Be silent

In December 1998, Mr. Durkin (rather crossly, no doubt) returned to PC World a laptop he had bought the previous day from them because it lacked certain features he had specified to the salesman. Little did he know that this would result, nearly 16 years later, in the Supreme Court issuing a judgement [1] on a financial loss claim by him for damage to his credit status following these events.

Where’s the internal modem? 

Mr. Durkin bought the laptop by taking out a loan for the purpose from a finance house, signing the loan agreement at the time of purchase. This agreement was a ‘debtor-creditor-supplier agreement’ for Consumer Credit Act purposes – this meant that, if the item financed by it was validly rejected by the buyer/borrower, then the loan agreement could be rescinded.

Mr Durkin made clear that he wanted a laptop with an internal modem – he was told that he could return it if there wasn’t one (oddly, this could not be checked in the store). Finding that there was no internal modem, he returned the laptop and told PC World to have the loan agreement cancelled.

‘Default’ reported 

PC World did not tell the finance house what had happened. Mr Durkin did not make any payments and, when chased by the finance house, told them what had happened and that, because he had validly rejected the laptop, the loan agreement was also cancelled. The finance house made no enquiries about his claims and subsequently issued a default notice to Mr Durkin. It also notified the UK credit reference agencies (CRAs), Experian and Equifax, of the ‘default’, which was entered on their registers. It was six years before the entries were removed.

The Supreme Court held that the loan agreement had been validly cancelled and ordered the finance house to pay Mr Durkin damages of £8,000 for the damage caused to his credit by the erroneous ‘default’ entries.

Why this result? 

The finance house knew that Mr Durkin claimed that the loan agreement was cancelled.  In those circumstances, it had a choice: it could choose not to report him to a CRA as being in default; but, if it chose to report him, the finance house assumed a duty of care to Mr Durkin. That meant that it should have investigated his claims; unless they were clearly baseless, it should not have made any report until the courts had said who was right.

Lessons 

A credit provider who reports a default to a CRA, having been put on notice that the debtor has a dispute but ignoring it, takes the risk of being held liable in damages for harming a person’s credit standing. To the common saying of ‘buyer beware’, we probably need to add ‘creditor beware’.

For more information, email blogs@gateleyuk.com.

[1] Durkin v. DSG Retail Limited and another [2014] UKSC 21


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