March 28, 2014

A Supreme Court “Victory” for Consumer Rights

Where goods have been purchased on credit but it materialises they are not fit for purpose consumers are now much more likely to be able to cancel the credit agreement (and protect their credit rating) as well as return the goods.

On 26th March 2014 the UK Supreme Court (formerly the House of Lords) finally gave judgment in a case which concerned the purchase of a laptop by Mr Richard Durkin from PC World way back in December 1998. The case clarifies:

  1. A lender’s “duty of care” towards borrowers before serving  default notice and filing a report with credit reference agencies;
  2. A borrower’s ability to simultaneously cancel (rescind) a credit agreement taken out solely for the purpose of financing the consumer purchase, in circumstances where the supplier (in this case PC World) was in breach of contract.

To purchase the computer Mr Durkin had signed a Consumer Credit Act regulated agreement and borrowed £1449.00. He had stipulated to the sales assistant that the laptop must have an internal modem; the following day he discovered it contained no modem and sought to cancel (rescind) the contract and credit agreement.  

PC World refused to accept Mr Durkin’s rejection of the goods and the credit lender simply accepted PC World’s stance, without undertaking its own investigation into the facts of the dispute and whether Mr Durkin had been entitled to reject the goods. When Mr Durkin refused to make his credit payments the lender  issued a default notice against Mr Durkin and filed adverse reports to various credit reference agencies. As a consequence his ability to obtain credit was seriously prejudiced.

Mr Durkin eventually sued PC World and the  lender in 2004, seeking a Court declaration that:

  1. He had validly cancelled the sale contract and credit agreement back in 1998;
  2. The Bank should compensate him for wrongly holding him in default and therefore damaging his credit rating.

The case weaved its way through the Scottish courts (with victory and defeat for Mr Durkin along the way) before finally reaching the Supreme Court this year.

Mr Durkin was not awarded the significant compensation he had claimed for damage to his credit rating. However, the Supreme Court’s judgment does help consumers who are entitled to reject goods, but continue to be pursued for payment by the lender. In short the Justices ruled that:

When a consumer is entitled to rescind a sale contract (for example due to defective goods) it is implied by law that they are also entitled to cancel the credit agreement;
Lenders owe consumers a duty of care to investigate cases involving such disputes before issuing default notices, in order to be satisfied there is genuine default on the part of the consumer (as opposed to there being an unresolved dispute regarding cancellation). If the lender fails to adequately investigate, and files adverse credit reference reports, they may be liable to the consumer for subsequent damage to his/her credit rating.

No two cases are indentical and the above decision may not apply to all situations involving consumer credit. Legal advice should be considered before approaching a supplier or lender with a view to cancelling (rescinding) a consumer contract.  Contact David Dixey at Holmes & Hills Solicitors in Braintree for expert consumer legal advice.  Call 01787 475312.

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