I have this recurring image of an enormous office populated by eye-shaded clerks sitting at narrow desks, poring through every word, sentence and paragraph of current consumer legislation, looking for some infinitesimal sign of weakness, some feeble link in the chain of rules and regulations.
Suddenly, a hand in the middle of the throng goes up – ‘I’ve found something!’ Before another breath is drawn, adverts start appearing everywhere, exhorting consumers to challenge their bank charges, contest their loan agreements and their credit cards. Assistance will be readily available, on payment of a fee. Lemming-like, the masses start issuing proceedings throughout the country and settle back in their credit card-purchased sofas waiting for the cash to roll in.
If only it were that simple. The bank charges battle has already been lost. One can understand why one would want to fight the issue in the first place. On the face of it, £35 a pop for going £1 overdrawn would seem to be a bit steep but, as the Supreme Court said, if only it were that simple.Challenging a credit agreement on the basis that the original could not be produced, where the fact of the credit is not denied, appears, on the face of it, to be a much riskier strategy, a fact with which a High Court judge now seems to agree.
In Manchester, challenges to consumer credit legislation seem as popular as tripping cases in Liverpool. This was recognised by Judge Waksman QC, sitting as a judge of the High Court in the Mercantile Court there. In giving a very detailed judgment in the recent case of Carey v HSBC Bank [2009] EWHC 3417 (QB) (unreported as yet, but available on Bailii), he noted that more than 100 cases had been issued in the north-west alone, ‘usually handled initially by claims management companies’.
The claims surrounded consumer requests, under section 78(1) of the Consumer Credit Act 1974, for a copy of the original credit agreement. What if the creditor could not find the original? Must he find a true photocopy, with signatures, dates, addresses et al?
What if he can’t? Is there any other way of satisfying the act? If not, does that create an ‘unfair relationship’ within the meaning of section 140A of the 1974 act? This in itself also raises further (though not so obvious) questions. What if the court finds the creditor in breach of the act? What happens to the loan?
The judgment in this case is some 59 pages long, so, unless you are prepared to read it all, you will have to take it on trust that Waksman J considered all the relevant statutory provisions and legal authorities before he came to his conclusions.
In a nutshell, the ‘no copy’ contention failed. The judge concluded that a creditor can satisfy the provisions of section 78 by providing a ‘reconstituted version’ of the original agreement. That copy must contain the name and address of the debtor as it was originally, but it can provide that information from whatever source it has. It does not have to come from the original agreement. Nor does the ‘reconstituted’ document have to be Consumer Credit Act-compliant as to form, as at the date the agreement was made. Furthermore, even if the creditor is in breach of section 78, that did not give rise to an unfair relationship which could render the agreement unenforceable under section 140A.
But even if the judge had found in favour of the debtor, would that really mean that they could walk away from the debt with a smile on their face? The judge also mentioned a recent, little-known case of McGuffick v RBS [2009] EWHC 2386 (Comm), [2009] All ER(D) 72 (Oct), [2010] 1 All ER (Comm) 48. This case did not hit the media like Carey did, but it is equally significant. In McGuffick, Mr Justice Flaux decided that, even if a consumer credit agreement is declared temporarily unenforceable under section 77, the contractual liability of the debtor to pay the debt still remains. So, if the debtor stops paying the debt because he claims there is a section 78 breach, that breach can be cured and the debt is still payable.
Moreover, even during the breach period, that is to say before cure, the creditor can inform credit reference agencies of the debtor’s breach.
Mr Justice Flaux was also the judge in Brophy v HSBC [2010] EWHC 819 (QB). A credit card agreement stated that the credit limit ‘will be determined by the bank from time to time and notified to you’. The debtor argued that the application form which he signed was merely an agreement to enter into a prospective regulated agreement, and that the definition of the credit limit did not comply with the Consumer Credit (Agreements) Regulations. Neither of those ingenious arguments worked.
So those punters who were seduced into bringing proceedings on the assumption that a clearly incurred debt would just be wiped off by the court may have been seriously deluded. Judge Waksman described such an aspiration as ‘hopeless’. This is especially true because in these cases the debtor is not denying that the debt was incurred. Moreover, many debtors may still be using the same credit card with which the debt was incurred in the first place. Did they really think that a mere technicality would get them out of the debt altogether? That would be cloud-cuckoo land.
I suspect that we have not heard the last of this argument. These matters have a habit of going all the way up the judicial ladder until exhausted by the Supreme Court or even the European Court of Justice. Whether any higher court will come to a different conclusion and let consumers off the hook completely is a matter of pure speculation for which breath should not be held.
District Judge Stephen Gerlis sits at Barnet County Court and is a contributor to Civil Court Service
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