Unenforceable Credit Agreements: Part 3. Lenders Remedies

So what can a lender do if an agreement is unenforceable? The first thing for a borrower to remember is the difference between unenforceable and invalid agreements. An invalid credit agreement simply has no effect whereas an unenforceable agreement simply cannot be enforced until certain action has been taken. If action is possible it will be considered only as temporarily unenforceable but if no action is possible it will be irredeemably unenforceable.

A lender is as we have seen obliged to provide a copy of the credit agreement. The agreement is unenforceable until such time as they do so. Once they provide a copy the agreement will become enforceable. Irredeemably unenforceable agreements are the ones which breach section 60 or section 65 of the Consumer Credit Act. These are regulated agreements which have not been properly executed.

The fact that an agreement may be unenforceable restricts but does not eliminate the lender's rights. There are certain things which can be done even though an agreement cannot be enforced through court action. The lender is entitled to do the following:

a.Report or threaten to report information about the agreement to a credit reference agency or third party;

b.Demand payment from you;

c.Issue a default notice;

d.Threaten legal action;

e.Instruct a third party to seek to procure payment.

They may not however obtain or enforce a court judgement against you or enforce the agreement in any other way. This means that they may not instruct court bailiffs, place a charge over your property, or obtain an attachment of earnings order against you. They can threaten but not do anything to enforce payment.

Remember also that whether the agreement is enforceable or unenforceable, there are certain things which can never be done by the lender or anyone instructed by them. These are:

1)call on you either in person or by telephone early in the morning or late at night;

2)threaten to blacklist you (as opposed to merely record information with a credit reference agency);

3)report you to your employer or threaten to report you

4)Send vans to your property carrying signs prominently indicating that they are from a debt collecting agency.

If they do so, they will be in breach of section 40 of the Administration of Justice Act 1970 and will be committing a criminal offence. If you are being harassed in this manner, you will be able to obtain an injunction against your creditor or their appointed debt collector.

The question often asked is the effect on your credit rating of refusing to pay an unenforceable agreement. Unfortunately it has been established that with temporally unenforceable agreements the lender is entitled to report the failure to pay to a credit reference agency. Failure to pay an unenforceable agreement is therefore likely to affect your future ability to obtain credit. The position with irredeemably unenforceable agreements is less certain and at the present time awaiting determination by the courts.

Finally there are certain requirements concerning cancellable agreements. A consumer credit agreement is cancellable only if it was signed following or all representations by the lender in the presence of the borrower and was not signed at the lenders business premises. If the agreement satisfies these requirements and is cancellable a notice explaining the rights to cancel must be included within the agreement. If this is not done the borrower may cancel at any time until the correct notice is served. You will however have to pay back all monies received.