Thousands could escape debts

Some agreements could prove to be"unenforceable"

Some people who took out loans with specialist lenders in the late 80s and 90s could find the agreement was incorrectly drawn up, and so may not have to pay a penny more.

The loans were normally made by "sub-prime" or non-status lenders, which specialise in lending to people with a poor credit history.

Many people in this situation have found loans such as this attractive, or perhaps their only option, but there have been drawbacks.

They charge a much higher interest rate than most high street lenders. And because they are secured on your home, it is at risk if you fail meet the payments.

But now it seems a flaw in the way some loan agreements were drawn up could swing in the favour of some borrowers in financial difficulty.

Payment protection

Money Box listener Sharon Clarke took out a £10,000 loan for home improvements in 1990.

Little did she know it would lead to the courts, and the possible loss of her home.

I still cannot believe that this has happened. It has been a real nightmare.

Sharon

Sharon arranged the loan with a specialist broker, and was told a firm called Greyhound Credit would lend her the money, but only if she took out a payment protection policy, so the premiums would be paid if she could not work.

But when a serious illness did affect Sharon's ability to work, her insurer did not pay up, and she fell into arrears on her loan.

The lender pursued her for the money - and even though she had already made payments of £36,000 on a loan of £10,000 - it said she still owed £11,000.

In a desperate situation - with the lender trying to repossess her home - Sharon sought legal advice.

And when she did so, to her surprise, the judge declared her loan unenforceable.

I think the cases I get are very much the tip of the iceberg

Bradley Say, barrister

The reason he gave was that because the insurance was compulsory, it should have been included as a cost of the loan, and clearly shown, which it was not.

As a result she did not have to pay a penny more.

Despite this, Sharon has found the whole experience expensive and distressing. She told the programme:

"I still cannot believe that this has happened. It has been a real nightmare. People do not realise what they could get themselves into."

The scale of the problem

Bradley Say, a barrister specialising in consumer credit and mortgages, believes cases like Sharon's could open the floodgates to others.

He told the programme:

"I have got about two or 300 cases similar to Sharon Clark's.

I am pretty sure that every day possession orders are being made in cases where they ought not to be made

Bradley Say, barrister

"And I think the cases I get are very much the tip of the iceberg, as they are people who have gone to see solicitors, or a citizens advice bureau and been referred to the right person."

And he says the true nature of these loans often only comes to light in cases where the lender has started repossession proceedings.

"I am pretty sure that every day possession orders are being made in cases where they ought not to be made, where the court is not really considering the issue of the improper execution of these documents."

He told the programme he believed "tens of thousands" of people could be affected.

However, it is important to point out that just because one loan is unenforceable, it does not mean that all that particular lender's loans are.

Sharon's loan was originally with Greyhound Credit, which is now owned by Sterling Credit, part of HFC Bank.

It would not comment on Sharon's case, but told the programme that it was confident Sterling Credit agreements clearly show how much the optional insurance will cost.

Does it affect you?

Debt specialists like Ahmad Butt, from the Mary Ward Legal Centre in London, are advising people who took out a similar loan with similar specialist lenders in the late 80s or 90s to check their paperwork, as he told the programme:

"If you find anywhere on the agreement details which say that the legal cost of the loan can be deferred, then that would be a very important trigger to be looking for.

"If you can find such an item on your agreement then you need to take steps to seek advice on whether the loan could be enforceable. It may well prove to be unenforceable."

If you were sold insurance as a condition of your loan, or had legal fees deferred but were not told the cost of doing this, you may have a case.

But the arguments are quite technical. It is not something you should challenge the lender on yourself.

You should go to a citizens advice bureau or a specialist solicitor for advice.

BBC Radio 4's Money Box was broadcast on Saturday, 12 July, 2003 at 1204 BST.