Credit card companies are subject to a six-year time limit in launching proceedings against defaulters, but when exactly does that period begin to run? The Court of Appeal has answered that question in an important ruling for debt recovery specialists.
The case concerned a man who was alleged to have defaulted on monthly payments after building up a debt of more than £26,000 on his card. A factoring company which claimed to have taken an assignment of the debt from the bank that originally issued the card served him with a default notice under the Consumer Credit Act 1974 (CCA).
The man argued successfully at a preliminary hearing before a district judge that the six-year limitation period contained within Section 5 of the Limitation Act 1980 began to run when he made his last payment on the card and that proceedings had not been issued against him until after the time limit expired. That decision was, however, subsequently reversed by a circuit judge.
In dismissing the man’s challenge to the latter decision, the Court ruled that on a true interpretation of the credit contract and statutory provisions, the six-year time limit started to run when the default notice expired. The company’s claim had therefore been lodged in time and would be permitted to proceed to trial.
The man had argued that a ruling in favour of the company would expose credit card debtors to long-delayed claims for payment. There was the potential for lenders to artificially extend the limitation period by delaying service of default notices.
The Court noted, however, that the CCA seeks to achieve a balance between the rights of creditors and debtors and confers wide powers on judges to remedy any unfairness to the latter. It qualifies the rights of creditors to, amongst other things, treat a credit agreement as at an end or to demand accelerated payment of outstanding sums. Amongst the benefits it confers on debtors is the opportunity to remedy and expunge their defaults for all time through compliance with the terms of default notices.
