If sold a loan for under £25,000 prior to April 2007 there is up to a 60% chance that it isn't legally enforceable. All regulated loan agreements have to comply with the prescribed terms of the Consumer Credit Act 1974. Sadly for the lenders, not nearly enough do.
This article is designed to help people decide whether it is worthwhile progressing the matter to a solicitor to commence legal action. There are literally numerous discrepancies that could result in compensation being given or the loan being written off entirely.
Types of Credit Agreements Affected
- Secured Loans
- Unsecured Loans
- Hire Purchase
- Consolidation Loans
- Car Loans/Finance
- Credit Cards
- Store Cards
Unlawful Mortgage Agreements
The Consumer Credit Act 2006 also deals with unlawful mortgages and secured loans in excess of £25,000. The process is slightly different, but numerous people have been awarded compensation by the Financial Ombudsman. The simple reality is that a lot of loans aren't fair or lawful.
Can Debt Be Written off?
If deemed to have an unenforceable loan agreement, the debt could potentially be written off in full. There is also a genuine possibility that all repayments and any charges accrued will be refunded. The unlawful credit agreement is treated as if it never existed and is wiped off personal credit records along with any adverse entries.
Won't This Result In A Bad Credit Rating?
If a debt is written off as unenforceable it will not impair a credit rating at all, quite the contrary. It could actually have a positive affect as any recorded defaults, late payments etc are removed the the credit file.
Examples of when a Credit Agreement Might Not be Enforceable
- The lender doesn't have a copy of the agreement.
- The amount of credit (or credit limit) hasn't been stated on the agreement.
- The interest has been incorrectly calculated.
- An increased credit limit has been provided on a credit card without being requested.
- The credit charges are not deemed to be fair.
- The sale of a sub prime (adverse credit) product when a credit record is clean.
- A deposit has been paid and this isn't acknowledged in the agreement.
- No rate of APR is displayed, although some secured loans are variable rate.
- There is no mention of any 'cooling off' period.
- The agreement hasn't been signed.
- If the loan is secured, this should be stated on the agreement.
- A person has been advised that they can only get a loan if they take out Payment Protection Insurance (PPI).
Settled Debts
It is unlikely that settled debts can be recovered. Several test cases have gone through the courts and none have been successful to date. Loans that are included in IVA's and Debt Management Plans can be challenged.
Getting A Copy of The Credit Agreement
Don't worry if the agreement has gone missing as this can be requested from the lender through via SAR request. By enclosing a cheque for £10 to cover expenses, the lender is legally obliged to provide all information it holds within 40 days.
What Happens Next?
It is advisable to show any credit agreements to a solicitor that specialises in financial contract agreements. They will be able to quickly ascertain whether there is a case and the likelihood of being successful.
There are also specialist firms that will take on the case on a no-win no-fee basis for an up-front fee. A number of people have decided to go it alone with the assistance of forums, but the threat of legal action is normally necessary to get the lender to settle. The entire process usually takes 6 to 9 months.
