This could spell bad news for any landlord with large debts or even for some tenants with outstanding loans...

Consumers attempting to get credit card or loan balances written off by exploiting legal loopholes are facing the unwelcome choice of either repaying their debt or severely damaging their credit rating.

A test case in the High Court saw a judge rule on a £17,034 RBS loan to a Mr Phillip McGuffick. The judge ruled that although a lender may not take enforcement action when in breach of the Consumer Credit Act 1974, (in this case specifically because the bank chose not to supply a signed statement of account when it produced the consumer credit agreement, and was therefore in breach of section 77(1) of the Act), the obligations of the original contract are still valid, clearing the way for RBS to continue to pursue repayment.

If a lender is unable to take ‘enforcement action’, this means that they aren’t allowed to take the usual legal routes to recover the debt, such as obtaining judgment, sending in bailiffs, obtaining charging orders and so on. Instead, they will be within their rights to continue to press the consumer for repayment, including the use of debt collectors, to lodge the record of any default with credit reference agencies, to claim any credit balances held under rights of set-off, and to rely on any security they may hold such as mortgages or guarantees.

Around 100,000 claims for ‘unenforceable debt’ are believed to have been lodged with the courts to date. Over 3000 Claims Management Companies (CMC’s) have sprung up as a result. The majority of claims are based on the notion that original documents are not legally enforceable, especially in cases where the lender is unable to produce original copies.

Most claims stand very little chance of success, and a number of CMC’s have actually been banned from operating due to misleading advertising and over-inflated charges. We think this latest ruling will sound the death knoll for many of them.

Any default lodged with the UK’s three credit reference agencies will remain on file for a period of six years, making it very difficult to get credit in what is already a tough economic situation. A good credit rating is vital in securing credit, and also determines the rate you’ll be asked to pay.

Check your credit rating today !