A county court judge has told a lender that it cannot demand payment of an £8,000 debt, possibly paving the way for thousands of borrowers to default on repayments.

Judge Jacqueline Smart at South Shields county court has ruled that the MBNA credit card company cannot demand that a customer repay her debt. The company tried to force Lynne Thorius to repay the £8,000 she owed on her card.

However, Judge Smart decided that there had been an unfair relationship between MBNA and Ms Thorius because of the way in which the firm sold her payment protection insurance.

The credit card was sold to Ms Thorius in the official Sunderland Football Club shop in 2002, along with payment protection insurance, which is designed to cover debt repayments in case of illness or redundancy.

However, Ms Thorius had not been informed that that MBNA receive regular commission payments from the insurance provider ITT London & Edinburgh, a subsidiary of the Aviva insurance group.

Her barrister, Paul Brant, argued that by collecting “secret” commission from the PPI, MBNA had been dishonest in their sale of the credit card deal, and were therefore in breach of the Consumer Credit Act.

“This practice is believed to be widespread and formed part of the Competition Commission’s decision to prohibit the co-sale of PPI with credit in its report published on 29/1/09,” Mr Brant noted.

Moreover, Mr Brant argued that the debt on Ms Thorius’s credit card was unenforceable because the card company could not provide a copy of the original loan agreement, which is also required by the Consumer Credit Act.

Judge Smart agreed with Mr Brant’s assessment, and rejected MBNA’s claim for the repayment of the outstanding money on the card. She ordered the company either to repay Ms Thorius’s PPI premiums and interest, or the value of the commissions it had received. The PPI premiums added up to £2,500 over the time the card was in use.

Ms Thorius’ case was pursued by claims management company Cartel Client Review and the law firm Consumer Credit Litigation Solicitors.

The claims management industry has grown considerably in the last few years, and has sparked a great deal of controversy. Claims management firms advertise on television and in newspapers, using legal loopholes to try and write off people’s debts.

However, the OFT has accused many such firms of making exaggerated claims about their ability to get customers’ debts written off, and has shut down over 100 claims management companies since April 2007.

But the South Shields case suggests that claims firms can use missing paperwork and false selling as a genuine line of attack.

“We have been using this argument for some time but lenders have been settling outside the courts to avoid publicity,” said Carl Wright of Cartel Client Review, adding that Ms Thorius’ landmark case would have “massive ramifications for consumers up and down the country.”

However, MBNA played down significance of the ruling.

“The judgement went against MBNA for a number of reasons,” a spokeswoman said.

“In principle, because the deputy district judge felt that MBNA had not on this occasion provided the appropriate documents to the customer and as such was not able to rely on the clauses MBNA would ordinarily seek to rely on in these cases,” she explained.

“The case is a county court case and each case is decided on its own merits and on the factual circumstances of each case. This does not set any legal precedent,” said MBNA.

This entry was posted on Thursday, October 1st, 2009 at 9:21 am and is filed under Credit, Credit Cards, Insurance, Loans. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.