The OFT on enforceability

[Mistermind]

(The OFT cannot overule the courts, but the OFT has the power to license or not license credit cards.)

 

5 hours ago: BBC News - Lenders warned not to mislead customers over debts (contents below)

 

Lenders warned not to mislead customers over debts

 

The outcome of the test cases will

affect thousands of potential claims

 

Lenders must not mislead borrowers that their debts are enforceable, when in fact they are not, the Office of Fair Trading (OFT) says.

 

The regulator also says many debtors have, in turn, been misled about their ability to escape their debts. The OFT's comments are part of an intervention in a series of High Court test cases about the enforceability of debts under the Consumer Credit Act. The outcome could affect thousands of potential courts cases.

 

The OFT has supplied its draft guidance on part of the Consumer Credit Act (CCA) to Judge Waksman, who is hearing the cases in Manchester. "The OFT's decision to prepare guidance at this time has primarily resulted from our concern that debtors are being misled as to the meaning and interpretation of sections 77-79 [of the Act] in particular," the OFT said in a letter to the judge. "And on the other hand concern that some creditors appear not to understand the nature and extent of their obligations under these sections," it added.

 

Numerous disputes

 

The 12 test cases at the High Court in Manchester are aimed at settling a number of contentious issues about the interpretation of the law.

 

It is important to remember that the purpose of these sections is to provide information to consumers, not to provide a method for consumers to avoid paying their debts

 

Draft OFT guidance

 

The general position is that lenders who wish to chase defaulting borrowers for the repayment of their loans have to comply with a number of obligations. One of them is that under sections 77-79 of the Act they should supply a "true copy" of the original signed loan agreement within 12 days of the borrower asking for it. If they do not then the debt is unenforceable until such time as the copy can be provided.

 

"Unfortunately, consumers have often been given an exaggerated expectation of what the creditor or owner must do in order to comply with an information request, as a result of misleading claims by claims management companies and inaccurate information on the internet," the OFT's draft guidance says. "As a result, numerous disputes have been generated over whether a request has properly been made, whether the duties have been complied with and whether as a consequence the agreement can be enforced," the OFT adds.

 

Unfair business practices

 

The OFT's guidance clearly disagrees with some of the arguments that have been put forward by some claims management companies on behalf of their clients. In particular, the regulator points out that it is perfectly legal and proper for a bank that has lost the original loan agreement, or whose copy is illegible, to supply an accurate "reconstituted" version instead, to show that the agreement did in fact include the information specified by the Act.

 

"It is important to remember that the purpose of these sections is to provide information to consumers, not to provide a method for consumers to avoid paying their debts," the OFT says. But the OFT goes on to advise that lenders would be acting unfairly, and potentially in breach of their consumer credit licenses, if they misled borrowers by:

 

• hiding or disguising the fact that there was never a proper signed agreement in the first place

 

• providing only a copy of the current terms and conditions, not the original ones

 

• confusing the borrower as to who they should send an information request after selling the debt to a debt collection company

 

• failing to preserve data so the borrower cannot be given an up to date statement of account.

 

Carl Wright of Cartal Client review, one of the claims management companies involved in the test cases, welcomed the OFT's views. "During 2008 and 2009 the number of financial claims made by consumers have increased significantly," he said. "Banks and credit card companies have in the main, steadfastly refused to confirm any inability to be able to provide a 'true copy' of the requested credit agreement, where one never existed."

 

Disagreement

 

A recent High Court case, between Philip McGuffick and the Royal Bank of Scotland, established that even if a debt is temporarily unenforceable, the lender can still mark a customer's record with a credit reference agency as being in default, because the debt itself has not been extinguished.

 

The OFT can take into account any practices which we consider to be oppressive, misleading or improper, whether they are unlawful or not --

OFT official

 

The OFT agrees with this, but its draft guidance goes against the grain of other conclusions of that case. The judge said it was legal for lenders to take other steps to get their money back, such as demanding repayment of the loan, issuing a default notice, threatening legal action, and even starting legal proceedings.

 

But the OFT said it might take a dim view of these tactics. "For the purposes of considering whether a company is fit to hold a consumer credit licence, the OFT can take into account any practices which we consider to be oppressive, misleading or improper, whether they are unlawful or not," an OFT official said. The OFT's draft guidance says: "No communications or requests for payment should in any way threaten court action or other enforcement of the debt where the creditor or owner is aware that it cannot and will not be entitled so to enforce the agreement."

 

"The creditor or owner should make it clear in communications to the debtor that the debt is in fact unenforceable," it adds. The guidance goes on to warn that: "To mislead debtors into making payment may in certain circumstances amount to an unfair commercial practice under the Consumer Protection from Unfair Trading Regulations 2008."

 

"It is quite clear that the OFT guidance would increase consumer protection and instigate standards within the banking industry that would reduce the abuse of consumer rights," said Carl Wright.

 

The OFT has delayed publication of its draft guidance until the outcome of the Manchester High Court hearings, whose judgements are expected to be delivered in January 2010.

Edited December 4, 2009 by Mistermind
formatting

[mills1]

Thanks for the link Mistermind.

Interesting, so if the OFT thoughts are put into practice there will be no need for the courts to rule initially anyway.

As in my example of Egg:

 

" Dear Valued Customer,

You must be warned that your agreement with us dated xxxxxx is totally unenforceable, we have to tell you this under OFT Guidelines.

If you feel flush enough to help a few bankers pay for a nice holiday to warmer places please send payment of £xxxx as soon as you feel able to.

Otherwise, please ignore this stupid letter.

Sorry to impose on your valued time.

 

Egg."

 

Seriously though, about time the OFT did something good.

Hats off to OFT I say

[mills1]

Just read the full thread.

So, just because they cannot provide a true copy of an original agreement they could expect payment of the debt if they send a copy of the latest agreement?

Is that what the OFT seem to be saying here? or is it too early in the morning for me?

Just another thought, could the lenders put any request for cca's on hold until after the test case?

Starting to sober up

[Mistermind]

 

Thanks for the link Mistermind.

Interesting, so if the OFT thoughts are put into practice there will be no need for the courts to rule initially anyway.

 

OFT can threaten to withdraw their licence for credit card owners. This would obviously be an extreme action not lightly taken. OFT are the non-elected appointed executive branch of government, but there are checks and balances from the judiciary courts and legislative parliament. Then there is the court of public opinion and freedom of the press.

 

All the ingredients being put into the melting pot will come out clearer with Test Case verdicts in January then a clear declaration from the OFT. Until then everybody is struggling with legalese and intentionally unclear statements . Not long to wait now.

 

Yesterday's link looks to be an OFT leak to the BBC. There should be a declamation direct from the OFT in the new year, the way their declamation on 5th April 2006 changed everything, unleashing a tidal wave if not tsunami of penalty charge reclaims.

Edited December 5, 2009 by Mistermind

[Mistermind]

it is to be known as Carey v HSBC [2009]EWHC 3417 (QB) . It was passed down at 2pm yesterday.

 

http://www.consumeractiongroup.co.uk/forum/show-post/post-2663133.html

 

The case Carey v Hsbc was mainly over what a creditor needs to do in order to comply with s. 78 request. They are to be allowed to reconstitute agreements. This is also in accordance with the OFT draft guidance which was introduced into evidence. They do not have to provide a photocopy of the application at all.

 

In addition prescribed terms can be overleaf or referred to as attached for agreements pre 2005. This will be a matter of evidence individual to each case

 

I am sorry if this is not what you want to hear. I would confirm that I am not linked to any CMC company

 

The Test Case verdict in the Manchester High Court yesterday afternoon specifically introduced in court the draft OFT guidance which the judge upheld. Full judgment text link below. Following more Test Case verdicts in January there should come a pronouncement direct from the OFT CEO.

 

Those who want to be up to date on 12 frontline Test Cases in Manchester can follow the thread below, currently with 600 postings.

 

http://www.consumeractiongroup.co.uk/forum/legal-issues/216538-claim-stayed-due-unenforceable-31.html

 

For those who have been waiting.........

 

Carey v HSBC Bank Plc [2009] EWHC 3417 (QB) (23 December 2009)

 

http://www.consumeractiongroup.co.uk/forum/show-post/post-2663433.html

Edited December 24, 2009 by Mistermind
judgment text

[mills1]

So, basically we're stuffed?

[Mistermind]

So, basically we're stuffed?

Threre are furious disagreements in the other thread about the implications of the latest jdgment. No two lawyers will agree what day of the week it is.

 

With a spate of Test Cases due in January followed by a probable OFT pronouncement, too early until February to say who apart from the turkey has benn stuffed.

[seriously fed up]

Not necessarily imo.

• First of all this case applied only to s78 applications and the consequences of banks not being able to supply these.
  
• Secondly the findings seem, to me at least, to apply only to s78 requests:viz
  

(1) A creditor can satisfy its duty under s78 by providing a reconstituted version of the executed agreement which may be from sources other than the actual signed agreement itself;

(2) The s78 copy must contain the name and address of the debtor as it was at the time of the execution of the agreement. But the creditor 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;

(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;

(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 varied terms;

(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;

(6) The Court has jurisdiction to declare whether in a particular case, there has been a breach of s78. Whether it will be appropriate to grant such a declaration depends on the circumstances of that case;

Put briefly, creditors can supply a reconstitution, to use the phrase in the judgement. But I think the phrase -"true copy" - used in the 74 Act is more instructive. First of all it has to be a "copy" and secondly it has to be "true". So they can say "well it would have looked like this". But then there will be potential to argue that what has been provided isnt a true copy. There are lots of examples on here of people who get copies of documents that have someone else's name on them. I have one lender (lets call them Bank A) with whom I had a card, but that card was actually entered into with another lender (lets call them Bank B). So, if they came up with a reconstitution of the original agreement that was headed Bank A, then it cannot be a true copy. I cant remember where I read this, but the reason for the use of the phrase "true copy" was that before the wide availability of photocopiers that we have now, a "true copy" would be produced by a clerk sitting down and rewriting (or typing) the original application. In my opinion, the court is giving the banks more leeway than that as we know (eg RBS) that they will lie. That is a source of concern. Moreover, while Waksman does make certain demands of the lenders for a reconstitution to be considered to be adequate -

“It seems to me that the following information needs to be included in the reconstituted copy agreement (assuming of course that it was present in the original):

(1) Heading: Credit Agreement regulated by the Consumer Credit Act 1974. Mr Mitchell accepted that it should be there as a matter of description and it is always in the copy terms and conditions provided anyway;

(2) Name and address of the debtor: I have already held that this must be provided in the copy;

(3) Name and address of the creditor: there may be little interest on the part of the debtor in seeing this but the creditor is a party to agreement and it would look odd if it was left out altogether. It appears in the Carey and Atkinson pages referred to above;

(4) Cancellation clause applicable to the executed agreement. Taking Carey as an example, the reconstituted application form contains a copy of the cancellation notice as it would have appeared at the time. On the executed agreement itself, this is in very brief form. At pl98 there is the more extensive cancellation provision box which is required for s63 copies by reason of Reg. 5 of the Copies Regulations and the schedule thereto. As both Mr Say and Mr Mitchell have pointed out, there is a difference between the two. It seems to me that there is the possibility of confusion here. As the cancellation notice in the executed agreement is the one to be copied, there is strictly no need for the further and different one in the attached terms. That one could simply be struck out. Mr Mitchell has said that the provision of the s63 version is better because it gives a fuller description of the cancellation rights. I see that but, even though it may seem artificial, to fulfil the requirement of true copy of the executed agreement, it is the shorter cancellation provision that should be included.”

These are hardly onerous – all they need provide along with any t&cs is a suitable heading to emphasise what it is, the names and addresses of the parties, and a cancellation clause

However, he does make the point (para 119) that “The important point, however, is that a copy provided under s78 is not to be regarded as non-compliant simply because it is reconstituted or is derived from a source of information other than that which appears on the original executed agreement itself”. Now this may look like bad news – and in the sense that they can produce any old load of pap and get away with it, it also means that because they have satisfied this very easy test of s78 it does NOT mean the agreement is enforceable. As Waksman points out at para 119 “The only other possible question is whether the terms and conditions set out at pages 198- 201 were in fact those applicable at the time of the executed agreement and contained or referred to therein. The pleaded claim is that the agreement was made in the early 1990s whereas the creditor says 1999 and the terms and conditions appear to derive from 1998. The appropriate course here is to allow that purely factual issue to go forward if the debtor wishes it. In any particular case there may arise a factual dispute of this kind which may need to be resolved. The important point, however, is that a copy provided under s78 is not to be regarded as non-compliant simply because it is reconstituted or is derived from a source of information other than that which appears on the original executed agreement itself. The fact that the creditor no longer has the original executed agreement is not therefore, itself a bar to compliance with s78.” Waksman may well take the view that providing a reconstituted document complies with S78, but in my view the more important point is a couple of sentences earlier on “The pleaded claim is that the agreement was made in the early 1990s whereas the creditor says 1999 and the terms and conditions appear to derive from 1998. The appropriate course here is to allow that purely factual issue to go forward if the debtor wishes it” which is saying, if I read it right, that compliance with s78 does not make an agreement enforceable. This it seems to me is an important point

3.More important, I think, is point 7 in the judgement. This says, “(7) In assessing whether Prescribed Terms are "contained" in an executed agreement the principles set out at paragraph 173 above are relevant. On the assumed facts set out at paragraph 177 the Prescribed Terms were so contained;” So off we go to paragraph 173, where it says, “The OFT has formulated the matter in a slightly different way but accepts these principles are close to its position.

(1) It is not sufficient for the piece of paper signed by the debtor merely to cross-refer to 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.

So, if I read this right, its saying that prescribed terms can be cross-referred from the signature document at the point of signature but a copy must be provided at the time of signature, but need not be on the same page. I draw some comfort from item (1) above, which seems to me to say that even if the prescribed terms are not on the signature document, there is a term cross-referring the debtor to them in the T&Cs which will have been provided at the time the debtor signs up (in other words there should be a term on the signature document saying “terms prescribed by the Consumer Credit Act 1974 are contained in the T&Cs overleaf as paragraphs 1-4” – or something very like that). Now it seems to me that lenders have two problems here:

·How often are T&Cs provided at the time of signature? At best, sometimes but not always. And then there is the problem of how do they prove these things were provided – in the Mitchell case, they couldn’t.

·More crucially how often does a signature document have that kind of term? In my small “black museum” collection of such documents, not only is there almost always no reference to the prescribed terms at all (its usually biog/ admin/ financial stuff – where do you stay/ what’s your job/ how much do you earn) and no reference to them either.

Therefore I am not really sure how much further forward this takes lenders as they are simply screwed on another different, but cognate argument. On the other hand, being able to supply several pieces of paper seems to be provided as long as its one document (though this is a factual matter as Waksman accepts) – but even then, unless I am reading item (1) wrongly, the signature document should either include the prescribed terms or cross-refer to them.

So to answer your question, Mills 1, while the judgement could have been more helpful, I am not sure, to follow Mistermind’s analogy, who is the turkey. It might well be them?

[militantconsumer]

Subbing.

 

I would have thought that s65(1) and s127(3) would still apply - i.e. if a pre-2007 agreement does not contain the prescribed terms then it cannot be "enforced" by the court and the alleged debtor doesn't have to pay anything.

 

S77/78 seems like a distraction to me.

 

But let's see what comes out in the next couple of months.

[Mistermind]

OFT consults on unenforceable credit agreements guidance - The Office of Fair Trading

 

http://www.oft.gov.uk/shared_oft/consultations/OFT1175con.pdf

 

An update from the OFT today. They will now consult with various stakeholders (welcoming feedback from the public, even consultation with the OFT in person ), then issue a firm guidance on 21 April 2010. The OFT do not have the powers of a court of law, but they are the annual licensor of credit cards and DCAs and can put them out of business by revoking same. The OFT have teeth and how.

 

What is new about the OFT's clarification today is that they go along with the McGuffick ruling, that even where legal enforceability has not been confirmed in court, the creditor can continue to issue DN, blacken credit history and attempt to collect the debt outside of law courts. However, according to the OFT, the creditor or DCA must not threaten court action where they know an agreement is unenforceable. They may not mislead the debtor into thinking an agreement is legally enforceable where it is not.

 

How either party can psychically ascertain whether an agreement will be confirmed as enforceable/unenforceable at some time in the future is beyond me. It is a judge hearing an application for enforcement who will make that final decision, yea or nay. The judge has discretion within limits. Who is going to read in advance the mind of a judge yet to be allocated to a case yet to be lodged in a court yet to be determined?

Edited January 27, 2010 by Mistermind
added 2nd link