Updated: Ministry of Justice Warning - Unenforceable credit agreements - RBS High Court landmark ruling
April 2009, Updated June 2009 & October 2009
The High Court considered the case of Phillip McGuffick, who was seeking to have his £17,034 personal loan from RBS declared unenforceable. It is now estimated that this ruling may affect over 100,000 consumers trying to get their credit card and loan debts written off. They will have to pay the full amounts they owe after this landmark court ruling in October 2009. The High Court decision could 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. This should be a major blow for claims management companies heavily advertising that they can get debts written off and that millions of credit agreement were unenforceable.
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Update from June 2009: ASA Adjudication of 3 Claims Management Companies using misleading marketing by text and radio. |
Have you ever had a text message along the lines of "DUE TO NEW GOVERNMENT LEGISLATION YOU CAN NOW GET YOUR DEBT WIPED OUT. CALL ..."?
These companies are now the subject of major crackdown by the Ministry of Justice and the Office of Fair Trading (OFT), after issuing press warnings in August 2008 and February 2009. The full release can be found here.
New Guidance
Businesses that mislead the public by claiming they can arrange for unpaid loans, credit card debts or other consumer debts to be written off have been told to stop or face action, as new guidance was issued by the Ministry of Justice.
The guidance highlights misleading statements in adverts making dubious claims or leaving out important information which might breach consumer protection regulations. Businesses making these statements could face enforcement action by the Ministry of Justice which might ultimately result in authorisations being removed.
Examples statements that are considered to be misleading include:
- 80% of credit agreements are unenforceable
- 50 million credit agreements are created every year, at least 25 million are unenforceable
- We are currently handling over 5,000 cases!
- We are currently managing £30m of claims!
- We'll get your credit cards written off within 6 weeks!
- Fast results guaranteed!
- We have a 100% success rate
- A positive outcome is guaranteed
EuroDebt welcomes the Ministry of Justice crackdown on disreputable claims management companies who promise to get consumer's debts cleared.
As Kevin Still, Director of EuroDebt, explains much of what less reputable claims management companies offer is actually misleading: "Typically Claims Management Companies mislead the public by claiming they can arrange for unpaid loans, credit card debts or other consumer debts to be written off. And they say they can do this by finding ways to render consumer credit agreements unenforceable.
"However the reality is that businesses can only provide claims services if they are authorised and regulated by the MOJ under the Compensation Act 2006 and they also need to hold an appropriate consumer credit licence. Often the practices of these companies can potentially be highly detrimental to the consumer, especially if the consumer stops paying their creditors whilst they believe that solicitors are working on their case. Lenders are not required to stop recovery or legal actions against you whilst the claim review process is on-going."
"As a Debt Management Company, our average client has over £24,000 of unsecured debts with 8 creditors. We firmly believe that it is extremely unlikely that any of these credit agreements held by an individual is unenforceable using the criteria promoted by these companies. Yet these organisations charge quite significant upfront fees simply to act on an individual's behalf.
"There is extremely limited evidence of the success of these companies, which has been highlighted by the Ministry of Justice and the Office of Fair Trading. Many of the companies were only started in 2008 and have absolutely no track record of any successful claims. Indeed, the limited number of successful claims that we have seen to-date are because of one off administrative errors by the lenders rather than systemic problems that would provide any basis for some of the success rates being quoted or guaranteed!
"We strongly recommend that if an individual is struggling to meet their credit payments to go to a reputable debt advice provider. Taking a responsible attitude to your debts is critical. Most legitimate debt advice providers will consider whether there are genuine issues with the enforceability of your debts and potentially any insurance sold with these, however, this is undertaken as a small part of a co-ordinated programme involving the prioritisation of critical payments like your mortgage, rent, council tax and any associated arrears. All unsecured debts will be reviewed as part of this process."
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