18 Feb 2013

Debt Buyers are Creditors

Debt Buyers are Creditors

It is increasingly common for consumer finance agreements to be assigned to third parties and the Court has given some useful clarification for creditors in this area through its recent judgment in Patricia Jones v Link Financial Limited.

It is increasingly common for consumer finance agreements to be assigned to third parties and the Court has given some useful clarification for creditors in this area through its recent judgment in Patricia Jones v Link Financial Limited.

In the case of Patricia Jones v Link Financial Limited the debtor had entered into a regulated credit agreement with a third party finance company. The debtor then defaulted with payments due under the agreement and the creditor served the customary statutory notices ending in a demand for payment of the full outstanding balance. The creditor then assigned the debt to Link and the debtor was notified of this assignment. The debtor then appealed against the decision that the debt buyer was entitled to pursue the outstanding balance as they did not constitute a creditor under the Consumer Credit Act 1974.

In a positive decision for both original creditors and assignees of regulated consumer credit agreements, the Judge dismissed the appeal. The Judge highlighted that if he were to allow the debtors argument a “black hole” would be opened in the debt recovery industry where a debt buyer would be unable to enforce the debt as it was not a creditor and the original creditor would be unable to enforce the debt as it had assigned the rights to collect the debt. The Judge referred to the works of various academics in the field, all of whom agree that an assignee, or debt buyer, may be a “creditor” once notice of assignment is given to a debtor. This is due to the fact that the statutory duties are passed by assignment which in turn obliges the debt buyer to fulfill them.

However, an important distinction was made by the Judge in this case. Specifically that

  • All rights must have been passed from the original creditor to the debt buyer.
  • The debtor must be notified in writing that there debt has been transferred to the Debt Buyer.
  • It is only once the notice of assignation has been given that the Debt Buyer obtains the right to seek enforcement of the debt.

In conclusion, creditors and debt buyers should both be relieved that this area of law has been clarified and that a major pothole in debt recovery has been avoided.

Alastair Johnston, Trainee Solicitor


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