Case result major blow for claims management firms

Monday 26th October 2009

Specialist law firm Goldsmith Williams says that a recent ruling in the Commercial Court is a major blow for companies pursuing unenforceable loan agreement claims on behalf of clients.

The ruling, based on a case bought by the Royal Bank of Scotland against a defaulting borrower (Mr McGuffick) has profound implications for any loan agreement, which is declared to be ‘unenforceable’.

To date, the view has been that there is little a lender can do to pursue a borrower for payment of any outstanding debts, if a loan agreement is declared unenforceable, said GW.

However, the recent Commercial Court ruling makes it clear that even though a loan agreement may be declared unenforceable, lenders are still at liberty to:

- tell credit reference agencies about missed payments
- inform third parties about any outstanding debts
- continue to demand payments from the borrower
issue a default notice and threaten (and take) further legal proceedings
- instruct debt collection agencies to seek payments
 
Eddie Goldsmith, senior partner at Goldsmith Williams, said: “This ruling represents a major set-back for claims management companies, which have prospered by creating the impression that unenforceability allows borrowers to walk away from their debt obligations. This Commercial Court ruling means that although a lender may not be able to repossess a house or goods, they can continue to pursue outstanding debts and, most importantly, they can also insist that adverse information is shown on a borrower’s credit record.

“Borrowers must realise they cannot use a legal technicality as a way to resolve their debt problems. The harsh reality is that even if a loan is declared unenforceable, they can still be pursued by lenders and will end-up with an adverse credit record, which will make obtaining further credit almost impossible. This will not only create problems when applying for a mortgage, but also when applying for a mobile phone, Sky TV or any other service which involves a credit check.”

During the summer months Goldsmith Williams warned mortgage brokers to be wary of misleading statements being made by claims management companies and the dangers of raising false hopes by referring desperate clients to firms, which may not be able to rid them of their debt problems.

Goldsmith concluded: “Brokers need to ensure their clients understand that unenforceability will not prevent lenders from taking further legal action and borrowers will be effectively excluded from applying for further credit.”

Both the claims management companies Introducer Today approached for comment declined to do so.