Simon Read: Why Richard Durkin's credit rating might affect you

  • @simonnread

There was a small but significant court victory for consumers this week. Richard Durkin won a 16-year legal battle over a laptop he bought from PC World.

Problems began for Mr Durkin after he signed a credit agreement with lender HFC Bank – now owned by HSBC – for about £1,500 in 1998. He returned the computer the next day because it was unsuitable and asked staff at the store to cancel the credit agreement.

But HFC insisted Mr Durkin keep making the payments and when he refused the bank issued a default notice – which left him on a credit blacklist for several years.

The fact is that getting a black mark on your credit file can be incredibly damaging. Not only could it mean being turned down for a mortgage or loan, it will almost certainly mean being penalised with a higher interest charges. That's because the black mark will suggest to lenders that you're a greater risk, so they'll expect greater rewards for that.

He fought the bank for years and the Supreme Court in London ruled in his favour on Wednesday and said the bank had breached a "duty of care".

The ruling means that companies that freely pass on negative information about you will be forced to think more carefully about doing so in the future, and could be sued if they pass on detrimental information.

However, it's a small victory, as we already effectively have that protection in law, as far as I'm aware. If a lender passes on incorrect detrimental information about you to a debt collector or credit reference agency, then you can sue it.

On top of that this week's ruling only applies to those banks and finance houses that offer credit to people buying goods under what are known as "debtor, creditor, supplier" agreements.

In short, it will only apply to store finance, the kind of deals offered at the till in shops or at motor showrooms.

Who offers store finance? They tend to be specialist firms, such as the credit giant Brighthouse, or companies such as Hitachi Capital or Ikano Bank. HFC, the bank in Mr Durkin's case, was subsequently bought by HSBC and effectively closed.

The Supreme Court ruling actually referred to "restricted use credit". In short that means loans that are handed out to pay for specific items, such as a laptop or fridge. The ruling will have no bearing on standard personal loans, mortgages, or revolving credit such as overdrafts or credit cards.

In fact the specific upshot of the ruling is that if in future you buy goods using "restricted use credit" and then legitimately reject the goods because, for example, they are faulty, the credit agreement must also end. With no credit agreement, the lender would be wrong to pass on information about you to debt agencies.

But it will still have a bearing on the hundreds of thousands of people who every year take out such loans. If you're one of those and you take back the fridge or laptop you bought with the loan, you shouldn't run the risk of getting a black mark on your credit report. However it's probably worth contacting the lender concerned just to save any confusion.