In the first part of this discussion on whether a credit agreement may be unenforceable, we considered the position when a lender was unable to provide a copy of the loan agreement as they are obliged to do under the Consumer Credit Act. This will not invalidate the liability to repay the loan but there are other reasons why a loan may be unenforceable. In certain circumstances a consumer credit agreement cannot be enforced. That is the law and it is well known and accepted by banks and other lenders.

What must be realised however is that there are no loopholes, no magic formula, or secret procedure as the Claims Management Companies would pretend. The truth is that consumers who borrow money have protection under the Consumer Credit Act and that if lenders fail to provide certain information (referred to as prescribed terms) intended to protect a borrower they face draconian consequences. These may be that the agreement cannot be enforced and action cannot be taken to enforce the loan.

Section 61 of the Consumer Credit Act stipulates that a credit agreement is not properly executed unless it contains all the prescribed terms and conforms to regulations made under section 60(1) of the Act, and is signed in the prescribed manner. Therefore the consequence of a failure or omission to state fully and correctly any of the prescribed terms is to render the agreement improperly executed and therefore unenforceable save by order of the court. However were an application to be made to the court 127(3) requires the court to dismiss the application for an enforcement order. Therefore such an agreement may be considered to be irredeemably unenforceable.

The prescribed terms for the purposes of section 61 which are set out in Schedule 6 of the Consumer Credit Act (Agreements) Regulations 1983 states that:

(1)A regulated agreement is not properly executed unless--

(a) a document in the prescribed form, itself containing all the prescribed terms and conforming to regulations under section 60(1) is signed in the prescribed manner both by the debtor or hirer and by or on behalf of the creditor or owner, and

(b) the document embodies all the terms of the agreement, other than implied terms, and

(c) The document is, when presented or sent to the debtor or hirer for signature, in such a state that all its terms are readily legible

In addition the following must be contained: -

a) A term stating the credit limit or the manner in which it will be determined or that there is no credit limit,

b) A term stating the rate of any interest on the credit to be provided under the agreement and

c) A term stating how the debtor is to discharge his obligations under the agreement to make the repayments, which may be expressed by reference to a combination of any of the following--

1. Number of repayments;

2. Amount of repayments;

3. Frequency and timing of repayments;

4. Dates of repayments;

5. The manner in which any of the above may be determined; or in any other way, and any power of the creditor to vary what is payable.

Therefore if a borrower has not signed the agreement containing all the prescribed terms, the agreement will not be enforceable without an order of the court and section 127(3) requires the court to dismiss the application for an enforcement order.

This will leave open the question of what if anything the lender can do. This is dealt with in the third part of this series of articles.