Consumer Credit Act Claims

In 2008, the Consumer Credit Act 2006 amended previous legislation and made it possible for consumers to challenge their credit agreements with lenders on the basis of unfairness.

The Office of Fair Trading (OFT) issued guidance in relation to this new legislation which detailed how they expected it to be interpreted in light of other legislation, namely the Enterprise Act.

The guidance does not specify what constitutes an unfair relationship, but rather provides information relating to how the OFT thinks that a court would interpret the unfair relationship test in specified circumstances. This is to allow courts a maximum amount of flexibility to make decisions about unfairness.

Unfair Relationships

If a borrower alleges that a credit agreement is unfair, it is the lender's obligation to disprove this claim. Not all cases are similar or the same as one another, and just because one person’s claim has been found to be unfair does not necessarily mean that another person, who signed exactly the same agreement, will have an equal or even a valid claim against a creditor.

Unfair Agreements

Broadly speaking, a credit agreement is unfair if the conditions of the agreement (or a related agreement) are unfair, or the lender has exercised or enforced its rights under the agreement (or an agreement related thereto, e.g. Payment Protection Insurance) in a way which is unfair to the debtor, or if they have acted or omitted to act in a way that is unfair, whether either before or after the agreement was made with the debtor. This last category is the broadest category and may include advertising, making demands for payment not within the terms of the contract and failing to provide clear information.

These types of unfair practices fall into two categories; those that are clauses in the terms and conditions of the agreement and which are, as such, inherently unfair, and the business practices of lenders that are by their nature, and the way in which they treat borrowers, unfair. In some cases, a combination of unfair contract terms and unfair business practices combine to make the overall relationship unfair.

Challenging Your Agreement

Since the new Act came into force and the OFT issued the guidance, a large number of claims companies have sprung up, all claiming that your credit card, loan or other debt may be ‘wiped off.’ The claims company will take a fee from you, which is usually returned in the event that your loan or credit agreement is not challengeable. The typical procedure is as follows: once the requisite information about your credit agreement has been obtained, either from you or directly from the lender in question, the agreement is sent to a solicitor who considers whether or not anything within your agreement may constitute an unfair relationship.

Compensation

If the solicitor is of the opinion that your agreement is likely to be unfair in this way, they will enter into correspondence with the lender. As a finding of an unfair relationship is unenforceable in the courts, the lender simply withdraws the agreement so that there is no longer any debt to pay. In some circumstances, the lender may be liable to pay the borrower compensation (e.g. if the borrower had been mis-sold payment protection insurance.) Don’t be fooled into thinking that the process is a quick one: it can take between 6-9 months to have the agreement declared unenforceable, and you will have to continue paying your instalments until this time.