OFT draft guidance on sections 77,78 and 79 of the Consumer Credit Act 1974

[Main man]

OFT to unveil new CCA guidance - 20/11/2009

The Office of Fair Trading has revealed at Credit Today’s Collections & Debt Sale and Purchase Conference that it will publish new guidance on compliance with the Consumer Credit Act in 2010.

The OFT told delegates that it will put out revised guidance early in the new year on compliance with requests for copies of credit agreements under sections 77 to 79 of the Act.

The regulator is awaiting the outcome of High Court test cases, in which consumers are claiming that their credit agreements are unenforceable under the act, to take into account any precedent court rulings before publishing the guidance.

The move follows a flood of cases in the county courts where borrowers have used the Act to seek to avoid repaying loans or credit cards. A recent case involving Royal Bank of Scotland and a customer, Phillip McGuffick, led to an expectation of new guidance emerging from the OFT on what constitutes enforcement under the Act and submitting copies of credit agreements when requested.

John Griffin, deputy head of the debt collection team at the OFT, said: "We have taken on board to recent developments and we are striving to provide more clarity on this issue."

The OFT also clarified that it will seek to publish an update on its debt collection guidance for the industry early in the new year, which will be published separately to the guidance on sections 77 to 79 of the Consumer Credit Act.

The update will not involve a formal consultation process and will take into account developments over tracing, disputed debt issues, debt sale and examples of unfair practices.

[Amethyst]

Re: OFT draft guidance on sections 77,78 and 79 of the Consumer Credit Act 1974

Citizens advice response to Draft Guidance

Introduction
Citizens Advice welcomes the opportunity to comment on the Office of Fair Trading’s draft guidance to businesses in relation to their duties under ss 77, 78 and 79 of the Consumer Credit Act 1974.
The Citizens Advice Bureaux (CAB) network is the largest independent network of free advice centres in Europe, providing advice from over 3,200 outlets throughout Wales, England and Northern Ireland. We provide advice from a range of outlets, including GPs’ surgeries, hospitals, community centres, county courts and magistrates’ courts, and mobile services both in rural areas and to serve particular dispersed groups.
The Citizens Advice service provides free, independent, confidential and impartial advice to everyone on their rights and responsibilities. It values diversity, promotes equality and challenges discrimination. The service aims:
􀂃 To provide the advice people need for the problems they face; and
􀂃 To improve the policies and practices that affect people’s lives.
CAB clients are often disadvantaged and many are on low incomes or benefits, or are vulnerable in some way. For example, research by MORI for Citizens Advice found that CAB users tend to be in social grades DE and be unemployed, or living in social housing.1
In 2008/09 the CAB service dealt with around 6 million new problems in total. This figure includes over 1.9 million debt problems. Over 150,000 of the debt enquiries relate to liability for various types of consumer credit debt.
Citizens Advice Bureaux use a structured process to help people in multiple debt resolve their problems. This process aims to:
􀂃 preserve the client’s home, fuel supplies and liberty;
􀂃 advise clients about their rights and their responsibilities;
􀂃 allow the client to make an informed choice about how they can best deal with their multiple debt problem;
􀂃 Where possible, empower the client to deal with the problem her/himself.
The money advice process has several stages:
􀂃 Exploring the extent of the problem
􀂃 Checking liability and enforceability for each debt
􀂃 Maximising income and advising on budgeting
􀂃 Drawing up a financial statement
􀂃 Deciding a financial strategy
􀂃 Negotiating with priority creditors
􀂃 Negotiating with non-priority creditors
􀂃 Follow-up work
1 Financial Overcommitment, research study conducted for Citizens Advice by MORI, July 2003
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Overall, Citizens Advice believes that the draft Guidance is excellent. It is clearly written and covers many areas that have been in need of clarification. There is also some very good guidance on good practice.
We now turn to our detailed comments on specific parts of the guidance. We have drawn on the experience of staff in Citizens Advice Specialist Support Department, who provide second tier consultancy to frontline advisers on complex casework, on this section of our response. The following case studies show typical scenarios familiar to CAB advisers helping clients challenge unenforceable agreements:
A CAB in South-East Wales reported that a client had been pursued by a catalogue company for a debt he did not believe he owed. The debt was incurred before April 2007, and the CAB had already written to the debt purchase company who had bought the debt, asking for a copy of the signed agreement. No response was received. Subsequently, the client started to receive letters from a debt collection agency on behalf of the debt purchase company, which he found distressing. When the client phoned to complain, an immediate payment of £500 on a debt of £847 was rudely demanded.
A CAB in County Durham reported that a client sought advice as to whether they were legally liable for two accounts to the same company. After writing several times to the creditor, the CAB managed to get copies of the agreements, but they refer to earlier agreements. The two agreements the clients had stated the same principal amount (pence differs) which led the CAB to think one of the loans might be duplicated. The CAB subsequently wrote to ask the creditor for copies of the agreements of earlier loans so that they could track back the history of the client’s loans with this company, but noted that each time they wrote, they had to chase the creditor several times for a response. Over the phone, the company told the CAB that it would cost them £10 to provide a copy of each loan agreement. The CAB subsequently wrote to the creditor stating that under sections 77-78 of the Consumer Credit Act 1974, they could expect a fee of £1 each loan and sent the fee of £6.
A Hertfordshire CAB reported that a couple on means-tested benefits sought advice about arrears on catalogue agreements. One of the agreements was entered into before April 2007. No signed agreement was provided by the catalogue company, who confirmed to the CAB that it was unenforceable. Subsequently, the catalogue company wrote to the client stating that they were going to assign the 'rights, title and interest ' of this agreement to a third party. The CAB pointed out that as there were no signed agreements, there were no 'rights, title and interest' for the company to assign.
Areas of particular importance to consumers and their advisers
Enforcement (paragraphs 1.4 and 5.2)
While the Guidance does not cover the meaning of ‘enforcement’ in detail due to impeding court decisions on the issue, it is helpful that it states that: ‘enforcement covers more than merely enforcement through the courts’ and that it ‘goes beyond enforcement by obtaining a court order and includes: demanding earlier payment (this will apply to the application of a payment acceleration clause); recovering possession of any goods or land; treating any rights conferred on the debtor or hirer as terminated, restricted or deferred.’ We therefore believe that the Guidance should state whether the issue of a default notice is considered by the OFT to be ‘enforcement’
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See also our comments on section 5 of the Guidance below.
Assignees of debts/debt purchasers (paragraphs 2.4.1 – 2.4.4)
The OFT’s view that an assignee is ‘creditor’ or ‘owner’ for the purposes of complying with ss77 – 79 is most helpful (2.4.1). Consumers and their advisers often find it difficult to persuade assignees that they are responsible for complying with a request for a copy of the agreement under ss77-79.
We also welcome the statements of good practice in respect of assignors and assignees, and examples of what may be an unfair business practice. We believe that these should do much to encourage better practice by assignors and assignees (paragraphs 2.4.2 – 2.4.4), and make it easier for consumers and advisers to deal with obstructive creditors and owners.
True copy (paragraph 2.9)
The Guidance on what is a true copy is very useful as it makes clear to creditors and advisers exactly what has to be provided in response to a request for a copy agreement under ss77 – 79 (paragraphs 2.9.1 – 2.9.3).
It is very useful that the distinction between providing an unsigned agreement in response to a request under ss77 – 79, and issues of unsigned agreements, improper execution and unenforceability under s127 is clearly stated, because this is an area that some advisers have been confused about in the past (paragraph 2.9.4).
The guidance on ‘reconstituted’ copies is very useful, especially the statement that a reconstituted copy must include the details of the specific agreement concerned. (paragraph 2.9.5). This makes it absolutely clear that the provision of a blank template or pro-forma copy, as sometimes provided by catalogue companies, does not comply with a request under s78.
The guidance to creditors and owners to explain when a reconstituted copy is provided is very welcome (paragraph 2.9.5), as is the clear statement that a true copy must include the terms and conditions applicable to an agreement at the time it was made (paragraph 2.9.6). Please also see our comments on paragraph 2.11 below.
Meaning of the phrase ‘If any’ in paragraphs 2.2 and 2.10
We are concerned that the OFT’s view on the inclusion of the word ‘if any’ in ss77 and 78 and its exclusion from s79 appears to be unconvincing. We agree entirely that there is no apparent policy reason for there to be a difference between the position of creditors under ss77 and 78, and owners under s79, and for owners to be in a more onerous position than creditors (paragraph 2.10.2). Nevertheless, we believe that Parliament had a reason for not including the phrase ‘if any’ in s79, and therefore some difference between ss77 and 78, and s79 was intended. Citizens Advice therefore believes that the ‘construction’ caveat (paragraph 2.10.1) should perhaps be a bit stronger and, possibly, say something about the issue needing clarification from the courts.
The Guidance says that there is no ‘if any’ exemption for creditors where, for whatever reason, original agreements have not been preserved in some way and/or cannot be reconstituted. The Guidance goes on to say that a creditor is only relieved of the duty to comply with ss77 and 78 requests where there has never been an executed agreement at all, which of course, as the
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Guidance notes, would make the agreement in question improperly executed and subject to s127 (paragraph 2.10.3).
While this is probably a reasonable interpretation of the provisions (as set out in paragraph 2.10.2), it is worth noting that it is somewhat unfortunate that it means that, in respect of non-compliance with ss77 and 78, a creditor that has failed to enter an executed agreement at all is in a better position than a creditor who has entered an executed agreement but failed to preserve a copy or the information to produce a reconstituted copy. We understand that the failure to entered a properly executed agreement results in an agreement being improperly executed, but where the agreement was entered on or after 6 April 2007, it is not irredeemably unenforceable but, instead, enforceable only on an order of the court, leaving the debtor in a somewhat uncertain position.
The statement in the Guidance that where creditors and owners are aware that there was never an executed agreement, it would be misleading and an unfair business practice to try to conceal that fact, either by suggesting that the agreement cannot be found or by creating a copy agreement purporting to be a true copy, is very welcome (paragraph 2.10.4). This will, in practice, outlaw the practice of some catalogue companies which, in response to a s78 request, provide copies of blank pro-forma agreements, stating that it is a copy of the agreement that they client would have been asked to sign, implying that such a copy complies with the request.
In addition to what the Guidance says about situations where a creditor or owner has failed to enter an executed agreement at all, it would be desirable for it also to state that it is an unfair business practice for a creditor or owner not to have taken sufficient steps to ensure that a properly executed agreement has been entered into. We believe that the Guidance should also state that it is an unfair business practice not to ensure that a copy agreement is preserved or that sufficient information is available to be able to reconstitute a true copy. This is especially the case where it is a creditor’s practice and/or policy to provide credit without ensuring that an agreement has been executed. We believe that this should encourage creditors, particularly catalogue companies, to do more to ensure that agreements are properly executed.
Where the terms of an agreement have been varied (paragraph 2.11)
The guidance states that, where the terms of an agreement have been varied, creditors and owners must, in responding to the request for a copy agreement, provide both the terms of the agreement as originally executed and the current terms and conditions. This is very welcome, because it has been a problematic area in the past with many credit card issuers refusing to provide the original terms and conditions and, instead, insisting that they need only provide the current terms and conditions. For this reason, it is very welcome that the guidance includes a statement that it is an unfair business practice to provide only the current terms and conditions (paragraph 2.11.2)
Documents referred to in the executed agreement (paragraph 2.13)
Citizens Advice believes that this part of the Guidance as currently drafted is weak. It concentrates on what copy documents do not have to be supplied, but says little as to what documents do have to be supplied. For example, it says nothing as to whether creditors should be required to provide documentation in relation to PPI or other insurance and warranties that are commonly sold with credit or hire agreements. Where these documents are not supplied, advisers find it difficult, if not impossible, to check whether any insurance was miss-sold or a claim rejected without justification. We believe that if this guidance is to be effective and the policy intentions of ss77-79 are to be achieved, it should clearly set out what documents have to be supplied where insurance and/or
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warranties are sold with the credit agreement, whether they are included as a subsidiary agreement under regulation 2(8) and (9) of the Agreements Regulations 1983, or otherwise.
Statements of account (section 3 of the guidance)
The guidance that ‘practicable’ includes information that is obtainable from a third party, e.g. that a debt purchaser/assignee is required to obtain account information from the assignor/original creditor, is very welcome, as is the statement that it may be an unfair business practice for, e.g. assignees and assignors, not to have arrangements in place to facilitate this (paragraph 3.1.2).
The Guidance says that, in effect, where a creditor or owner, due to its own failure, has not preserved sufficient account information to be able to comply with a request for a statement of account under ss77 – 79, it may well be considered ‘impractical’ to provide the necessary information, thus relieving the creditor or owner of the duty to provide account details. However, it is very welcome that it is stated that the failure to have taken sufficient steps to preserve account information may constitute an unfair business practice (paragraph 3.1.3).
The clarification of exactly what must be included in a statement of account in respect of fixed sum agreements (paragraph 3.2), running account agreements (paragraph 3.3) and hire agreements (paragraph 3.4), is welcome, as advisers have sometimes been confused about this.
When the duty does not apply (section 4 of the guidance)
The guidance that the duty to comply with a request under ss77 - 79 applies to interest after judgment is useful clarification (4.1.1).
The guidance that the duty to comply continues after an agreement has been terminated provided money is or will become payable under it by the debtor or hirer is very welcome, although it should be noted that this runs contrary to obiter statements made by the High Court in Rankine v American Express and others (paragraph 4.1.1), a case cited at paragraph 2.9.5 of the draft Guidance (in respect of reconstituted copies). Citizens Advice believes that the OFT should draft further guidance once these issues have been considered by the courts.
Sanctions for non-compliance (section 5)
Citizens Advice welcomes the statement in the Guidance that it is a misleading and unfair business practice for businesses to give the false impression that it could obtain a judgment by threatening legal action where it is aware that because of non-compliance it could not obtain a court order to enforce the agreement (paragraph 5.3). This is particularly helpful in situations where businesses that have not complied with ss77 – 79 tell the consumer that, although the agreement may be unenforceable under ss77 – 79, the debt is still recoverable under common law. Presumably, this would also apply where an agreement is unenforceable due to improper execution and the business says that the debt is nevertheless recoverable under common law.
Please also see our comments on enforcement above.

[Amethyst]

Re: OFT draft guidance on sections 77,78 and 79 of the Consumer Credit Act 1974

Bump as this is apparently due to be finalised this week.

[Main man]

Re: OFT draft guidance on sections 77,78 and 79 of the Consumer Credit Act 1974

I emailed the OFT last week asking when the guidance would be published, this was there response..

There has been a copy of the actual Draft been posted OTR by Paul Walton on his RBS thread http://www.consumeractiongroup.co.uk...ml#post2685447

Thank you for your email. However team working on the production of the said guidance do not as yet have a publication date. I can only suggest that you keep an eye on our website www.oft.gov.uk in the meantime.

Yours sincerely
Adesola Popoola (Mr)
OFT Enquiries and Reporting Centre

[Amethyst]

Re: OFT draft guidance on sections 77,78 and 79 of the Consumer Credit Act 1974

http://media.ft.com/cms/b0f62a4e-003...144feabdc0.pdf

The Draft Guidance from the CCA test cases submissions

[davidl]

Re: OFT draft guidance on sections 77,78 and 79 of the Consumer Credit Act 1974

Amy a quick question the posts above do they apply to bank charges
what i mean is if the bank cant supply a copy of the original agreement can the contract be deemed uninforcable?
------------------------------- merged -------------------------------
when i say posts i mean i read through the link you posted up

[Amethyst]

Re: OFT draft guidance on sections 77,78 and 79 of the Consumer Credit Act 1974

No they don't. Bank accounts/overdrafts are exempted from part V of the act.

[Yoda]

Re: OFT draft guidance on sections 77,78 and 79 of the Consumer Credit Act 1974

http://media.ft.com/cms/b0f62a4e-003...144feabdc0.pdf

The Draft Guidance from the CCA test cases submissions

So, looking at this, there can never be a case for unenforceability. As the creditor does not need to provide a properly executed agreement in court, they can say ' that is our normal practice, so they must have signed one' and case closed.

so any contract is not worth the paper it is written on, becasue no-one needs proof of signatures.

[Yoda]

Re: OFT draft guidance on sections 77,78 and 79 of the Consumer Credit Act 1974

Ok bit confused now. s 2.9.4 says that a signed copy does not have to be produced in court as long as the creditor can substantiate that this would have happened.

Yet in s2.10.3 it says the exact opposite.

[Amethyst]

Re: OFT draft guidance on sections 77,78 and 79 of the Consumer Credit Act 1974

OFT publishes section 77-79 guidance - 27/01/2010

The Office of Fair Trading (OFT) today said lenders and collectors must not threaten legal action if they have failed to fulfill debtor requests for information.

The OFT took the controversial step of disagreeing with the courts on the issue in its draft guidance for the industry on sections 77-79 of the Consumer Credit Act 1974 (CCA), published today. They also said creditors and debt buyers must notify debtors that they are not allowed to enforce.

Sections 77-79, which allow consumers to request information about their credit agreements, have been reviewed by the OFT because of concerns that some debtors are being misled into thinking that these sections can be used as a loophole to get their debts written off and some creditors do not seem to understand their obligations.

The OFT said the sections do allow a consumer to request a 'true copy' of their agreement but it agrees with the High Court that this does not have to be a photocopy or an exact copy of the original. A copy of the debtor’s signature is also not required to fulfill the obligation. If the creditor fails to provide the information the debt is unenforceable, but the OFT emphasised that this does not mean it is written off.

As such, lenders can pass the account to third parties to collect and can notify credit reference agencies of the arrears. However, the OFT disagreed with elements of the Royal Bank of Scotland versus McGuffick court case, which said threatening legal action does not constitute enforcement. While acknowledging the case, it said: "A creditor should in no way mislead a debtor as to the enforceability of the agreement. To do so would be an unfair of improper business practice and would be highly relevant to the creditor’s or owner’s fitness to hold a licence."

It added: "No communications or requests for payment should in any way threaten court action or other enforcement of the debt where the creditor or owner is aware that it cannot or will not be entitled to enforce."

The OFT then went further, insisting that communications with the debtor should in fact make it clear that the debt is unenforceable.

The regulator also said creditors should supply information to third parties who are authorised to seek the details by the debtor. In response to revelations that some creditors have refused to deal with claims management companies which do not hold a licence under the Act – the OFT has said that where a request is received from a debtor or hirer through such an unlicensed business it should still be responded to. It suggested the owner of the debt writes to the debtor directly and informs them why the information is being sent to them instead of the unlicensed business. The creditor is then expected to notify the OFT and Ministry of Justice about the business.

Ray Watson, OFT director of consumer credit, said: "There has been a great deal of confusion over the meaning of these sections with many borrowers being misled into thinking that they can get their debt written off. This guidance is to clarify the legal position and the OFT view on standards expected of the industry, and to make consumers aware that they may be at risk if they seek to use these sections to avoid paying legitimately owed debts."

The deadline for responses to the consultation is 21 April 2010. To view the document visit http://www.oft.gov.uk/shared_oft/con...OFT1175con.pdf


source credit today

[Yoda]

Re: OFT draft guidance on sections 77,78 and 79 of the Consumer Credit Act 1974

I understand that the creditor still has to produce a copy of the original agrement if it has been varied becasue of regulation 7.

What is regulation 7? and is this correct/ where can I find regulation 7?

[Amethyst]

Re: OFT draft guidance on sections 77,78 and 79 of the Consumer Credit Act 1974

Copies of Documents regulations 1983 ( http://www.johnpughschambers.co.uk/C...tions_1983.pdf )

7 Copies of agreements or security instruments where the agreement or security instrument has been varied
(1) Where an agreement has been varied in accordance with section 82(1) of the Act, every copy of the executed
agreement given to a debtor, hirer or surety under any provision of the Act other than section 85(1) shall include either--
(a) an easily legible copy of the latest notice of variation given in accordance with section 82(1) of the Act relating
to each discrete term of the agreement which has been varied; or
(b) an easily legible statement of the terms of the agreement as varied in accordance with section 82(1) of the Act.
(2) Where a security provided in relation to a regulated agreement has been varied, every copy of the security
instrument relating to it given to a debtor, hirer or surety under any provision of the Act shall include either--
(a) an easily legible copy of any document varying the security; or
(b) an easily legible statement of the terms of the security as varied.
UK Parliament SIs 1980-1989/1983/1551-1600/Consumer Credit (Cancellation Notices and Copies of Documents)
Regulations 1983 (SI 1983/1557)/8 Copies of credit-token agreements where the agreement contains a power of variation

[Yoda]

Re: OFT draft guidance on sections 77,78 and 79 of the Consumer Credit Act 1974

Copies of Documents regulations 1983 ( http://www.johnpughschambers.co.uk/C...tions_1983.pdf )

7 Copies of agreements or security instruments where the agreement or security instrument has been varied
(1) Where an agreement has been varied in accordance with section 82(1) of the Act, every copy of the executed
agreement given to a debtor, hirer or surety under any provision of the Act other than section 85(1) shall include either--
(a) an easily legible copy of the latest notice of variation given in accordance with section 82(1) of the Act relating
to each discrete term of the agreement which has been varied; or
(b) an easily legible statement of the terms of the agreement as varied in accordance with section 82(1) of the Act.
(2) Where a security provided in relation to a regulated agreement has been varied, every copy of the security
instrument relating to it given to a debtor, hirer or surety under any provision of the Act shall include either--
(a) an easily legible copy of any document varying the security; or
(b) an easily legible statement of the terms of the security as varied.
UK Parliament SIs 1980-1989/1983/1551-1600/Consumer Credit (Cancellation Notices and Copies of Documents)
Regulations 1983 (SI 1983/1557)/8 Copies of credit-token agreements where the agreement contains a power of variation

Well that doesn't say they have to send a copy of the original does it?
------------------------------- merged -------------------------------
CCA 1974
180 Power to prescribe form etc of copies
(1) Regulations may be made as to the form and content of documents to be issued as copies of any executed agreement, security instrument or other document referred to in this
Act, and may in particular—

a) require specified information to be included in the prescribed manner in any copy, and contain requirements to ensure that such information is clearly brought to the attention of a reader of the copy;
(b) authorise the omission from a copy of certain material contained in the original, or the inclusion of such material in condensed form.
2) A duty imposed by any provision of this Act (except section 35) to supply a copy of any document—
(a) is not satisfied unless the copy supplied is in the prescribed form and ]conforms to the prescribed requirements

Goodes definition on this is
A duty.to supply a copy The effect of (2)(a) is that a regulated agreement will not be properly executed if a copy supplied was not in the form prescribed by the regulations. This includes the supply of any copy which is not a ‘true copy’ within the meanings of reg 3(1).

I take that as meaning that , whatever recon agreement they send, it still has to be in the prescribed form with the prescribed terms, doesn’t it? In other words, they cannot just send any old cr*p?.

[Main man]

Re: OFT draft guidance on sections 77,78 and 79 of the Consumer Credit Act 1974

7 Copies of agreements or security instruments where the agreement or security instrument has been varied
(1) Where an agreement has been varied in accordance with section 82(1) of the Act, every copy of the executed
agreement given to a debtor, hirer or surety under any provision of the Act other than section 85(1) shall include either--
(a) an easily legible copy of the latest notice of variation given in accordance with section 82(1) of the Act relating
to each discrete term of the agreement which has been varied; or
(b) an easily legible statement of the terms of the agreement as varied in accordance with section 82(1) of the Act.
(2) Where a security provided in relation to a regulated agreement has been varied, every copy of the security
instrument relating to it given to a debtor, hirer or surety under any provision of the Act shall include either--
(a) an easily legible copy of any document varying the security; or
(b) an easily legible statement of the terms of the security as varied.
UK Parliament SIs 1980-1989/1983/1551-1600/Consumer Credit (Cancellation Notices and Copies of Documents)
Regulations 1983 (SI 1983/1557)/8 Copies of credit-token agreements where the agreement contains a power of variationWell that doesn't say they have to send a copy of the original does it?



I think the key part of the section is the highlighted bit...which means the following documents should be produced in addition to the originals.