Cycle Of Debt

[hicskis]

A question:

Could a new argument be brought forward on the basis that banks's have used Zero Percent offers on borrowings as a means to ensnare (trap) people into a cycle of debt.

That these institutions have not carried out adequate checks either in house, with the borrower concerned, nor with the Credit Reference Agency's to see if that person could afford the debt being offerred at Zero Percent.

And that having lent the money have failed to report to the Credit Reference Agency's a true and accurate position of that borrowers commitments, thereby allowing other firms to lend more money to the borrower - and at the same time permitting the borrower to roll-over that debt over and over again until a point is reached where charges are incurred either by over indebtedness or by change of circumstance such as illness of loss of job.

Whilst consumers must ultimately have responsibility for their own financial situation, there is a strong argument that consumers must be protected from the banks’ sharp practices of trapping them into a cycle of continuous excessive charges.

It should be noted that the above makes no reference to the adequacy of the price or remuneration as against the services provided in exchange. Such a ‘theme’ does not fall foul of the current interpretation of Regulation 6(2)(b)* and would permit a challenge under section 5 (1)** of the UTCCR Regulations where the onus (proof) would fall on the supplier (lender) to prove that this act was not unfair.

Such an attack being permitted on a European level.

Notes:

Unfair Terms in Consumer Contract Regulations - Assessment of unfair terms

*6. (2) In so far as it is in plain intelligible language, the assessment of fairness of a term shall not relate-

(b) to the adequacy of the price or remuneration, as against the goods or services supplied in exchange.

** 5. (1) A contractual term which has not been individually negotiated shall be regarded
as unfair if, contrary to the requirement of good faith, it causes a significant
imbalance in the parties’ rights and obligations arising under the contract, to the
detriment of the consumer.

[natweststaffmember]

Re: Cycle Of Debt

I hope you are not talking about Student Accounts?

[Amethyst]

Re: Cycle Of Debt

I agree with the argument on the CRA front in essence the difficulty is putting it forwards. Might have a case with Megansden and Lloyds on that front as he was given a ridiculous loan to offset other debt with the same bank that was clearly unaffordable. Be interesting to see what the credit records said at the time, considering he went bankrupt shortly afterwards.

That these institutions have not carried out adequate checks either in house, with the borrower concerned, nor with the Credit Reference Agency's to see if that person could afford the debt being offerred at Zero Percent.

I think that whether or not it is zero percent is an irrelevance although wondering what mortgage companies base lending on when they have intial deals which then bulk up afterwards - do they calculate affordability on the increased rate (which they know is going to happen) or on the initial introductory rate ? I don't know as I've only ever gone on SVR mortgages and being self cert (when I took the last two mortgages) calculated affordability myself based on a now insane 7% lol. If they, and zero % card offers, calculate on introductory repayment levels ignoring the sometimes massive increase to come in a year or two, is that irresponsible ? How would you prove it - or would it be for them to dispove ?

Also the old 'its standard procedure to check with CRAs' line is likely to come out and in far too many cases we've seen thats quite acceptable to a court (eg: ' our standard procedure is to give custs terms and conditions before they sign' which we all know is complete tosh)

[hicskis]

Re: Cycle Of Debt

The bank has three choices when peforming credit checks:

1. Based on their own records - how you handle your account.

2. What you disclose to the bank, for example what you earn, your outgoings etc etc...

2. Based on your borrowings from other lenders i.e. by checking the CRA files.

In Megansden v. Llloyds (i am not familiar with the ins & outs of the case) it would seem at a cursory glance that the failure of the bank to perform an adequate check of their own records and of those of the main CRA's of this particular individual's circumstances - was indeed gross negligence.

In simple terms - committing a person to consolidate debts with the firm into a loan that was more costly to that person than the previous borrowings that were already unaffordable - was a mistake.

The correct action would have been to consolidate at a lower rate, one that was affordable to the customer and would avoid the inevitable - bankruptcy.

However the question remains of how this was all allowed to happen in the first place.

If this was all with one bank and their checks were in house.....and Mengansden didn't fudge the figures at all.....and the bank checked all the CRA files - then what went wrong? Why was this person permitted to borrow so much?

Contract term - "We may report details of your debts to the CRA's".

If the bank didn't report or did not check the CRA files then that is Negligence.

I also have two lloyds accounts so i think you will find at a glance that they have not reported to the CRA's.

Under European Law the onus is on the bank to prove that this was not Unfair and did not cause a significant imbalance in the relationship between the supplier and consumer.

[EXC]

Re: Cycle Of Debt

Contract term - "We may report details of your debts to the CRA's".

If the bank didn't report or did not check the CRA files then that is Negligence.

The legal definition of 'may' is principally defined as follows:

''may v. a choice to act or not, or a promise of a possibility, as distinguished from "shall" which makes it imperative.''

I think you'd have a tough time proving negligence on the strength of what amounts to no more than 'we might'.

[hicskis]

Re: Cycle Of Debt

This is my point.

The banks reserve the right that they "may" or that they "might" or "can" pass on details about a person's debts to the CRA's in the contract with this specific contract term. You are absoulutly right in saying that they do not have too with the wording they choose to use. They all do this as it's part of the Lending Code, agreed by the banks.

However this is wrong.

And that's where the problem lies....

[EXC]

Re: Cycle Of Debt

Gotcha. I do remember that the FSA issued an undertaking against someone (can't remember who - a mortgage company?) to remove the word 'may' from their contracts, sometime last year, under UTCCR.

Might be worth having a dig around the FSA site for it.

[hicskis]

Re: Cycle Of Debt

This is an Unfair Contract Term, and if challenged under section 5 (1) of the UTCCR as a significant imbalance of a consumer's rights - then the onus will be on the bank to prove it was fair at a European Court level.

A challenge on this basis does not fall foul of the Superior Court Judgment under section 6 (2) - as it has no reference to price.

An attack based on this would tip the scales in the consumer's favour.

[ThunderBird]

Re: Cycle Of Debt

This is not about whether a bank reports to the CRA's is it?

This is to do with the Credit File with the CRA's that includes all the reports from all the banks.

Do i understand you right when i say that you are challenging the credit file itself under the Data Protection Act and not per se individual entries on that file.

I've cross referenced my credit files of Experian, Equifax, and Call Credit and they do not match. Some lenders report only to one CRA and i guess that supports the Law.

However when you take this as a whole - as in all the CRA reports - then these credit files (taken as a whole) are wrong (inaccurate) - aren't they?

And that's against the Law - and that's why it's an Unfair Term

[hicskis]

Re: Cycle Of Debt

Yep and as a conqequence it's actionable