The courts recently found that a bank had failed in its duty to investigate an assertion by a debtor that a restricted-use credit agreement had been rescinded before reporting to credit reference agencies that the debtor was in default.
The case came about after the litigant, Mr Durkin, set out to buy a laptop computer with an internal modem. He made his purchase from PC World via a credit agreement – a debtor-creditor-supplier agreement with a bank under section 12(b) of the Consumer Credit Act 1974 – apart from the deposit which he paid upfront. But when he got home he discovered that the laptop did not have an internal modem. The following day he returned the laptop to PC World and requested a refund of his deposit and cancellation of the credit agreement. PC World refused to accept his rejection of the goods and took no steps to cancel the credit agreement.
It is a common misconception, when a product is bought under a credit agreement, that returning the product to the supplier automatically also nullifies the credit agreement; it does not. Mr Durkin did not pay any money under the terms of the credit agreement and the bank, without making any enquiries into the circumstances, issued a default notice which was taken up by two credit reference agencies and noted on his credit records.
Mr Durkin raised a small claims action against PC World and recovered his deposit in an out-of-court settlement in which PC World did not admit any liability. But that did not resolve his problem with the bank. He found that the entries on the credit registers prevented him from opening new accounts with credit card companies and other lending institutions. Mr Durkin therefore raised a further action against both PC World and the bank.
The courts held that PC World had been in material breach of contract and that section 75 of the 1974 Act had the effect that Mr Durkin had been entitled to rescind, and had rescinded, both the sale contract and the credit agreement. The Bank was held to have failed in its duty of care to the litigant in that it simply accepted PC World’s assertion that the credit agreement was not rescinded and had not made adequate enquiries before issuing its default notice, with the subsequent ramifications.
Although justice was eventually served, this case shows that care must be taken to ensure that both parts of the transaction are rescinded to avoid the problems Mr Durkin experienced.
If you would like assistance in a matter relating to consumer law, call Anthony Scott on 01638712243 for further information.