OFT consults on unenforceable credit agreements guidance

05/10 27 January 2010

The OFT has today published draft guidance for consumers and industry on the application of sections of the Consumer Credit Act 1974 (the CCA) that allow consumers to request information about their credit agreements.

The OFT is consulting on guidance because of concerns that some debtors are being misled into thinking that these sections can be used to get their debts written off and that some creditors are not following legal obligations to provide information to customers.

The draft guidance consists of a document setting out the technical legal issues for businesses and consumer advisers, and a simpler version for consumers.

It incorporates the findings of recent High Court cases that have clarified a number of technical issues. For example, sections 77-79 of the CCA allow a consumer to request a 'true copy' of their agreement. The High Court ruled that a true copy does not have to be a photocopy or an exact copy of the original. The lender is allowed to provide a reconstituted agreement, as long as that version is accurate and contains all the original information apart from the few exceptions that the law allows (which include the signature, signature box and date of signature).

The guidance also makes it clear that if a lender cannot comply with the sections - making an agreement unenforceable - then it is restricted in the debt collection activities it can undertake. Whilst lenders are able to request repayment and to record any arrears or default with a credit reference agency, the OFT considers it would be wrong to threaten court action if the lender knows that it is not possible.

Ray Watson, OFT director of consumer credit, said:

'There has been a great deal of confusion over the meaning of these sections with many borrowers being misled into thinking that they can get their debt written off.

'This guidance is to clarify the legal position and the OFT view on standards expected of the industry, and to make consumers aware that they may be at risk if they seek to use these sections to avoid paying legitimately owed debts.'

The deadline for responses to the consultation is 21 April 2010.

NOTES

1. The consultation document is available on the OFT website.

2. The recent judgment in Carey v HSBC Bank Plc [2009] EWHC 3417 can be found on the Judiciary of England and Wales website.

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