OFT sues First National over HP loans

THE OFFICE of Fair Trading will make legal history this week when it starts a High Court action against a subsidiary of Abbey National over its interest charges on hire purchase agreements.

The OFT is suing First National Bank, which was acquired by Abbey National four years ago, over a "standard contractual term" the firm uses in HP agreements used by customers to buy consumer items such as washing machines and fridges.

The OFT wants the bank to change a clause which allows it to keep charging interest to customers who have already gone to court to show they cannot keep up payments. Use of the clause can mean debts continue to grow even after a court has judged them to be unaffordable.

It is the first time the OFT has gone to court under legislation introduced in 1995 to enable the regulator to negotiate with companies over consumer contracts that it regards as unfair.

First National has refused the OFT's request to change its particular contract terms, and is determined to fight the OFT in court.

A spokeswoman for the OFT said on Friday: "This is the first time we have ever gone to court on this legislation. This is a big deal for us."

The legislation concerned is the Unfair Terms in Consumer Contracts Regulations 1994. The row is centred on an obscure legal term "interest after judgement", which affects millions of people who take out consumer loans to buy goods in high street stores.

First National has three million customers and provides loans through intermediaries such as high street stores for people buying household goods. The loans are usually at or near credit card rates.

The OFT has been trying since last year, following a number of complaints from consumers, to get First National to change the clause.

When the courts have issued a County Court Judgement in the cases concerned, they have usually specified that the customers should pay a lesser, regular payment to First National, such as pounds 10 a month.

However, under the "interest after judgement" clause in First National's contracts, First National has been able to continue charging interest on the customer's loan even after the court has passed judgement.

In other words, the interest will continue to accumulate, while the customer is only paying a reduced amount. Therefore the customer will never pay off the debt, which will continue to grow in perpetuity.

A spokeswoman for the OFT said: "We have been trying to negotiate with First National to change these terms. They have refused to do so. Therefore we have issued them with a writ. We have changed over 3,000 terms since [the legislation in 1995] so it's a big deal for us.

"We hope to get an injunction to have these unfair clauses removed," she added.

The two parties will attend the High Court in the Strand on Wednesday for a preliminary hearing. First National last Friday made clear its determination to fight the OFT application.

The Abbey National subsidiary said: "The bank's case is that the term which keeps interest running after a court judgement has been obtained is not in any way unfair."

Phillip George, the managing director of First National, said: "Customers taking consumer finance necessarily pay interest. The OFT, in challenging the effect of this clause, is preferring customers who don't pay in favour of those who pay regularly and on time.

"The basis of their argument would allow non-payers who have a court judgement against them to cease paying interest on the money they owe to the bank, while paying customers continue to pay interest on their loans until repaid in full."

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SThree: Graduate Recruitment Resourcer

£20000 per annum + commission: SThree: Sthree have an exciting opportunity for...

Recruitment Genius: Telesales Executive - OTE £32,000+

£18000 - £32000 per annum: Recruitment Genius: A Telesales Executive is requir...

Ashdown Group: Marketing Manager - B2B, Corporate - City, London

£45000 - £50000 per annum + benefits : Ashdown Group: A highly successful, glo...

Neil Pavier: Commercial Analyst

£50,000 - £55,000: Neil Pavier: Are you a professionally qualified commercial ...

Day In a Page

War with Isis: Iraq declares victory in the battle for Tikrit - but militants make make ominous advances in neighbouring Syria's capital

War with Isis

Iraq declares victory in the battle for Tikrit - but militants make make ominous advances in neighbouring Syria
Scientists develop mechanical spring-loaded leg brace to improve walking

A spring in your step?

Scientists develop mechanical leg brace to help take a load off
Peter Ackroyd on Alfred Hitchcock: How London shaped the director's art and obsessions

Peter Ackroyd on Alfred Hitchcock

Ackroyd has devoted his literary career to chronicling the capital and its characters. He tells John Walsh why he chose the master of suspense as his latest subject
Ryan Reynolds interview: The actor is branching out with Nazi art-theft drama Woman in Gold

Ryan Reynolds branches out in Woman in Gold

For every box-office smash in Ryan Reynolds' Hollywood career, there's always been a misconceived let-down. It's time for a rethink and a reboot, the actor tells James Mottram
Why Robin Williams safeguarded himself against a morbid trend in advertising

Stars safeguard against morbid advertising

As film-makers and advertisers make increasing posthumous use of celebrities' images, some stars are finding new ways of ensuring that they rest in peace
The UK horticulture industry is facing a skills crisis - but Great Dixter aims to change all that

UK horticulture industry facing skills crisis

Great Dixter manor house in East Sussex is encouraging people to work in the industry by offering three scholarships a year to students, as well as generous placements
Hack Circus aims to turn the rule-abiding approach of TED talks on its head

Hack Circus: Technology, art and learning

Hack Circus aims to turn the rule-abiding approach of TED talks on its head. Rhodri Marsden meets mistress of ceremonies Leila Johnston
Sevenoaks is split over much-delayed decision on controversial grammar school annexe

Sevenoaks split over grammar school annexe

If Weald of Kent Grammar School is given the go-ahead for an annexe in leafy Sevenoaks, it will be the first selective state school to open in 50 years
10 best compact cameras

A look through the lens: 10 best compact cameras

If your smartphone won’t quite cut it, it’s time to invest in a new portable gadget
Paul Scholes column: Ross Barkley played well against Italy but he must build on that. His time to step up and seize that England No 10 shirt is now

Paul Scholes column

Ross Barkley played well against Italy but he must build on that. His time to step up and seize that England No 10 shirt is now
Tracey Neville: The netball coach who is just as busy as her brothers, Gary and Phil

Tracey Neville is just as busy as her brothers, Gary and Phil

The former player on how she is finding time to coach both Manchester Thunder in the Superleague and England in this year's World Cup
General Election 2015: The masterminds behind the scenes

The masterminds behind the election

How do you get your party leader to embrace a message and then stick to it? By employing these people
Machine Gun America: The amusement park where teenagers go to shoot a huge range of automatic weapons

Machine Gun America

The amusement park where teenagers go to shoot a huge range of automatic weapons
The ethics of pet food: Why are we are so selective in how we show animals our love?

The ethics of pet food

Why are we are so selective in how we show animals our love?
How Tansy Davies turned 9/11 into her opera 'Between Worlds'

How a composer turned 9/11 into her opera 'Between Worlds'

Tansy Davies makes her operatic debut with a work about the attack on the Twin Towers. Despite the topic, she says it is a life-affirming piece