Dispelling the myths on section 78(1) Consumer Credit Act

A question which arises with regularity is can section 78(1) Consumer Credit Act 1974 provide a Defence to a claim?

In Cabot v Bachellier (2009), Cabot v Murphy, MBNA v McCullagh the County Court ruled that breach of s78 meant the Claims failed.

The Court of Appeal echoed this in Kotecha v Phoenix Recoveries.

In Kotecha, Lloyd LJ pointed out that s78 was suspensory and in the kotecha case, the s78 points hadn’t been argued before the lower Court although the issues were discernible on the papers. The Court of Appeal however did not give the creditor a blank canvas to work on, it set very strict time frames and the order said that if the Claimant failed to adhere to the Courts order the Claim would be struck out.

So in my view if the matter comes before a trial judge and a creditor hasnt complied with a statutory request then his claim should fail. Especially if the Creditor has been on notice in a Defence for a number of months that s78 is an issue and he does nothing to remedy this.

The creditors option of course is to seek an adjournment, but there is a helpful case on late adjournments called “Fitzroy Robinson vs Mentmore Towers [2009] EWHC 3070 (TCC)” and it does provide some assistance when a creditor tries to force an elevent hour adjournment to a case. Paragraph 9 of the judgment sets down the criteria.

That said, a creditor can of course remedy a breach of section 78(1) Consumer Credit Act 1974 at any time up to Judgment in the case although the Courts will most likely frown on such actions given s78 ought to be complied with within 12 working days, and per HHJ Waksmans ruling in Carey v HSBC Bank Plc the creditor ought to be able to comply fairly easily as most banks have sophisticated systems (yeah i did have a bit of a chuckle when i typed this) anyone remeber Harrison v Link Financial Limited? where MBNAs sophisticated systems were found to have systematically failed numerous times!! so yeah i remain unconvinced at the banks systems.

So what does the creditor need to do to comply with s78 (1) ?

Firstly you need to read the provision of the statute.

78 Duty to give information to debtor under running-account credit agreement..

(1)The creditor under a regulated agreement for running-account credit, within the prescribed period after receiving a request in writing to that effect from the debtor and payment of a fee of [F1£1], shall give the debtor a copy of the executed agreement (if any) and of any other document referred to in it, together with a statement signed by or on behalf of the creditor showing, according to the information to which it is practicable for him to refer,— .

(a)the state of the account, and .

(b)the amount, if any currently payable under the agreement by the debtor to the creditor, and .

(c)the amounts and due dates of any payments which, if the debtor does not draw further on the account, will later become payable under the agreement by the debtor to the creditor. .

(2)If the creditor possesses insufficient information to enable him to ascertain the amounts and dates mentioned in subsection (1)(c), he shall be taken to comply with that paragraph if his statement under subsection (1) gives the basis on which, under the regulated agreement, they would fall to be ascertained. .

(3)Subsection (1) does not apply to— .
(a)an agreement under which no sum is, or will or may become, payable by the debtor, or .
(b)a request made less than one month after a previous request under that subsection relating to the same agreement was complied with.

Carey v HSBC made it very clear that the creditor needs to provide a true copy of the executed agreement, and where the original had been varied either a copy of each discrete term that had been varied or a copy of the current terms and conditions as the contract stands at the date of the request. The Creditor does not need to send a photo copy of the original agreement although many people still think (wrongly) that they do.

The High Court in Carey ruled that the underlying purpose of s78 is for information, to give you the info you need about the terms of your contract. So a photo copy of the original isn’t needed, but what is needed is the creditor must produce in an easily legible format the terms of your contract.

Now the easiest way i have found to explain to people why the photocopy of the original is not needed is like this, if you think about a Data Subject Access request under the Data Protection Act 1998, you are entitled to the data within your bank statements, but what you’re not entitled to is an exact photo copy of each page of the bank statement, the Bank can give you the data printed on a toilet roll, or a scrap of paper, the form isn’t important, it’s the content that is important.

So apply the same view to s78 and you realise that a photo copy isn’t needed,  but a copy of the agreement is needed. The creditor can type the terms onto an A4 Sheet, or it can use a template which was in use at the time you took out your agreement and then enter your info.

The creditor has a duty to ensure the copy is an “honest and accurate” (see 53(12) Carey v HSBC Bank Plc) so it cannot be what the creditor thinks you might have signed, it must be accurate. The burden however rests on the debtor to say “it is not accurate because……..”

When i think of the s78 documents i see, i often find faults with what has been produced. Be it incomplete documents or the wrong terms, wrong interest rates, or just the documents are grossly illegible, it really does make you wonder how the banks, whose systems are supposed to be soo super sophisticated and exemplary , how then do they get it soo soo wrong?

The difficulty however i have when looking into s78 docs, is that unless the client can tell me what they did sign, or did not sign as the case maybe, and unless the client can say “Look the rate of interest there is wrong because when i opened the account it was X % ” or at least give me something to work with, then i am left with difficulty and can only look so far into the documentation.

The Courts have taken the view that the Debtor carries the burden to state what he did or did not sign, and therefore the debtor needs to set out also why the documents don’t comply with the s78 request. Now obviously if the documents aren’t easily legible then the creditor is in difficulty, but if the creditor produces a recon of the agreement which is legible, I don’t know whether the client signed that document or whether them terms were the terms of the agreement, so this is where the client needs to make matters clear.

 

So going back to s78(1) CCA 1974, to comply, the creditor must produce a copy of the orignal agreement, the current terms as varied or the latest copy of each notice of variation of each term that has been varied “Together with” a statement signed by or on behalf of the Creditor.

The words “together with” are very important, they do not mean the creditor can send things separately, or piecemeal. They must as a matter of common sense be sent together, ie at the same time if the creditor is to comply with s78(1). A recent case of HFO v Robinson confirmed this view was correct, although the case was a county court decision, nonetheless, i cannot see any other way to construe “together with” than “at the same time”.

Another point that is missed, is people complain that because the creditor fails to comply with s78(1) within the 12 working days limit that the agreement is unenforceable and they can stop paying. The 12 working days really is neither here nor there, if the creditor fails to comply within that time then yes they cannot enforce, but there really is little sanction for such failures, certainly the Consumer Credit Act 1974 does not prescribe any sanction other than the inability to enforce the agreement.

I have also seen it argued that the effect of non compliance with s78(1) is the same as the restrictions in s127(3) CCA. With respect to those views, it is plainly wrong. The route to section 127(3) requires an “improperly executed agreement” so for example,agreement taken out before 6th April 2007, not signed by the debtor or not containing the prescribed terms for that type of agreement. Section 65(1) CCA 1974 clearly states an improperly executed agreement can only be enforced by court order. s127(3) sets down the restrictions on enforcement. It is worth noting at this moment that an agreement will be improperly executed if it is not in the prescribed form, or not signed by the creditor, or misstates the APR etc, those breaches can be remedied by the Court using its powers under s127(1)&(2) CCA 1974. But that is going outside of the matters i am trying to address here. So, is a breach of s78(1) the same as the restrictions in s127(3) ? no plainly it isn’t. s78 can be remedied at any time, s127(3) cannot, once unenforceable always unenforceable. To quote Lord Hoffman in Dimond v Lovell (House of Lords) where the court finds the agreement is unenforceable the debtor does not have to pay, so clearly s78 does not come close to s127(3) CCA 1974 as McGuffick v RBS shows the breach of s78 does not entitle the debtor to stop paying whereas if the agreement were irredeemably unenforceable because the prescribed terms were missing or the agreement was not signed (as long as it was opened before 6th April 2007) .

All that would be achieved if you argue that the breach of s78 entitles you to stop payment is that you would show the opponent a distinct lack of knowledge of the Consumer Credit Act.