Investigate product returns and complaints thoroughly, despite the short-term expense, or risk longer-term costs warns Joanne Davis
The Durkin case has received huge levels of media attention. The lone consumer taking on the high street retailer, and winning, has raised many questions around consumer credit regulation, especially in light of the recent changes from the Office of Fair Trading to the Financial Conduct Authority. The outcome of the case, which was eventually referred to the Supreme Court, provides food for thought for the leasing industry throughout the UK.
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Mr Durkin purchased a laptop on credit from PC World, on the assurance he could return it if it didn’t meet his specific requirements.
When he arrived home, he claimed it wasn’t as advertised and tried to return it to the retailer, expecting to be released from the agreement – Durkin alleged that he had been explicitly told by PC World he could do so if unhappy with goods. However, PC World rejected the return.
Mr Durkin left the laptop with the retailer, and refused to make any payments on the credit agreement, informing the creditor of the situation by phone. Despite Mr Durkin’s actions, the creditor issued a default notice against Mr Durkin and alerted the credit reference agencies. The situation then escalated into a court case, with Mr Durkin claiming the creditor had made negligent misrepresentations to the reference agencies that had a negative impact on his credit rating.
He successfully argued that both the sale and credit agreement had been validly ended – relying on Section 75 of the Consumer Credit Act 1974 – and was awarded £8,000 by the Sheriff for injury to his credit rating, as well as a number of high value, additional awards.
However, the creditor appealed, and had its case upheld before it was raised in the Supreme Court. It was within the Supreme Court where the lines of argument changed course. It was considered here that the credit agreement did not fall under s75, but was a restricted-use debtor-creditor-supplier agreement under s12 of the same Act.
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By GlobalDataUnder s12, there is an implication that where a contract for credit is tied to a particular transaction, it has no other purpose than to fund that transaction. As such, the valid return of the laptop by Mr Durkin excused him from making any credit payments. If the creditor wished to enforce the credit agreement regardless, it should have taken reasonable steps to make sure it was entitled to do so and, by failing to do so, breached its duty of care to Mr Durkin.
Mr Durkin was successful in his appeal to have the £8,000 damages upheld.
So what can lessors learn from the Durkin case?
One of the key issues which escalated the Durkin case was the handling of the product return. Lessors need to ensure they properly protect themselves against issues with product returns and fully investigate customer issues. If a customer advises that they have returned goods to the supplier, lenders need to investigate fully why the goods have been returned and seek to rectify the customer’s issue with the goods. This is particularly important when the reason for the return is due to a question regarding either the
quality of the goods or their specific performance.
This is outlined in outcome 5 of the Treating Customers Fairly scheme which states: "Consumers are provided with products that perform as firms have led them to expect, and the associated service is of an acceptable standard and as they have been led to expect".
Lessors need to work with suppliers to ensure issues are fixed with goods before any claim has the opportunity to become litigious.
Action to enforce the credit agreement, such as sending notice of a default or ‘terminating’ the agreement themselves, should only be taken once the return has been fully investigated.
As with all customer data, it’s imperative that this is accurate before it is passed onto another body, particularly credit reference agencies. There is the possibility that if lessors don’t make these checks properly, then they may cause an unjust or unfair adverse credit reference for the customer. A consumer’s right to redress for damage to his credit, where breach of contract or breach of duty is proved, is clearly established under English law. This case proves that it is likely that similar cases will also results in damages being awarded.
The Treating Customers Fairly principles, enforceable under the new Financial Conduct Authority requirements for consumer credit, set a standard for lenders when it comes to credit agreements.
Under the regulations, lenders are under an obligation to maintain data accuracy and ensure information reported to third parties, such as credit reference agencies, is accurate. The consequences of failing to do so could be worse than conceding damages due to the enforcement powers at the FCA’s disposal, which allow for action up to revoking credit activity permissions.
The Durkin case demonstrates the need to investigate complaints thoroughly. Although it may seem like an expense in the short term, rectifying issues will save costs in the long term and protect brand values.
y Joanne Davis is a partner with the asset and consumer finance team at DWF
