed agreement for an overdraft. I can't find anything on the OFT determination of 1 February 1990 quoted above.

I've asked the OFT for their thoughts on whether s.78 applies to overdrafts and if the debt collection guidelines apply to these as well.

Thanks Rob, looks like the case, if rory32 can confirm?

I've looked on Bailii and couldn't find it.