Unenforceable Credit Agreements

The Consumer Credit Act is the main regulatory instrument covering such agreements as credit cards and personal loans. The Act states consequences of non-compliance.

Claims for 'Unenforceability' have received significant press over the last 3 years. In association with expert solicitors in the area of the Consumer Credit Act, Grass Roots has developed the Defended (Claim) Strategy, a service that spins the advantage back in favour of the consumer, but what is 'unenforceability'?

If you have an existing loan, credit card or car finance agreement with an outstanding balance there is a possibility that the agreement may be unenforceable. A credit agreement may be deemed unenforceable due to a breach of Section 77/78 or a failure to comply with Section 61 of the Consumer Credit Act. Where such a breach occurs, a lender is unable to use the Courts to enforce repayment, i.e. you can cease repayments until such a time as they can comply with Section 77/78 (which they may be unable to do) or the whole agreement may be ruled irredeemably unenforceable should a Court rule that Section 61 has been breached.

The term UCA is often used as an abbreviation of Unenforceable Credit Agreement.

Common Questions Regarding UCAs

What is meant by an unenforceable credit agreement?

An unenforceable credit agreement is where, under the Consumer Credit Act, the lender is prevented from using the courts to force repayment. Ultimately only a judge can state that an individual agreement is unenforceable. However, if a lender believes that an agreement they have produced is unenforceable as per the Act then they are unlikely to want to absorb the cost of court proceedings for a judge to rule against them. Therefore, should a lender confirm to a claimant that they believe an agreement is unenforceable the result is likely to be the same as if the agreement had been declared unenforceable by a court.

What is a Section 78 breach and how does this create a UCA?

Where a lender breaches Section 77 or 78 (s.77/78) of the Consumer Credit Act 1974, for example where they cannot produce a ‘true copy’ of a credit agreement, then the credit agreement is deemed to be a redeemably (temporarily) unenforceable credit agreement.

The lender cannot legally take enforcement action to recover the debt (i.e. they cannot use the courts to recover the debt). However, the debt is not removed from your credit record and the lender may attempt to report non-payment to credit reference agencies.

The lender may be able to rectify the breach at a later date, making the credit agreement legally enforceable again. However, if a lender cannot produce a 'True Copy' of the credit agreement now, it is unlikely that they will be abe to produce one in the future.

What is a Section 61 breach and how does this create a UCA?

Section 15 of the Consumer Credit Act 2006 states:

The 1974 Act provides that in certain circumstances where the requirements of the Act are not complied with in relation to regulated agreements or to security provided in relation to such agreements, the agreement or security is enforceable against the debtor or hirer only on an order of the court.

The Act continues

a court shall not make an enforcement order (i.e. a consumer credit or hire agreement will be automatically unenforceable) where:

prescribed requirements in relation to the execution of regulated agreements (set out in section 61(1)(a) of the 1974 Act) were not complied with or a document containing all the prescribed terms of the agreement was not signed by the debtor or hirer;

Where a breach of s.61 of the Consumer Credit Act 1974 occurs, a lender has not adhered to the prescribed requirements of the Act, then a court can rule the credit agreement to be irredeemably (permanently) unenforceable which results in the cancellation of the credit agreement. A s.61 breach cannot be rectified at a later date and any references to the debt on your credit file should be removed.

Options for Unenforceable Claims

Without knowledge of the Consumer Credit Acts, it is difficult for the consumer to determine if an agreement is unenforceable. Grass Roots is here to help.

Over the last few years, many consumers have attempted to have their credit agreements judged as unenforceable. However, taking such a claim to court is difficult as the lenders have developed an effective strategy to combat 'unenforceable' claims made in this way.

The key point of taking a lender to court is that you are continuing to repay your debt to them up until the point that a judge rules that the agreement is unenforceable. It is therefore in the lender's best interest to stretch the process out as long as possible. Furthermore, the burden on issuing proceedings lies with the claimant. This includes the not inconsiderable costs of such an action.

Grass Roots offers a unique 'unenforceable' claim service, a process that turns the 'traditional' unenforceable claim on its head and gives the advantage back to the consumer. We call this using a Defended (Claim) Strategy.

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Unenforceable Credit Agreements

Common Questions Regarding UCAs

Options for Unenforceable Claims

Grass Roots (Financial) Limited