Can you really claim to have your debts written off?  Are many credit agreements really unenforceable?

The Office of Fair Trading (OFT) posted a press release on 27th January 2010 on the sometimes controversial challenging of Unenforceable Credit Agreements.  You can view this document below:

>>> Guidance on Sections 77/78/79 of the Consumer Credit Act 1974 (pdf)

Without going in to too much technical detail, my quick overview on the report is:

1. If a creditor is in breach of any of these sections of the Consumer Credit Act (CCA) 1974 then they are restricted in the debt collection activities they can undertake.  They cannot legally enforce the debts using the courts i.e. the debts are legally unenforceable
2. Lenders that cannot enforce debts through the courts will probably continue to request repayments of debts through writing letters to borrowers and may record arrears or default with the credit referencing agencies.  In other words, though borrowers have no legal obligation to pay unenforceable debts, the consequences of not paying a debt will probably be a tarnished credit record.  While this will not have a particularly negative impact on people who already have negative marks on their credit file, borrowers who want to maintain a good credit score will want to consider this likely consequence in using the CCA to ‘write off’ debts
3. The CCA 1974 is a complex document and it is unlikely that a clear precedent will be created allowing large numbers of consumers to quickly and easily write off debts that are technically unenforceable

Is This Ethical?

Some people will raise the moral question of “is it fair for borrowers to use ‘loopholes’ in the law to escape legally having to pay their debts?”

That depends on your viewpoint.  How would you feel as a responsible borrower who has always honoured their debts, if you found out that someone you know, has borrowed heavily and spent irresponsibly only to ‘get off’ with paying their debts?  You would probably feel quite resentful.  If people have been irresponsible, they should pay the price for their irresponsibility, or how else will they learn from their mistakes and correct their ways… right?  That’s certainly one valid viewpoint.

Let’s consider another viewpoint.  In recent years (at least up until the credit crunch of 2008) banks and credit card companies continued to grant what were unprecedented amounts of credit to consumers and very often to consumers who were already heavily in debt.  In fact, a person who maintained a large amount of debt could get access to credit more easily than someone who borrowed very little and who had low levels or no debt.  That’s just the way it was (and still is to a large extent).  So, does some of the irresponsibility lay with banks and credit card companies?  Yes it does.

What about recent bank bailouts by the Government (taxpayers)?  Some would argue that banks have been irresponsible and have been bailed out, what about consumers?

What about the billions of pounds the banks have charged customers through unfair bank charges?  The banks and credit card companies have made enough money out of us, isn’t it time we got our own back?  This is just another viewpoint.

Conclusion

Setting aside viewpoints and opinions, the law is the law.  When a contract is created between two entities, that contract must be water tight if it is to be enforced, if challenged under law.  The Consumer Credit Act 1974 is clear on what a lender must provide to a borrower when requested.  Unsecured credit under £25,000 that was taken out prior to 6th April 2007 must comply with certain sections of the CCA 1974 if it is to be enforced when challenged.  It is as simple as that, regardless of opinions, political spin or moral viewpoints.

N.B. making a claim to have debts written off is not guaranteed and is  not an alternative for established debt solutions such as debt management plans and IVAs.

© 2010 Paul S Flintoft

>>> Find out if you might be able to make a claim
>>> Can you claim back bank charges?
>>> Debt help and advice