....was bound to happen!
A recent landmark High Court ruling has effectively scuppered the ability of indebted people to escape paying back their loans without serious consequences.
Fair play? Borrowers have effectively been forced to pay back their debts.
The ruling means that if borrowers manage to escape paying their debts on legal technicalities, the lender could still mar their credit history with a 'default' notice.
This would remain on file for six years and prevent them from obtaining further credit.
Although the borrower cannot be pursued by bailiffs, this black mark renders the legal argument that they can escape their debts without consequence useless.
It effectively puts them in a similar position to having a County Court Judgment against them. Many may decide to repay the loan rather than have their credit file ruined.
The result is a blow to the multi-million pound 'claims management' industry, which has ballooned over the past two years by helping indebted borrowers to escape repaying their loans on the grounds that the original agreements are 'unenforceable'.
Approximately 100,000 people with claims to have their debts written off may now have to pay up and many of the UK's 3,000 'claims management companies' (CMCs) should find their success rates for these claims seriously affected.
The High Court case involved an RBS customer, Phillip McGuffick, who used a CMC to argue his £17,000 personal loan from the bank should be declared unenforceable on the grounds RBS was unable to provide a signed copy of the original agreement, a tactic used by most CMCs to clear their client's debts.
If the bank cannot produce the original signed agreements, the debt can sometimes be written off. If the agreements are produced, CMCs will often argue the agreement does not stand up on the grounds that other vital information is missing.
In the High Court case last week, RBS admitted to being unable to provide the relevant documents and that the loan was unenforceable. However, Mr McGuffick complained that the details of his debt should not have been passed on to the three main credit reference agencies, Equifax, Experian and Call Credit, which logged it as a default.
The ruling pertains specifically to the period when a customer's loan is under dispute, the 12 days plus a calendar month lenders have to provide an agreement after it has been requested. Customers must now continue to make their payments during this period or the lender has the right to pass on their details to a credit reference agency.
It does not state definitively whether lenders have the right to mar a customer's credit file if they fail to locate the agreement within the deadline – and therefore fall into a 'period of non-compliance' – allowing the case to fall in the customer's favour. However the judge hinted that lenders may be able to pass information to credit reference agencies whenever they chose.
He said in court documents: 'Of course, it does not follow from the fact that the motive for reporting during the period of non-compliance is an entirely proper one that such reporting is permitted under the law.'
