Bank Liable for damage to credit rating
The case came about after the litigant, Mr Durkin, set out to buy a laptop computer with an internal modem. He purchased a laptop computer from PC World and entered a debtor-creditor-supplier agreement with a bank under section 12(b) of the Consumer Credit Act 1974 to fund the purchase, apart from a deposit which he paid.
When he took his purchase home he discovered that the laptop did not have an internal modem. The next day he handed back the computer to the store for breach of contract and asked for the deposit to be returned and the credit agreement cancelled. The store refused to accept his rejection of the goods and took no steps to cancel the credit agreement.
Mr Durkin did not pay any money to the bank under the credit agreement. However, without making any enquiries about Mr Durkin’s claim that he had rescinded both the contract of sale and the credit agreement, the bank issued a default notice and intimated to two credit reference agencies that he was in default of his obligations under the credit agreement. They recorded the alleged default on their registers.
Mr Durkin raised a small claims action against PC World and recovered his deposit in an out-of-court settlement in which PC World did not admit any liability. But that did not resolve his problem with the bank. He found that the entries on the credit registers prevented him from opening new accounts with credit card companies and other lending institutions. Mr Durkin therefore raised an action against both PC World and the bank.
The courts held that PC World had been in material breach of contract entitling him to rescind the sale contract and that section 75 of the 1974 Act had the effect that he had been entitled to rescind and had rescinded both the sale contract and the credit agreement. The Bank was held to have failed in its duty of care to the litigant in that it simply accepted PC World’s assertion that the credit agreement was not rescinded and had not made adequate enquiries before issuing its default notice; with the subsequent ramifications.
Rob Stubbs of Banner Jones Solicitors, comments “It is a common misconception, when a product is bought under a credit agreement, that returning the product to the supplier also nullifies the credit agreement automatically. It does not. Care must be taken to ensure that both parts of the transaction are rescinded otherwise the types of problems highlighted in the present case can ensue”.
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