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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.