Warning over debt clearance claim

Cut up credit cards
Image caption The guidance is informed by cases in the High Court recently

Consumers in the UK are being encouraged by a watchdog to stay clear of firms claiming to use a legal loophole to clear debts.

The Office of Fair Trading (OFT) said that some debtors are being misled by firms claiming to use the Consumer Credit Act to get debts written off.

These businesses can charge an administration fee of hundreds of pounds.

The OFT has published a consumer guide on the issue.


This comes after draft guidance was circulated in January, after thousands of claims were launched against lenders by borrowers trying to avoid repaying their debts.

The OFT's guidance draws on recent rulings by Judge Waksman at the High Court in Manchester.

Some of these have involved claims management companies claiming that a debt is permanently unenforceable if lenders were unable to produce a "true copy" of the loan agreement within 12 days of being asked.

But the judge confirmed that it was acceptable for lenders to produce reconstituted copies of original loan agreements, for the purposes of providing the borrower with information about their loan.

This information can be requested from the lender for just £1.

'Right paperwork'

"Consumers have a right to information on debts they owe, but it is important that they realise that these sections of the Act cannot be used to write off legitimately owed debts," said Ray Watson, of the OFT's consumer credit group.

"Although the debt can be classified as unenforceable until the right paperwork is provided, people are encouraged to seek advice and help on how they can continue to repay the money they owe."

He said the borrower could not "sell" a debt to a claims management company. The lender could also add interest and default charges to the loan, and the borrowers' credit record could also be impacted.

However, in the cases, Judge Waksman did find against lenders on some points. He said that copies of loan agreements, when requested, had to contain the borrower's name and address at the time it was signed.

And he ruled that if an agreement had been subsequently varied by the lender, then the lender was obliged to supply a copy of both the original agreement as well as the current one.

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