Do overdrafts need credit agreements to be enforceable?

[Linda1001]

Hi - can anyone clarify this for me please? I made a formal request + £1 thing to Halifax for an agreement on an overdraft, which they said they'd send. I had thought overdrafts should have an agreement because Steven4064 in his very helpful piece on the enforceability of agreements puts overdrafts in the same category as credit card agreements as running account credit - as follows:

 

'3. Financial Information (Schedule 1)

 

The financial information that must be present for the agreement to be properly executed depends on the type of agreement.

 

i) loans for particular purchase (fixed-sum, debtor-creditor-supplier agreements) - a description of the goods or services, the cash price and the amount of credit

 

ii) advances - the amount of credit

 

iii) running account credit (overdrafts, credit cards) - the credit limit...'

 

I'd also read on the site (and I think but am not sure it was posted by Rory32 who's very knowledgeable) that overdrafts do require an agreement -but they don't need to have the debtor's signature on them. (I surely wouldn't have imagined it...)

 

So - I assumed the same rules applied and you could CCA them and - if not produced - then not enforceable.

 

However, Halifax today said I was mistaken and ss 77 and 78 don't apply to overdrafts and current accounts with overdrafts are covered under section 74. The letter says: 'Section 74 (1) (b) of the CCA '74 provides the the procedures under the Act for the execution and signing of a credit agreement do not apply to an overdraft on a current account. It follows that being exempt from the requirements in part V of the Act that there will be no documented agreement and section 77/78 does not apply.'

 

Is that true? Can anyone clarify what the true score is with overdrafts?

 

Linda

[rippedoffagain]

Halifax are correct, an overdraft does not require an agreement.

[cerberusalert]

If a lot of the overdraft is made up of charges you could SAR the bank with a view to reclaiming those which are deemed unfair.

[Linda1001]

Thanks, Ripped and Cerbusalert - at least that clarifies that! No - it wasn't charges alas... Now to write to them with my backtrack and f&f offer... Linda

[babygirl007]

Hi, do not want to confuse matters here, but a creditor took my overdraft to court.... the judge said that without an agreement she could not enforce..... she refused to accept statements... apparently from what I can gather, overdrafts are not covered buy the 1974 consumer credit act and therefore no agreement would be made to cover and if no agreement, then a court of law cannot rule.. i am not a solicitor but am going on what happened with me... hope this helps.

[Linda1001]

Thanks for that, Babygirl - that is very interesting because why should one type of credit agreement need an agreement but not another. The creditor could still do one to safeguard themselves, regardless of whether it's covered by the Act or not. If I were lending someone thousands I'd do an agreement - not just rely on statements or their equivalents.

 

I have written to Halifax because - as you can imagine - there was already a long list of harassment etc etc. and have made an offer. But this is more ammo. Also I have another overdraft...

 

If Steven4064 and Rory32 are out there - any thoughts? Or from anyone esle? Best, Linda

[cds]

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.

© 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."

 

Overdrafts are exempt from part V but the bank must still comply with the above, ask them for the permission they recieved from the OFT and the letter sent to you the details required in the above.

when you get it post it up

 

 

cds

[cerberusalert]

It's a bit of a read Department of Trade and Industry Review of implementation timetable for Consumer Credit Act 2006 Final report URN 07/703 but see page #7. There seems to be some debate as to whether an overdraft is covered by the Consumer Credit Act 2006

[cds]

Overdraft do come under the cca but were subject to the determination above giving them part V exemption

 

cds

[Linda1001]

Hi cds and Cerbusalert - thanks so much for that! Very interesting. What is the act you have quoted there, cds? - so that I can credit it properly and make it look as if I know what I'm talking about! Then I'll ask them for the letter and post it up - it won't come of course. Does the letter needed apply to overdrafts taken out late nineties?

 

Also - sorry to be a bit thick or slow on the legal uptake but I'm not quite clear on what your last comment means exactly though it sounds just what i need potentially - ie what is part V exemption etc and where did the determination come from... What does it mean exactly in non legal English? Can you just join that up so I'm clear what I'm talking about please?

 

As for the DTI review that Cerbusalert posted: would all that only apply to overdrafts taken out before 2006? Mine were taken out before and I went on a debt management plan with CCCS mid-06 - so they were still ongoing in 06 but originally 'agreed' a few years prior. Does that cut them out othe 2006 regs? Thanks so much! Linda

[cds]

LEGAL AUTHORITY FOR OVERDRAFTS AND THE CONSUMER CREDIT ACT

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© 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, …

© ….

(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.

© 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."

 

The bit underlined means that if the Director makes a determination banks can will not have to issue cca agreements, up to 1990 they woud have, post 1990 they woud just have comply with my previous post.

 

hope that makes sense

 

cds

[Linda1001]

Thank you so much! That is fantastic!!!! Banks - here I come: I've got a determination and now I know how to use it!! Great cds, best Linda

[BornAgainBiker]

hi Linda1001, how did you get on, is your o/d unenforcable? i have a 28k o/d and need to get to the bottom of it. not sure i understand the determination thing. had the account since 1999. can you offer any advice. thanks BAB

[cds]

I think this thread is a bit stale now you would be better off starting afresh with your own story,

 

regards

[quark2009]

listen guys, i am seriously confused by this determination thing, i have read it like 3 times, am i correct to say that the banks comply with "determination" simply by contacting OFT only once and they do not have to contact OFT every time they apply overdraft individually and by notifying the debtor with all the infor (ex. APR) ?

it seems that all the banks would have normally complied with such simple stuff. or am i missing something?

[BornAgainBiker]

Hi Max, i dont under it either. you could try re-posting your question to the thread link below, there seem to be more active caggers there. BAB

http://www.consumeractiongroup.co.uk/forum/showthread.php?t=237096&goto=newpost