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Unfair Credit Agreements

Unfair Credit Agreements - The Reality

  • The Claims Management Company charges unusually high upfront costs.
  • The individual may have to appear in court.
  • The underlying debt is never extinguished.
  • The individual often gets in more debt because of missed payments.

Unfair Credit Agreements - Guidance

There has been a surge in the number of claims management firms targeting heavily indebted borrowers with the promise that debts can be written off under section 78 of the Consumer Credit Act.

Many claims handlers charge upfront fees of up to £600 plus VAT to examine cases to decide whether clients have a case worth pursuing.

Guidance issued by the Office of Fair Trading focuses on the Consumer Credit Act.

The Consumer Credit Act states that:

  • Lenders must produce a true copy of the loan agreement within 12 days of the borrower asking for it.
  • If the lender is unable to do this, the debt becomes unenforceable until they can produce a copy.
  • The lender cannot go to court within this time to demand that the debt is repaid, however, it can continue to write to the borrower requesting payment.
  • Once the lender does produce a true copy of the agreement, the debt becomes enforceable again.

Unfair Credit Agreements - Key Points

  • It is thought that the majority of lenders will be able to easily produce true copies of agreements.
  • Advertising by Claims Management companies on unenforceability can be very misleading claiming a high likelihood of debt write off which is untrue.
  • Consumers should beware of paying up-front fees to claims management companies to pursue these sort of claims for them because many of them are unsuccessful.
  • If customers stop repaying credit card debts, it is likely to adversely affect their credit rating, even if the agreement is temporarily unenforceable.
  • Even if the debt is ruled unenforceable the debt remains and the lender is just restricted from taking court action against the client to collect the debt. The lender can still report the debt to credit reference agencies therefore adversely affecting the individuals credit rating.