Write off your debt

09/27/10 by Nigel Palmer | 2 Comments

Posted in: News

High Court decision on debt loophole dashes write-off hopes for thousands

Many of the UK’s 3,000 Claims Management Companies (CMCs) attract clients with promises that they can exploit legal loopholes to write off certain unsecured debts, most commonly personal loans and credit cards.

A landmark court court case has dented the hopes of hundreds of thousands of people looking to wipe off their loan and credit card debts

An estimated 100,000 have been pursuing getting their debt written off through a legal loophole. The test case involving the Royal Bank of Scotland (RBS) will impact their hopes of having their debts cancelled.

The test case taken to the High Court involved Phillip McGuffick who was seeking to have his £17,000 loan from RBS deemed unenforceable. The judge ruled that despite RBS falling foul of the Consumer Credit Act by failing to produce a copy of the original loan agreement, Mr McGuffick should not stop paying back his loan while the claim in ongoing as the loan may become fully enforceable in future.

The judge also noted that should this happen Mr McGuffick’s credit rating could be damaged, and the cost of the loan may have increased as a result of charges and interest applied to the loan.

The court case is also likely to impact the multi-million pound debt write-off industry provided by claims management companies who offer to write off credit card and loan debt in exchange for upfront fees.

The court case

The judge ruled that consumers should not stop paying their loans just while a claim in ongoing as the loan may become fully enforceable in future.

Under Section 77 of Consumer Credit Act, if a lender cannot provide a copy of a loan agreement upon request, the lender may not enforce payment that loan while that default persists. However, if the lender subsequently provides a copy of the loan agreement, he has the right to enforce the loan again.

Therefore the loan is not automatically written off in full, nor are the loan payments during the period of default by the lender (where the original agreement cannot be produced). Instead all the rights and obligations under the loan agreement continue, although they cannot be enforced until a copy is provided.

An update to this News item 16/10/2010

OFT challenges debt wipe-out claims

by Gill Montia of  http://www.bankingtimes.co.uk

Story link: OFT challenges debt wipe-out claims

The Office of Fair Trading (OFT) is warning consumers that they are being misled by fee-charging firms that claim to be able to use sections 77/78/79 of the Consumer Credit Act 1974 to wipe out debts.

The watchdog has published a guide to the rights consumers have under these sections of the Act, explaining that for a fee of £1 they can request a copy of their credit or hire agreement and the information on their account.

A borrower can then establish what was originally agreed, what the agreement is now (if it has changed) and how much is still owed.

If the lender fails to provide the requested information, the agreement becomes “unenforceable”, meaning that the lender cannot get a court judgment 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.

However, the OFT warns that even if a credit or hire agreement becomes unenforceable, any outstanding money is still owed by the borrower to the lender.

In addition, interest can be added to their loan or hire agreement, default charges can be made, and any failure to pay can impact on their credit rating.

The guide also makes the point that the debt is enforceable again as soon as the lender provides the information requested.

The OFT’s consumer credit group director, Ray Watson, says: “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.”

Tags: debt write off - write debts off