Beating Banks With Bad Credit Agreements?

Credit card customers have been getting their own back over excessive penalty charges. Are credit agreements their next target?

Banks have been hit hard over the last year as more and more people claimed back unfair charges for late payment and unauthorised overdrafts.

And now, a West Yorkshire company -- Financial Agreement Solutions (FAS) -- has come up with another stick to beat the banks with. Flawed credit agreements.

Under current consumer credit laws, when you enter into a contract with a bank or credit card company, the paperwork must contain certain prescribed details that you have clearly signed up to. If you haven't signed the agreement, or if the required legal elements aren't specifically stated, then the lender will find itself in trouble if it tries to take you to court for non-payment. In other words, the contract you have with the lender may be unenforceable and, therefore, worthless.

According to FAS, 8 out of 10 credit agreements are defective in some way although they say that only 2 out of 10 contracts would probably be deemed 'unenforceable' by a court of law.

But, it's fair to say that loans and credit cards issued under current consumer credit laws may come under scrutiny. Financially savvy customers who are getting fed up with excessive charges and poor service may be able to use defective credit agreements as levers to get better deals from banks.

The service offered by FAS amounts to a free check of the most common terms of the consumer credit laws that tend to be breached by lenders. It then charges a flat rate of £30 to download the details with which you can challenge your bank.

To my mind, it's probably a useful way of checking the validity of a credit agreement -- especially if your lender keeps sending you computer-printed letters that don't seem to address your particular problem. But it's not a way of getting out of paying what you owe.

And FAS is not advocating that you walk away from a credit agreement and stop paying back what you've borrowed. Instead the company's service could provide you with a way of negotiating meaningfully with your bank.

So if you're having trouble paying back debt, you might persuade your lender to freeze the interest rate on your debt. Or you might be able to negotiate a 'full and final settlement' where your bank agrees to accept a sizeable payment in return for writing off the remainder of the debt.

However, be warned that although the old laws will apply to current credit agreements, the consumer credit rules change from April 6th. From then on, with any new contract, it'll be up to the courts to decide whether your particular credit agreement is unenforceable. Even if the contract you've signed contains incorrect details, a judge may feel that you knew perfectly well what you were agreeing to!