Challenges for Debt Purchasers

Debt purchasers are vital stakeholders in the debt recovery process. In many respects they face exactly the same challenges as original lenders whilst needing to generate an early (incoming) flow of cash to justify the outlay on the debt purchase itself.

For further information please contact Mr Nigel Coe, Managing Director or Mr Jeremy Bouchier, Solicitor and Chief Legal Officer.

Compilation of accurate and meaningful data for individual/portfolio of accounts is crucial for all leading debt purchasers.  Regulatory compliance is usually a mandatory term inserted by original lenders in their contracts as they need to be certain that their reputation is in safe hands. The recent flurry of case law involving legal challenges to recovery by debt purchasers is a reflection of the volume of regulated accounts now under their control.

The ability to quickly produce relevant CCA documents is essential and an efficient retrieval process needs to be agreed and included in the debt purchase contract which will   benefit both parties.  All original lenders want to avoid an adverse ruling (even if at first instance) that a standard credit agreement did not comply with the CCA as any commentary on the case (whether in the media/consumer based websites) will focus as much on their name as the debt purchaser.  The latter is of course anxious to ensure that the time and money invested in the   acquisition will not be questioned by unfortunate rulings on the enforceability of accounts which they have bought.

Recent case law has demonstrated that “enforceability” can still be an issue. In the case of HFO Capital Limited v Wegmuller, Mr Recorder Campbell considered the allegation by Mr Wegmuller that the Barclaycard agreement (subsequently  acquired by HFO)  he signed in the mid-1990's failed to contain the prescribed terms and therefore did not comply with Section 61 of the CCA.  After making reference to “Carey v HSBC Plc” – in particular those passages which dealt with what the Act required the customer to sign – the Recorder noted the court had not been provided either with a copy of the original agreement nor a reconstitution of it.  Although Mr Wegmuller actually acknowledged difficulty in recollecting exactly what he signed, the Recorder decided that in the absence of any direct evidence from either Barclaycard or HFO, as to account set up procedures/documentation, Section 61 compliance could not be proved.  Therefore the debt recovery claim brought by HFO was dismissed.  Worse was to follow as Mr Wegmuller had instructed a firm of solicitors who are well known for representing customers who wish to challenge their liability under  regulated agreements on the grounds of non CCA compliance.  That firm (and similar) will take comfort from this ruling – not least the award of costs made in their favour.

Although perhaps a reflection of the quality of evidence before the Court in that particular case, the message is clear – when proceedings are defended, debt purchasers need to ensure that a litigation risk assessment is carried out on every “enforceability” case.  The reality is that for the purposes of both litigation and regulatory compliance they are an “extension” of the original lender.  Implementation of effective arrangements will ensure recoveries  are maximised and defeat/dissuade speculative and time-consuming challenges/defences.

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