Banks win partial High Court victory on credit cards

The Judge's ruling may affect thousands of potential claims

Banks have won a partial victory against some credit card customers who have been trying to avoid their debts.

A judge at the High Court in Manchester has upheld that card companies need only provide a "reconstituted" copy of the original loan agreement.

It confirms that banks can still enforce debts even if the original agreement has been lost or destroyed.

The ruling may affect thousands of potential cases gathered by claims management companies.

"It seems to me to be likely that the number of challenges... will diminish significantly hereafter," said Judge David Waksman.

Banks sometimes have great difficulty in providing an exact copy of an original credit card agreement, such as a photocopied or scanned version, and at least one major bank is thought to have destroyed all its old credit card agreements.

Reconstitution

Under the Consumer Credit Act (CCA), lenders are obliged to supply a copy of their credit card or loan agreement to a borrower, if asked to do so, within 12 days.

The absence of a copy of a signed executed agreement is no evidence that such an agreement was not made

Judge Waksman

Some claims management companies and their solicitors have been trying to use the law to stop debts being enforced, possibly permanently, if the copy cannot be produced satisfactorily.

This has led to disputes between lenders and customers about what sort of copy is acceptable under the law.

Judge Waksman examined six test cases to decide this.

He said that the purpose of obliging lenders to provide a copy of the loan agreement, when asked, was not to prove that the agreement had been properly struck in the first place, but to provide the borrowers with information about the state of their account.

"The debtor has a legitimate interest in seeing a copy of the agreement he signed, not in the sense of proof of execution but as information," he said.

As such, he ruled that a reconstituted version of the agreement was perfectly acceptable.

The information in it could be drawn from other data held by the bank about their customers, and it could be recreated by drawing on the standard terms and conditions that the bank applied at the time.

Also, it was not necessary for the bank to examine the original signed agreement to do this, or even still to have it.

"A creditor can satisfy its duty... by providing a reconstituted version of the executed agreement which may be from sources other than the actual signed agreement itself," he said.

"The fact that the creditor no longer has the original executed agreement is not therefore, itself a bar to compliance [with the Act]," he added.

'Honest and accurate'

Judge Waksman did point out that the banks could not simply invent the loan agreement retrospectively to comply with the law.

"It must - of necessity - be based upon records held as to the debtor and the agreement he made," the judge said.

"That a creditor needs to take care when providing the copy is highlighted by the fact that it is implicit in its duty that it is an 'honest and accurate' copy," he added.

Judge Waksman rejected some arguments put forward by the banks, and supported some of those put forward of the claims management firms and their clients.

He ruled that:

• a copy of the loan agreement must contain the name and address of the borrower as it was at the time it was signed

• if an agreement has been subsequently varied by the lender, then the lender is obliged to supply a copy of both the original agreement as well as the current one.

Judge Waksman's rulings were welcomed by one of the biggest claims management companies, Cartel Client Review, which was involved in the Manchester hearings.

It said that the clarification of the law would "open the floodgates" to many more cases being put forward in 2010.

"Our experience shows that many banks and credit card companies have failed to instigate systems and procedures that allow them to comply with the requirements of the CCA and it is also clear that many agreements did not comply with the prescribed terms of the CCA, when the agreements were originally drafted," said Andrew Settle of Cartel's solicitors CCLS.

Fishing expeditions

Judge Waksman also ruled that failure to supply a copy did not, of itself, mean there was an unfair relationship between the lender and borrower under the CCA.

But he confirmed that if a lender could not supply a copy of the loan agreement, then this automatically prevented them from using the courts to chase a debt until such time as they could come up with a copy.

The judge went on to criticise some attempts by credit card customers to avoid repaying their debts by challenging their lender to produce a valid copy of their original loan agreement.

"Many claims now made under [the Act] may properly be regarded as unattractive and merely fishing for a case of unenforceability," he warned.

He went on to strike out claims from two individuals, pointing out that they had failed to supply any evidence at all that they had never signed their loan agreements in the first place.

"The absence of a copy of a signed executed agreement is no evidence that such an agreement was not made," ruled Judge Waksman.