Banks treating people unfairly? Surely not

October 23rd, 2009

There has been disturbing news from the ongoing saga of Bank charges. Banks have been told by the Financial Ombudsman Service (FOS) that they must deal fairly with people who ask for the return of overdraft charges because of hardship.

Banks are supposed to consider such cases, even though all other refund claims are on hold pending the outcome of a long running legal test case. Under Financial Services Authority (FSA) rules, banks are supposed to treat hardship claims sympathetically.

However, the FOS says it has received many complaints that this is not happening.

The Ombudsman’s letter to the banks spelt out its concerns: “We see cases where it appears to us that the bank has not engaged properly with the consumer [or their representative] to gain a clear understanding of the consumer’s financial position. Where banks follow iterative or circular processes, consumers can be left feeling powerless to progress their complaints.

“This difficult situation is made worse by standard or generic statements [by any of the parties] which do not address the consumer’s individual circumstances and may even be inaccurate.”

In July, the campaign group Legal Beagles obtained figures from the FSA, using the Freedom of Information Act, showing that while 178,000 people had made hardship claims, since July 2007, only 53,000 had been accepted.

About 32,000 had been rejected and put on hold because the bank said there was not sufficient evidence of hardship, and 93,000 cases were still being assessed.

The FOS has also written to claims management companies, who submit many claims on behalf of their clients, asking them to co-operate by ensuring they give banks the necessary information to judge if their clients are in genuine financial hardship or not.

The banks said that many claims for hardship, channelled through these claims-handling firms, were turning out to be “spurious”.

Under the rules, financial hardship is defined as not having enough money to pay for reasonable day-to-day expenses and other usual outgoings.

If someone claims they are in financial difficulty this does not mean they can automatically expect their claim for the refund of past overdraft charges to be accepted.
But the claim must be dealt with using a “sympathetic and positive approach”, said the FOS.

In July, about 1,126,000 ordinary refund claims were on hold, either with the banks or the FOS itself.

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Cancel your debts? The law is clarified

October 16th, 2009

Last week this blog discussed a consumer who managed to get her credit card debt cancelled because of a legal technicality regarding the bundled selling of Payment Protection Insurance (PPI). However, a High Court ruling this week has dashed the hopes of many other consumers trying to follow this example.

The ruling will also suffocate the multimillion-pound debt avoidance industry that has expanded rapidly over the past year or two as consumers struggling to keep up repayments are seduced by attractive claims.

Many of the UK’s 3,000 Claims Management Companies (CMCs) attract clients with promises that they can exploit legal loopholes to write off certain unsecured debts, most commonly personal loans and credit cards.

The industry depends on the CMCs establishing that the customer’s original loan agreement is “unenforceable” because it is in contravention of one or more requirements of the Consumer Credit Act 1974.

The simplest tactic that CMCs use is to demand to see a copy of the client’s original loan agreement. Under the Consumer Credit Act, if the lender cannot provide a copy within 12 days, which many banks struggle to do with older loans arranged by predecessors, the debt becomes “unenforceable”.

Where the bank can provide the documents, lawyers will advance other arguments, such as that the terms and conditions page was not signed or that certain information required by law was missing. Some CMCs have built their businesses on the promise that unenforceability means that the borrower is no longer obliged to repay the loan and lawyers say that many thousands of people have already stopped payments. Others have continued with repayments, hoping that their loans would be be cancelled.

The High Court decision will mean defeat for tens of thousands of similar county court cases, which have been put on hold until the test case involving Royal Bank of Scotland (RBS) was resolved.
The tens of thousands of county court claims on hold are from borrowers asking the court to cancel the debt on the basis that it is unenforceable. Ultimate Law, a Manchester-based law firm, estimates that 100,000 claims are in progress.

Given the amounts at stake, the county court referred the matter to the High Court, which considered the case of Phillip McGuffick, who was seeking to have his £17,034 personal loan from RBS declared unenforceable. The case was heard on the basis that both sides agreed that the loan was unenforceable and the judge was asked to decide what this meant.

Mr Justice Flaux ruled: “Although the [Consumer Credit Act] may render the agreement unenforceable, the agreement remains a valid and subsisting contract and rights and obligations under it continue to exist”.

The Ministry of Justice, which regulates the UK’s 3,000 CMCs, has recently stepped up its campaign against unscrupulous practices in the industry. Last year it banned 116 CMCs for offences including exorbitant fees and misleading advertising. The ministry had no comment on the RBS case.

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Despite the scams, UK debts are being written off

October 7th, 2009

Several months ago companies were getting into trouble by offering to have people’s debts cancelled because of legal technicalities. This was a scam in which many indebted people fell even further under the control of unlicensed and ruthless debt collection agencies.

However, a recent decision by a county court judge could mean thousands of borrowers actually can renege on their debts, legitimately and without fear of falling victim to a scam.

A Judge at South Shields county court has decided that the MBNA credit card company cannot demand the repayment of a customer’s debt. It had tried to force Mrs Lynne Thorius to repay the £8,000 she owed on her card but the Judge decided there had been an unfair relationship between Mrs Thorius and MBNA because of the way she had been sold payment protection insurance.

The customer’s case was pursued on her behalf by a claims management firm based in Manchester and the law firm Consumer Credit Litigation Solicitors.

The MBNA credit card involved in the case was branded with the logo of Sunderland football club and was sold to Mrs Thorius in the club’s shop in 2002. The PPI policy was strongly recommended by MBNA to her at the same time, to pay off her account if she fell ill or was made redundant.

However, she had not been told that MBNA would be receiving regular commission payments from the insurance provider.

The Judge agreed with the argument of the customer’s barrister that this “secret” commission meant the credit card deal was unfair and therefore in breach of the Consumer Credit Act. This point could potentially undermine many other agreements where PPI has been sold by the lender alongside a loan.

These include car finance deals, other personal loans and even mortgages.

The main ground on which Judge Smart said Mrs Thorius’s credit card debt was unrecoverable was because MBNA could not provide a copy of the original signed loan agreement, which is also a requirement by the Consumer Credit Act.

The Judge ordered the company either to repay Mrs Thorius’s PPI premiums and interest, or the value of the commissions it had received which so far has been undisclosed. The PPI premiums, which rose each month as the credit card debts increased, amounted to £2,500 over the time the card had been in use.

The claims management industry which has emerged in the past few years has been highly controversial. Many firms advertise in newspapers and on television, encouraging people to come forward to write off their debts.

This year the authorities, such as the Office of Fair Trading (OFT), Ministry of Justice (which regulates claims management firms) and the Solicitors Regulation Authority, have warned firms not to make exaggerated claims about their ability to get debts written off because of apparent technical errors in the lenders’ paperwork.

Since April 2007 more than 100 such firms, or those advertising for people to pursue personal injury claims, have been shut down by the OFT.

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