Page last updated at 15:45 GMT, Wednesday, 27 January 2010

Debt case guidance issued by Office of Fair Trading

Credit cards being cut up
The OFT guidance warns both lenders and borrowers

Lenders and borrowers have been issued with draft guidance about when their loans may, or may not, be enforced.

The Office of Fair Trading (OFT) said it was worried that some debtors were being misled about their ability to get their debts written off.

Thousands of claims have been launched in the past couple of years, against lenders, by borrowers trying to avoid repaying their debts.

The draft guidance focuses on the rules laid down by the Consumer Credit Act.

The OFT's guidance draws on recent rulings by Judge Waksman at the High Court in Manchester.

He 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.

The OFT said: "Some debtors are being misled into thinking that these sections [of the Consumer Credit Act] can be used to get their debts written off and that some creditors are not following legal obligations to provide information to customers.

"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 authorities have been worried that some claims management companies have been drumming up business by exaggerating the chance of clients getting their debts cancelled.

The OFT considers it would be wrong to threaten court action if the lender knows that it is not possible
Office of Fair Trading

Claimants have typically sought to achieve this by challenging their lenders to meet the strict requirements of the Consumer Credit Act.

One of these is that lenders have to produce a "true copy" of the loan agreement within 12 days of being asked.

If a legible true copy cannot be produced then the loan is temporarily unenforceable, by way of a county court judgement, until such time as a copy can be found.

Some claims management companies have argued that the debts are permanently unenforceable in these circumstances.

Copies necessary

Not all the Manchester rulings went the way of the lenders.

Judge Waksman said that copies of loan agreements, when requested, had to contain the borrower's name and address at the time it was signed.

And he ruled that if an agreement had been subsequently varied by the lender, then the lender was obliged to supply a copy of both the original agreement as well as the current one.

Some lenders have found it very difficult to produce even reconstituted copies of their original agreements in line with these obligations.

Warning to lenders

Another recent leading High Court case established that even if a debt was temporarily unenforceable, it was still legal for lenders to take other steps in the meantime to get their money back.

The judge, in the case of the Royal Bank of Scotland and a customer called Philip McGuffick, said the lender could still mark a customer's record at a credit reference agency as being in default, because the debt itself had not been extinguished.

They could also demand repayment of the loan, issue a default notice, threaten legal action, and even starting legal proceedings.

All of these fell short of the legal definition of enforcement, he said.

However in its draft guidance the OFT warned lenders not to go too far by exaggerating the strength of their legal position.

"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," the OFT said.

"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," it warned.

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