Last month, I reported on the Office of Fair Trading (OFT) draft
guidance note on how to comply with duties to give debtors and
hirers copy documents and statements of account following requests
under sections 77–79 of the Consumer Credit Act 1974 (the Act)
(click here for more details).
There has now been a case, McGuffick vs Royal
Bank of Scotland PLC.
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The facts
McGuffick entered into a fixed-sum
regulated loan with the bank. A default notice was served together
with a letter warning that if payment wasn’t made, information
about the debtor’s indebtedness would be passed to Credit Reference
Agencies (CRAs). A s77 information request was then made by the
debtor and the bank was advised that as the debtor considered the
agreement was in dispute, no reference should be made to CRAs and
no other enforcement could be taken until resolved.
The bank was unable to locate a copy of the
agreement and advised the debtor that although the loan may be
unenforceable, it was still valid and that continuing default would
be reported to the CRAs. Although the bank did subsequently send a
copy of the agreement to the debtor, it failed to supply a signed
statement of account as required by s77(1) at the same time. The
debtor commenced proceedings for a declaration that the agreement
was irredeemably unenforceable.
The decision
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By GlobalDataThe court found that:
• The effect of unenforceability under s77 of the
Act was that the bank’s rights and the debtor’s
liabilities/obligations continued to exist but were unenforceable.
Those rights/liabilities were not thereby extinguished or deemed
never acquired. As the bank had subsequently complied with the
request, the agreement was now enforceable.
• Continuing default could be reported to CRAs by
the bank. To do so was an essential act of responsible lending and
of the licensing process. It allowed CRAs to share the bank’s data
with other financial institutions for the purposes of assessing
credit applications. The debtor’s data was being processed fairly
and lawfully and the debtor was not entitled to injunctive relief
to prevent such use of the data.
• Such reporting did not constitute a step in
enforcement contrary to the Act.
• The bringing of proceedings was only a step taken
with a view to enforcement and not actually enforcement.
• Demanding payment, issuing a default notice,
threatening legal action and instructing a third party to demand
payment or otherwise to seek to procure payment from a claimant was
not enforcement either for the purposes of the CCA.
This is a positive judgment for finance
company lenders.
Many debtors who have commenced proceedings seeking
a declaration that their credit agreement is irredeemably
unenforceable under sections 61 and 127 of the Act by reason of a
failure by the lender to comply with an information request will
now need to amend or discontinue their proceedings.
If they do not do so, finance companies should take
advice on making applications for strike out or summary
judgment.
Greg Standing is a partner in Wragge
& Co LLP’s Finance, Insolvency, Recoveries and Sales
team
