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Unenforceable credit card agreements

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  • Unenforceable credit card agreements

    I am concerned in a case relating to a pre-6th April 2007 credit card agreement so that Section 127(3) of the Consumer Credit Act 1974 is applicable.

    I am arguing that the agreement does not contain all the prescribed terms and is, therefore, irredeemably unenforceable under Section 127(3).

    Being a running-account credit agreement, one of the prescribed terms is a term as to the credit limit as provided in paragraph 3 of Schedule 6 to the Consumer Credit (Agreements) Regulations 1983 (“the Agreements Regulations”). Paragraph 3 requires a term stating the credit limit or the manner in which it will be determined or that there is no credit limit.

    The agreement with which I am concerned states (in common, I believe, with most other credit card agreements) that the credit limit will be determined by the creditor and notified to the debtor. As this is not a term stating the credit limit or that there is no credit limit, it must, for the purpose of paragraph 3, be intended to be a term stating the manner in which the credit limit will be determined.

    My argument is that a statement that the credit limit will be determined by the creditor and notified is not a term stating the manner in which the credit limit will be determined and that such a term must set out the basis and criteria for determining the credit limit - for example, it might state that the credit limit will be a specified proportion of net income.

    In support of that argument, I think that Schedule 1 to the Agreements Regulations, which deals with the information to be included in regulated agreements, is relevant. Paragraph 8 of Schedule 1 specifies the information as to the credit limit to be given in a running-account credit agreement and sets out five different ways in which the information may be given – one of those ways is a statement that the credit limit will be determined by the creditor and notified to the debtor and another way is a statement indicating the manner in which the credit limit will be determined.

    Therefore, under paragraph 8 a statement that the credit limit will be determined by the creditor is not within and is different to the requirement for a statement indicating the manner in which the credit limit will be determined.

    If this is the case in relation to paragraph 8 of Schedule 1, then it must also be the case in relation to paragraph 3 of Schedule 6 of the same Regulations, so that a statement that the credit limit will be determined by the creditor does not satisfy the requirement for a prescribed term stating the manner in which the credit limit will be determined.

    It follows, therefore, that the agreement does not contain all the prescribed terms and is irredeemably unenforceable under Section 127(3) of the CCA 1974.

    Another way of looking at the above argument is that paragraph 8 of Schedule 1 specifies five ways of giving information as to the credit limit and three of those five ways are carried over into paragraph 3 of Schedule 6 for the purposes of the prescribed terms – the statement that the credit limit will be determined by the creditor is not one of the three ways carried over into paragraph 3.

    I am not aware of any reported case in which the above point has been argued but it may have been raised in an unreported county court case. If anyone is aware of it having been used in any county court or other case, please let me know and also let me know the outcome and if it is reported anywhere.

    I should also be grateful for any comments on the above argument and for any counter-arguments or as to any flaws in the reasoning.

    If it is correct that most, if not all, pre-6th April 2007 credit card agreements state that the credit limit will be determined by the creditor and it is correct that this does not satisfy the requirement for a prescribed term as to the credit limit, then all such agreements are irredeemably unenforceable.

    Faced with this possibility, the judges may consider that as a matter of public policy they cannot allow millions of people to avoid payment of credit card debts with the loss to the banks of billions of pounds which (together with the overcharging and PPI repayments) may bring the system to the brink of collapse again. In those circumstances, the judges may try to find a way round the argument so as to decide in favour of the banks or the government may take steps to reverse the position.

  • #2
    Re: Unenforceable credit card agreements

    Run that by me again. :tinysmile_aha_t:
    My Blog
    http://cabotfanclub.wordpress.com

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    • #3
      Re: Unenforceable credit card agreements

      The court cannot make an enfocement order in respect of a pre-6th April 2007 credit card agreement unless a document containing all the prescribed terms was signed by the debtor (section 127(3) CCA 1974).

      The Regulations provide that the agreement must contain a prescribed term relating to the credit limit which must state:-

      1. the credit limit; or

      2. the manner in which the credit limit will be determined; or

      3. that there is no credit limit.

      None of the credit card agreements I have seen state the credit limit or that there is no credit limit and they all say that the credit limit will be determined by the creditor and notified to the debtor.

      It is clear from paragraph 8 of Schedule 1 to the Agreements Regulations that the statement that the credit limit will be determined by the creditor is not within the requirement for a statement of the manner in which the credit limit will be determined.

      The agreement, therefore, does not contain the prescribed term relating to the credit limit and so does not contain all the prescribed terms. As the agreement does not contain all the prescribed terms, the court is prevented from enforcing it by section 127(3) CCA 1974.

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      • #4
        Re: Unenforceable credit card agreements

        What agreement are you talking about here?
        My Blog
        http://cabotfanclub.wordpress.com

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        • #5
          Re: Unenforceable credit card agreements

          In theory yes, any case law to back it up?

          In practise I do think that if that is the only thing possibly awry in an agreement the creditor could argue that every statement provided shows the current credit limit as well as that term in the agreement that they will decide what the credit limit is covers them under the cca.
          #staysafestayhome

          Any support I provide is offered without liability, if you are unsure please seek professional legal guidance.

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          • #6
            Re: Unenforceable credit card agreements

            Have you read the case
            Bank of scotland v mitchell

            leeds county court

            case no 9ls70096

            Just noticed this has been posted under the debt section

            Hope this helps - please let me know if you find out anything new

            good luck

            murph
            Last edited by murphy69; 12th August 2009, 22:47:PM. Reason: update

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