New case: Consumer credit requests for information

The claimant had sent a request to the bank for information under section 77 of the Consumer Credit Act 1974.  For a period of time, the bank could not locate the loan agreement and so could not comply with the request.

The main issue was whether the claimant’s contractual obligation to pay £15,066.21, which had been outstanding under the agreement since June 2007, had been extinguished during the bank’s period of non-compliance with the request for information. 

In contrast to the claimant’s submissions, the Hon. Mr Justice Flaux of the Commercial Court held that during the period of non-compliance, the rights of the creditor and corresponding liability or obligations of the debtor existed, but were unenforceable. The agreement remained a valid and subsisting contract and the rights and obligations continued to exist during the period of non-compliance, but were unenforceable by the creditor. Accordingly, they were not extinguished.

The question also arose as to whether reporting to credit reference agencies (CRAs) amounted to enforcement contrary to section 77(4)(a) of the Act. The claimant submitted that such reporting was not permitted as long as the agreement is unenforceable as it amounted to coercive action. The court held that reporting to CRAs did not come anywhere near amounting to enforcement and so the claimant was not entitled to an injunction restraining the bank from reporting to the CRAs. A bank is entitled to contact CRAs during the period of non-compliance. In addition, demanding payment directly or through a third party, as the claimant conceded, did not amount to enforcement.

The claimant also argued that the bank was in breach of the First Data Protection Principle of the Data Protection Act 1998. Since it was legitimate to report to CRAs during the period of non-compliance, the court decided that there was no basis for the contention that data was not being processed fairly or lawfully. The processing of the data by sharing it with other financial institutions through the CRAs, pursuant to the Principles of Reciprocity, was clearly in the legitimate interests of the bank and has the aim of promoting responsible lending.

This decision will come as a serious setback to the claims management companies which attempt to exploit the Consumer Credit Act.

Phillipp McGuffick v The Royal Bank of Scotland PLC [2009] EWHC 2386