Some issuers of store-branded credit cards may not be able to collect on financial debts created by some of their defaulting card owners, complying with a court judgment.

Store Credit Cards Unenforceable

Judge Henrietta Manners ruled at Clerkenwell and also Shoreditch county court that Santander can not collect a financial debt of  £ 5,126 on a Harrods card.

She said this was generally because the store card’s terms and conditions were not correctly supplied and also signed.
But its later upgrade to a credit card was not implemented the right way.
The Harrods card-holder in question, Diana Mayhew, stated she never ever requested the updated card, given out in 2003.
She said: ‘It showed up on my floor covering entirely unrequested – a new-style card with a Mastercard logo design as well as a welcome letter.
‘If you send someone a card marked ‘Harrods, go invest’, the temptation is gigantic to use it.

‘I would definitely not have used £ 5,000 on that card if I had actually not been offered it, I absolutely will not have obtained it.’

Fresh contract required
Santander suggested in court that GE Resources, which ran the Harrods outlet card business at the time, had not had to deliver brand-new terms and conditions on the recently given out credit card.
However the judge disagreed, stating that also though Diana Mayhew had actually turned on the unwanted gold card, law 7 of the Individual Credit (Agreements) Regulations of 1983 still demanded the bank to supply fresh t&c’s.
‘Compliance with the rule requires a photocopy of the fresh agreement containing the applicable recommended info to be served on the debtor,’ the judge pointed out.
‘It was the applicant’s [Santander’s] case that the brand-new card was given under a credit token agreement which stayed in influence as well as that there was no alteration bring in law 7.
‘In my judgement the claimant’s analysis is wrong and there was a modification of the agreement demanding conformity with rule 7,’ she provided.
Possibility for debtors
As a county court judgement, the judgment is invalid on other courts, but it does open the doors to other store branded credit card debtors.
They as well might have the ability to argue in court that their cards were even advanced improperly and that their personal debts are as a result similarly unenforceable.
Paul Tilley, who works for Diana Mayhew’s solicitors, Watsons of Llandudno, said: ‘The upgrade was not just an uncomplicated variant of the words, but was a completely new creature, it turned the outlet card in to a credit card. The entire framework of the contract changed.’
‘It wasn’t simply a variation, which is exactly what Santander stated it was. It was a modifying agreement [but] there was no brand-new signed agreement.
‘If they [customers] weren’t delivered with a copy of a new arrangement, with the new card, to accept as well as signal and return, it would definitely trigger unenforceability,’ Tilley included.
Complication for Santander
The concern may be a particular issue for the gigantic Spanish bank Santander, which nowadays has the previous Abbey, Alliance & Leicester and Bradford & Bingley banks.
This means it was running hundreds of  thousands of store credit cards, and store-branded bank card, for a range of retailers such as Harrods and Mothercare.
It still runs them for companies such as Debenhams, Asda, Residence of Fraser, Laura Ashley, Harvey Nicholls, Russell & Bromley and Ryanair, along with the different avenues in the Arcadia team, such as Topshop and Dorothy Perkins.
Headlines of the county court instance took Santander by revelation, as well as a spokeswoman might point out only: ‘We are presently evaluating our possibilities in reaction to the circumstances,’ although Santander failed to please against the county court judgment.
Inertia-selling
The 2003 upgrading process entailed a number of million credit cards being delivered by GE Capital, unwanted, to owners of Debenhams along with Harrods store cards, in an example of mass inertia selling.
This drew in critical attention, particularly from the Office of Fair Investing (OFT).
In January 2004, it advised GE to quit informing its store-card holders that their cards would systematically be transformed to a gold card unless they objected.
The OFT likewise tested part of GE’s store-card arrangement, which suggested the bank had an unlimited right to transform the terms and also ailments of the agreement.
In the light of Diana Mayhew’s success, an OFT spokesperson said: ‘This thinking supports a previous difficulty by the OFT that a standard term in the GE store card agreement, purporting to offer GE an unrestricted right to alter the regards to the contract, is legally unjust.’
Harrods stopped releasing store credit cards in 2007.

Implications for M&S

Santander’s defeat could alter therms for  Marks & Spencer.
Its card company, which is a wholly owned subsidiary of HSBC bank, had actually initiated a wholesale conversion of 2.6 million of its shop cards to credit cards in September 2003.
By October that year, the OFT had taken a dim perspective of this as well.
Marks & Spencer, like GE Capital, had actually been informing its store-cardholders that their cards will be upgraded to credit cards automatically.
M&S was obliged to step back, and also to make clear to clients that if they would like to maintain their outlet card, they could well just overlook the new bit of plastic that had arrived, uninvited, via their letter box.
On the specific point at problem in Diana Mayhew’s instance, M&S declined to say whether it had actually offered all its cardholders with upgraded terms at the time of the upgrade.
Precisely how many of these credit cards are still in flow?
Occupation bodies such as the UK Cards Affiliation as well as the Finance as well as Leasing Affiliation do not understand, and the card issuers themselves are not stating.
‘This information is commercially sensitive,’ said Santander.
However Bradley State, a prominent consumer legislation barrister, pointed out: ‘I believe this could be a frequent scenario where borrowers have actually had a shop card altered to a credit card without the parties becoming part of a new [modifying] agreement.’

Complying with the periodical of this tale, M&S Cash said it had no question that the introduction the M&S credit card was done in conformity with the legislation. A spokeswoman stated: ‘All customers that obtained the new M&S credit card were formerly notified in work of the changes to their phrases and also problems. They even received a copy of these expressions and also problems with their brand-new card.’
Court Findings :

Date: 08/03/2012

Before : DISTRICT JUDGE MANNERS

Between : SANTANDER CARDS (UK) LTD Claimant – and – DIANA MAYHEW Defendant

Hearing date: 8th March 2012

JUDGMENT 1. This is a claim for the recovery of a debt accrued on a credit card.

2. The starting point here must be a reminder that this is a case where a major commercial enterprise is seeking judgment against a consumer. It is true that the underlying “merits” undoubtedly favour the Claimant but it is also true that it is and was incumbent on Santander to get its tackle in order.

3. In April 2000 the Defendant went into Harrods and picked up an application form for a Harrods store card. She filled in the form at home and sent it to GE Capital Bank on 5th April 2000. Her application was successful and a card was sent to her. The Defendant began to use the card.

4. The card was “upgraded” to a credit card in September 2003. The Defendant was “selected” for the upgrade and an unsolicited card was sent to her in the post. The Defendant voluntarily activated the card and thereafter used it to make some small purchases and to transfer the outstanding balances from several other cards.

5. In May 2009 GE Capital Bank became Santander Cards (UK) Limited, the Claimant.

6. The Defendant ran into financial difficulties and in July 2009 she failed to make the minimum payment due on the card. She informed the Claimant of her problems in February 2010 and it was agreed that she would make payments of £5.44 a month from March 2010.

7. On 12th October 2010 the Claimant served a default notice with a final demand being sent on 11th November 2010. These proceedings were issued on 20th December 2010.

8. The Claimant brought this claim and it is for it to prove, on a balance of probabilities that it is entitled to judgment for the sum claimed.

9. Evidence for the Claimant was given in the form of the statement of John-Paul Murphy the solicitor with conduct of the case. A hearsay notice was served and although Mr. Murphy was present in court no oral evidence was adduced on behalf of the Claimant. The Defendant herself gave evidence.

10. Four issues fall for determination (i) whether the agreement entered into in April 2000 was valid (ii) whether the upgrade in 2003 was valid (iii) whether the default notice complied with the requirements of the Consumer Credit Act and (iv) whether the Defendant’s request under section 78 of the Consumer Credit Act was complied with and, if it did not, whether that rendered the whole agreement unenforceable.

11. Was the April 2000 agreement valid? Section 61 of the Consumer Credit Act requires that a valid agreement must contain all the prescribed terms (credit limit, interest rate and repayment terms) and be signed by the debtor and the creditor. The Defendant’s case was that she went into Harrods banking hall and picked up a pre-paid foldable application form which she took home, filled in and sent off. She said there were no terms and conditions other than those printed on one side of the form. She had kept a copy of the form for her records. She also said that when she received the store card there were no terms and conditions with it. It was the Claimant’s case that terms and conditions were supplied, that procedures for providing terms and conditions were automated and that it would be unrealistic to expect that the Claimant could call anyone to give evidence as to the application of those procedures in this case. The Claimant was not able to provide a copy of the documents which it said would have accompanied the application form. The Defendant struck me as a methodical person who had kept a copy of the application form for her records and I have no doubt she would have kept, though possibly not read, any terms and conditions sent to her. I believed her evidence that she had not received any terms and conditions, either when she took the application form or when she received the card. I therefore find that the April 2000 agreement is unenforceable.

12. Was the 2003 upgrade valid? In September 2003 the Defendant’s card was “upgraded” to a dual card meaning that it was now a storecard and a Mastercard. The new card was sent unsolicited to the Defendant who needed to sign and activate it before she used it. It was open to the Defendant to decline the new card but she chose to activate it and use it. The new card had an introductory rate of interest for transferred balances and using it would gather loyalty points. The Defendant took advantage of both these features. The Defendant says that the agreement changed from a restricted use debtor-creditor-supplier agreement to being an unrestricted use debtor-creditor agreement and a debtor-creditor-supplier agreement which amounts to a modification of the agreement such that compliance with the requirements set out in regulation 7 of the Consumer Credit (Agreements) Regulations 1983. Compliance with the regulation requires a copy of the fresh agreement containing the relevant prescribed information to be served on the debtor. The Claimant did not allege that any such document was sent to the debtor. It was the Claimant’s case that the new card was supplied under a credit token agreement which remained in force and that there was no modification attracting regulation 7. In my judgment the Claimant’s analysis is wrong and there was a modification of the agreement requiring compliance with regulation7. The Claimant did not argue that it had complied with the regulation.

13. Was the default notice valid? Under section 87 of the Consumer Credit Act a default notice must be served before any termination or demand for earlier payment. Section 88 of the Act provides that a default notice must be in the prescribed form. The Claimant served a default notice by post of 12th October 2012. The Defendant says that the notice was defective because it gave the wrong figure for the amount due and no OFT fact sheet was included. The Claimant explains that the difference is the amount by which the Defendant’s credit limit had been exceeded and that error was detrimental to the Claimant rather than to the Defendant. It was the Claimant’s case that the OFT fact sheet would have been included with the default notice and in the event that it was not there was a clear statement at the end of the notice that the Defendant should contact the Claimant so that the sheet could be sent. The Defendant denied that the OFT fact sheet was sent with the default notice, stated that she did not request the sheet and candidly admitted that she might not have read the whole letter. No evidence was adduced before me actively saying the fact sheet had been enclosed. The Claimant invited me to conclude that that the defects in the default notice were de minimis but I do not agree. The whole point of a default notice is that the debtor should know exactly what is owed and it is irrelevant that any defect would be to the detriment of the creditor. I accept the evidence of the Defendant that no OFT fact sheet was enclosed and words inviting her to send for the missing sheet are not sufficient to remedy the defect of its absence. It is unfortunately the case that many debtors in the position of the Defendant in this case do not read to the end of letters thus the importance of documents being enclosed.

14. The Defendant’s section 78 request In order to comply with section 78 the creditor must provide a copy, reconstituted if necessary, of the terms and conditions originally agreed between the parties and, if different, those in force at the time of the request within 12 working days, the agreement is unenforceable until the request has been complied with. On 17th November 2010 the Defendant made a section 78 request to Lewis Debt Recovery, a chasing letter was sent on 6th January 2011 and a section 78 request was made to the Claimant on 15th January. The request was replied to on 2nd February. The Defendant sent an entirely disingenuous reply on 4th February alleging that she had received information for the wrong account. She claimed that she needed information for account 5413613010473940 not the information she had been sent which related to account 6356505552255858. Her evidence was that she had kept the original agreement and a moment’s checking would have revealed to her that the 6356 number related to her original account. In my judgment the Claimant complied with the section 78 request within the stipulated time and is not prevented from enforcing this debt for non-compliance with a section 78 request.

15. It follows from what I have said above that the claim is dismissed. The claimant must pay the Defendant’s costs to be subject to detailed assessment if not agreed

Henrietta Manners 20th March 2012

 

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Tim Capper

Bringing you financial news and information in plain english for Maple Leaf Financial. My aim is to help readers understand these often complex financial instruments.