£8,000 credit card debt declared 'void' by court

Posted in 'Dealing with Debt' by Barry Stamp

07 October 2009

Newspapers have reported widely that a South Shields county court judge has decreed that an £8,000 credit card debt due to MBNA is to be struck out because of the way in which Payment Protection Insurance (PPI) was sold. The borrower was sold the Sunderland Football Club card, which is managed by MBNA, alongside a PPI policy, at the football club’s shop in 2002, but the borrower was not told that MBNA would be receiving regular commission payments from the company that underwrote the PPI policy.

Because of the failure to inform the borrower of the commission payment, the judge decreed that the relationship between the borrower was ‘unfair’ under the terms of the Consumer Credit Act 1974 and that MBNA could not demand repayment of the borrowing, as a result.

But that’s not the full story. The selling of PPI was not the entire basis of reasoning for the decision by the County Court Judge. Unusually MBNA could not produce in Court the underlying consumer credit agreement, which would have enabled MBNA to defend the case more rigorously by relying on the detailed terms and conditions that apply to MBNA cards.

MBNA applied for leave to appeal against the decision, but this was rejected. It may now try to take the case to a higher court for permission to appeal, especially if it can find the original consumer credit agreement.

As the case was heard in the County Court, this does not set a legal precedent.

There will be many unscrupulous companies who will now be holding this case up as an example of how debt can be avoided, but we advise consumers not to be taken in by any claims that debts can be easily ‘erased’ on technical grounds. The Consumer Credit Acts of 1974 and 2006 give lenders a wide range of options to apply to the Court to have errors in credit agreements put right. It’s quite unusual for the original agreement to have gone missing, and that is the real basis of the judge’s decision in this case. If a company claims to be able to repair your credit report, or to wipe out your debt, and is seeking an upfront fee, you should be very wary of handing over any money.

If your actions are felt by the lender to be a fraudulent attempt to avoid paying debt, you could end up with a fraud warning on your credit file. The lender does not have to go to court to argue the need to place a fraud warning against you. You’ll find out the hard way when you next apply for credit, as will anyone else in your family, as fraud warnings are address based, and most categories of fraud warnings are not reported on credit reports.

Two categories of fraud warnings are reported on credit files, and when you check your credit file at Checkmyfile, we’ll give you details of any fraud warnings registered at your address that we can find.