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Assign of the Times

The established process of debt sale was challenged recently (in so far as it related to agreements regulated by the Consumer Credit Act 1974 (“Act”)) in yet another attempt by a debtor to absolve themselves of liability for a debt they unquestionably owed.

The debtor in question, Mrs Jones, sought to challenge the ability of a debt purchaser to sue her for the recovery of a debt regulated by the Act. Jones’ challenge would, if successful, have had serious repercussions for the Debt Purchasing Industry.

Jones defaulted on her credit agreement. After serving the statutory notices as required by the Act her creditor sold the debt to a debt purchaser – Link Financial. Link sued. There appeared to be no disputing that, were it not for the debt sale, Jones was liable.
Jones argued that Link was unable to sue her. Her challenge related to the definition of Creditor within s.189 of the Act.

The Act stipulates that only a “Creditor” can sue for recovery of sums outstanding under a regulated agreement. A “Creditor” is defined as; ‘the person providing.....or the person to whom his rights and (crucially) duties under the agreement have passed by assignment or operation.....’
It is a fundamental principle of contract law that whilst the benefit of a contract can be assigned, the burden cannot. Jones argued that as Link had not taken an assignment of the burden of the contract it was not a “Creditor” and could not sue – i.e. no contractual “duties” had been assigned and this was required by s.189.

Judge Butler in the Blackpool County Court agreed and found that Link could not claim the status of creditor as a consequence of the wording in s.189 (although judgment was still entered against Jones as Link was still able to sue on behalf of the original creditor pursuant to s.141 of the Act).
Jones appealed. The High Court overturned the decision citing its “absurd” consequences – the debt would have fallen into a “black hole” - Link could not pursue the debt and the original creditor had assigned its rights and was also prevented from suing. Moreover, the Act clearly envisaged the ability of a debt purchaser to sue hence the contentious wording had been included within the definition.
The High Court held that duties for the purposes of s.189 are statutory duties under the Act, i.e. the duty to serve statutory notices etc and not contractual duties. As such, Link fell within the definition of creditor and could sue.

This is yet another welcome decision of the Courts in this area of the law. Whilst it is frustrating that the Act which was designed to protect vulnerable debtors from unscrupulous creditors continues to be exploited in this way, it is re-assuring that the Courts continue to look unfavourably on what are becoming more and more tenuous arguments.
Creditors can rest assured that a debt purchaser will not be precluded from suing under a regulated agreement simply because it has purchased the debt.

Story by
Daniel Seabridge, Paralegal
Banking, Finance and Real Estate Litigation
T: 0161 838 3122
E: daniel.seabridge@irwinmitchell.com