Unenforceable debts

How do debt write-off claims work?

Debt Write Off (DWO) claims are suited to consumers who are currently servicing their debts via a Debt Management Plan. However, we also work with consumers who are struggling to meet their debts but have not yet made the decision to use a conventional debt management service, such as a debt plan or IVA.

CRS will use a comprehensive suite of consumer protection laws and regulation to challenge your debts directly with your creditor. We will usually use the Dispute Resolution Process (DISP) provided by the Financial Services & Markets Act 2000 to settle your claim, however, on some occasions we may be able to challenge the acts and omissions of your creditors via the Courts.

What are the problems with commercial debt management plans?

Debt Management Plans (DMP) became popular in 2007, just as the global financial crisis began to take hold. Essentially, a DMP worked by establishing the consumer’s disposable income (after all household expenditure was deducted) and distributing this to creditors pro rata. Whilst these plans gave some short term relief, in our experience, the plan was rarely appropriate and key features were not explained to consumers. For example, we see the following:

  • They failed to advise clients that their credit history would be severely impacted
  • Set up and management charges were not explained clearly to clients
  • Clients were not properly advised that collection activity would most likely continue
  • Interest was not always frozen as promised
  • Plans were not regularly reviewed to ensure that DMPs were affordable and sustainable.

Unfortunately, CRS are not the only ones who harbour these concerns. In 2014 the FCA took over regulation of the debt management industry. Following a 12-month period to allow these companies to get their house in order, the FCA required them to apply for full authorisation. More than 500 applied with only a handful of firms being granted authorisation.

In a 2014 letter to debt management CEOs, the FCA said:

“These firms are advising consumers who have often reached rock bottom, so it’s important that firms get it right. Many firms are falling well short of expectations and they will need to raise their game if they want to continue operating”

Many of the big players in this market have failed to reach those standards. For example, a 2016 warning by the FCA, they explained that Personal Debt Help Line had been refused authorisation, this affected 16,000 vulnerable clients in plans.

Whist we do sporadically see debt management advice that met the FCA’s strict rules, the vast majority of cases demonstrate poor advice and an inappropriate product for our clients.

What consumer laws and regulations do we use?

Since the financial crisis in 2007, the government have introduced a number of protective measures to better protect vulnerable and un-sophisticated consumers. CRS will draw on a number of regulatory and legislative touchstones to protect your position and argue your case.

The Unfair Relationship provisions provided by the Consumer Credit Act 1974

The Unfair Relationship test was introduced by Parliament in 2008 to better protect consumers against rogue lenders and unfair practices. In essence the Act allows the Court to scrutinise a qualifying credit agreement to assess whether the lender has acted fairly. The test will look at each term of the agreement, the way in which the lender has enforced his rights, and, anything else the lender has done (or not done) that has affected the balance between you and the creditor.

Examples of unfairness that may be caught by the legislation are:

  • Failing to properly assess affordability resulting in an agreement that you could not afford
  • Agreement terms that favour the lender but are unfair to you
  • Payment or receipt of commissions that create a conflict of interest between you, the lender and any third party to the agreement
  • Excessive calls or letters when you have fallen into arrears
  • Excessive loan fees

Where the Court find that the relationship between you and the creditor is unfair, the Court has wide reaching powers to enable it to rectify the unfairness. This can include:

  • Writing your agreement off
  • Reducing your liability under the agreement
  • Payment of compensation

Protection from Harassment Act 1997

In respect of lending arrangements, this legalisation can be used where the creditor’s collection practices cross the line and become oppressive and predatory. In the case of Roberts v Bank of Scotland PLC [2013] EWCA Civ 882, the UK Court of Appeal upheld an award of damages against the Royal Bank of Scotland for harassment.

The FCA’s Consumer Credit Rule book breaches

In 2014 the FCA took over regulation of the consumer credit industry. Those regulated must comply with the rules contained within the Consumer Credit Source Book (known as CONC). Where a creditor breaches this rule, and the consumer has suffered a loss as a result, the Courts will compensate the consumer.

CCA s.77/78 breaches

Office of Fair Trading Guidelines

Prior to 2014, the OFT regulated the consumer credit market. Whilst the OFT is no more, its rules and guidance may be used as the touchstone in framing a claim on the basis of an unfair relationship between you and the creditor. Examples of these that we will regularly use when arguing your case are as follows:

  • Irresponsible lending guidelines
  • Debt collection guidelines
  • Mental capacity guidance for creditors

Some of my debt has been sold on. How does this impact my claims?

Many creditors will sell the debt once the arrears on the account reach a certain point. These debt purchasers, such Lowell Group, Moorcroft and Cabot Financial, will buy these debts at a fraction of the outstanding balance. In our experience, these firms pay no more than 5% of the debt at the time of the sale.

A third party debt purchaser will generally stand in the shoes of the original creditor in respect of any consumer claim we bring on your behalf.

How long does the process take?

Where we make affordability claims, CRS use the DISP scheme to argue your case. Creditors have a statutory duty to respond to the complaint within 8 weeks. Where the creditor refutes your claim, we will refer your case to the Financial Ombudsman Service (FOS). In cases of other debts, the process may take several months as we obtain paperwork from your creditors and challenge the validity or enforceability of your debts.

Will I receive any compensation?

Most matters will result in your debt being written off or significantly reduced. However, certain agreements, particularly payday loan agreements, will mean that you are due compensation in the form of a cheque from the lender. In our experience, payday loan claims will result in all interest, costs and charges being refunded. However, in many cases, the benefit you receive will be a debt being written off or declared unenforceable, which means it cannot be pursued through the courts.

How are debt write-off claims funded?

As a successful claim will usually result in the debt being written off, you may not receive any cash benefit. For this reason, CRS cannot work on a no-win no-fee basis. However, you are able to fund your case by payment of a fixed fee. Typically, your fee will equate to the annual payment you would pay to your debt management provider.

For example, if you are currently paying £200 towards your debt plan, we will aim to provide our services at a fee that equates to the annual cost of that plan. Most clients will cease payments to their debt management provider and instead make those payments to CRS to cover the cost of the legal service.

Please contact us at info@crsolicitors.co.uk to discuss funding arrangements.