A customer had to fight for a PPI refund after the bank produced a credit agreement that he had never seen
The Government is being urged to provide tougher protection for bank customers after Lloyds TSB was accused of falsifying a document that was central to a mis-selling claim.
Allen Wright, from Derby, says that the bank re-created a legal agreement linked to a credit card in 2000. The electronics engineer, 48, made the discovery after asking the bank for a copy of his credit agreement while collecting evidence that he was mis-sold payment protection insurance (PPI).
He was shocked by what he received. The document was riddled with errors, his name was misspelt, his employment status was wrong and it included his signature, although Mr Wright insists that he had never seen the document before, let alone signed it.
He says: “I think it is disgusting that they can falsify something. It looks so shabby, like the office junior filled it in.”
Under existing rules the bank has done nothing wrong — a revelation that will come as a shock to many bank customers, and which has prompted calls for a change in the law.
Oliver Morgans, a financial services expert at the government-funded Consumer Focus, says: “We would call on the Government to amend legislation to clear up any grey areas, ensure borrowers are not losing out and that lenders act fairly and responsibly. We would also advise consumers to always keep copies of credit agreements that they sign.”
Everyone who takes out a credit card, loan, overdraft or hire-purchase agreement signs a contract with the lender called a credit agreement.
You can ask the lender to send you a copy at any time and it has to comply within 12 days. If it fails to do so, the Consumer Credit Act says that the loan is not enforceable. In other words, the lender can’t force you to repay it or use the ultimate sanction of taking you to court if you refuse.
However, Mr Wright’s case has highlighted the fact that if a bank can’t find the original agreement, or has something to hide, it will simply make one up. And legally it can. A landmark court case established that a lender has only to provide a copy of the original agreement “which may be from sources other than the actual signed agreement itself”.
Consumer groups say that there were sound reasons for the ruling, although it has given lenders an unfair advantage that some organisations may look to exploit.
Mr Morgans says: “We are concerned this could be used as a catch-all excuse for failing to keep accurate and up-to-date records, which is required by the Data Protection Act.”
Consumer Focus believes that the rules should be changed to force lenders to keep copies of original contracts and credit agreements, as part of a commitment to treat customers fairly.
The editor of Which? Money, James Daley, says: “The OFT [Office of Fair Trading] and courts say that banks have to provide only a ‘true copy’ of credit agreements, not necessarily the originals. While the reason for this was to stop the deluge of cases from claims-management companies saying that debts were unenforceable, it could also potentially put consumers at a disadvantage when making claims for things such as mis-sold PPI.”
This is borne out by Mr Wright’s experience, as he had requested his credit agreement to support his mis-selling claim. PPI was added to his Lloyds credit card against his will and, given that Mr Wright is self-employed, the insurance would probably never have paid out if he had made a claim.
However, the “Credit agreement regulated by the Consumer Credit Act 1974” that he was sent implied that he was lying. It carried a ticked box that suggested he had said yes to “Asset Payment Protection”, another name for PPI. Mr Wright claims that on the original agreement he chose the “no” option.
It also included mistakes that were crossed out and then corrected; for example, describing him as employed although he was self-employed.
This fact was important for his mis-selling claim, since it would have been very difficult for him to claim on his PPI policy as a self-employed person. The insurance covers debt repayments if people are off work because of illness or unemployment. Claims made by self-employed people were routinely turned down because it is more difficult to ascertain when they can and can’t work.
Because Lloyds did not respond swiftly enough to Mr Wright’s claim he took his case to the Financial Ombudsman Service. This prompted an offer of redress earlier this month, although the bank still refuses to accept any liability.
Mr Wright believes that one of the most telling factors that prove he did not fill in the agreement is that his name was spelt incorrectly — Alla, not Allen — and then changed.
He says: “Nothing apart from the signature is in my handwriting. The signature must have been copied from the original agreement that I did sign.
“When I went back to the bank and asked for the original document I was told that I could obtain this from credit card services but this is where I went in the first place.”
Mr Morgans says: “Banks have responsibilities to their customers and it would be a real concern if a credit provider cannot produce the original signed contract on request. Re-creating a credit agreement rather than producing the original has clear potential for customers to be treated unfairly, even if accidentally. The contract may be different to the original, but with no evidence this would be very difficult for consumers to prove.”
The court case at the heart of the controversy is Carey v HSBC. It arose after there was a surge in claims from consumers arguing that their lender had breached section 78 of the Consumer Credit Act 1974 by failing to produce an exact copy of their credit agreements. They were encouraged by claims handlers who advertised aggressively with promises to “wipe out all debts”.
In the case, the High Court ruled that a credit agreement was still enforceable even when a bank was unable to provide a copy of the actual agreement, as a reconstructed copy was acceptable. Judge Waksman, QC, said that the purpose of his ruling was to give general guidance. The approach was then confirmed in official guidance from the OFT, which said that all the paperwork needed to tell you is:
• what your original agreement was, and if there were any changes made to it later;
• your name and address at the time that you first signed the agreement, although it doesn’t have to include your signature, or the date that you signed it;
• the statements about your rights that were in the agreement you signed;
• if it is a copy.
Lloyds Banking Group, which owns Lloyds TSB and whose slogan is “Our vision is to be the best bank for customers”, says: “In 2000, when Mr Wright made his credit card application, it was standard practice to fill the application forms out in branch. The branch colleague would have completed the form in Mr Wright’s presence following his instructions. The form will have then been passed to Mr Wright to confirm that it was correct before signing. The consumer credit agreement that Mr Wright has received is a scanned version of the original document.”
However, Mr Wright says that this is untrue, as he remembers filling in the agreement at home, and that this is not the document that he originally signed.
NON-PAYMENT PUTS CREDIT RATING AT RISK
It is commonly believed that if a bank or other lender can’t find your credit agreement and your debt becomes unenforceable, what you owe will be wiped out.
This is not the case, however, and forgetting this could lead to financial trouble. A spokesman for the Office of Fair Trading says: “The debt is not wiped out. It still exists, and it will still be taken into account when credit checks are conducted, but the creditor cannot make you repay it.”
What this means is that the lender cannot take out a court judgment against you to force you to repay the debt. It can still take you to court, but you can ask for the court not to proceed and call a stay on proceedings until the agreement is produced.
A lender can’t take back anything you bought on credit, say, a TV, or take your house if that was used as security when you took out the agreement.
Some people may conclude that this is as good as saying that the debt has been cancelled. But assuming that could be dangerous because the lender can continue to ask you to pay what you owe and can send a default notice if you miss any payments.
It can also pass on your details to a debt collector who can pursue you.
A lender can also inform the credit reference agencies, Experian, Equifax and Callcredit, that you have missed a payment.
This will affect your credit rating and could make it difficult to get a loan or mortgage in the future.