New OFT warning on debt write off companies

16th October 2010  

If you’re looking to compare credit cards this week, there’s been a shift in the positions at the top of our balance transfer credit card tables as a result of the relaunch of a number of MBNA’s products.

Also with some autumn turbulence in the credit card industry over the gradual move towards ‘positive payment order’, UK Consumer Watchdog The Office of Fair Trading (OFT) is warning people to stay well clear so-called ‘Debt Management Companies’ who claim to be able to get credit card and loan debts written off.

Over the last 5 years the number of companies who claim to be able to legally steer debtors clear of their unaffordable or unwanted debts has risen dramatically.

This has led to thousands of frequently groundless claims to be launched against lenders. The claims often centre on using sections 77, 78 and 79 of the Consumer Credit Act 1974 to wipe out debts. As ever if you’re embarking on a credit card comparison, or entering into a loan agreement it’s vital to read and understand the small print and its long term implications if your circumstances change.

This problem has become so serious that the OFT published draft guidance on the issue in January 2010. The OFT has now published a full consumer guide on the issue. The guide explains that consumers have the right to request a copy of their loan, hire or credit card agreement and the information on their account.

If the lender fails to provide the requested information the agreement becomes ‘unenforceable’ which means the lender cannot get a court judgement against the borrower, take back hired items or items bought on credit, or take anything used as security (like a car) when the agreement was made.

Crucially however, the guide warns that even if a credit card, loan or hire agreement becomes ‘unenforceable’, consumers would still owe any outstanding money to the lender, interest could be added to their loan or hire agreement, default charges could be made, and any failure to pay could impact on their credit record. The guide also explains that the debt is enforceable again as soon as the lender provides this information.

The OFT’s new guidance points to recent rulings by Judge Waksman QC in the High Court in Manchester. Some of these actions involve claims by ‘Debt Management Companies’ that a debt is permanently unenforceable if lenders were unable to produce a “true copy” of the loan agreement within 12 days of it being requested. It appears lenders don’t currently keep the original or even a scanned copy of original agreements.

But the Judges ruling confirmed that it was acceptable for lenders to produce reconstituted copies of original loan agreements, for the purposes of providing the borrower with information about their loan providing all the relevant details are included. This information can be requested from the lender for just £1.

Ray Watson of the OFT’s Consumer Credit Group said

“Consumers have a right to information on debts they owe, but it is important that they realise that these sections of the Act cannot be used to write off legitimately owed debts.

Mr Watson said the borrower could not “sell” a debt to a claims management company. The lender could also add interest and default charges to the loan, and the borrowers’ credit record could also be impacted.

The ‘Debt Management Companies’ often make exaggerated claims of being able to legitimately write off peoples debts. The appeal of their services is clearly a fresh financial start, but these firms often charge hundreds of pounds up front for their work and leave consumers in a significantly worse financial position. Consumers should be aware that if they approach lenders with the right attitude and with professional advice, repayment deals can often be done over old debts which would cost them no more.

Judge Waksman did find against the lenders on some points. He said that copies of loan agreements, when requested, had to contain the borrower’s name and address at the time it was signed.

He also ruled that if an agreement had been varied during the term by the lender, then they were obliged to supply a copy of both the original agreement as well as the current one.


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