Banks under fire for bumping up debt

repayments in 'recreations' of original loan

agreements
By Richard Dyson
Last updated at 11:25 PM on 09th January 2010

It is hard to credit, but lenders routinely mislay the card and loan agreements their customers originally sign. But even
more astonishingly, if there has been a dispute later on, the lenders have used computer software to ' recreate' the original
documents, sometimes with less than accurate results.

Being able to recreate agreements in this way helps banks pursue borrowers over debts, but there is growing evidence
that when lenders 'recreate' contracts they often do not stick to the original terms.

The result is that borrowers who are often already in financial trouble are left in worse difficulties.

Paul Walton almost lost his home as a result of an erroneous document recreation by RBS

Document 'recreation' is in the spotlight after a court case last month involving a number of borrowers with credit cards
issued by HBOS, Barclaycard, MBNA and HSBC. Part of the case, heard in the High Court in Manchester, was to assess
the circumstances in which banks could ' reconstitute' lost agreements.

Judge David Waksman concluded that in future, lenders would have to explain why they did not have the original
agreements. He said they would have to prove that the recreated document was a true copy of the original contract.

At the end of this month the Office of Fair Trading will circulate this guidance among banks and other lenders, driving
home the message that 'any reconstituted copy must be a true copy, containing any terms and conditions contained in the
original, and giving the terms and conditions applicable at the time the contract was signed'.

Until now many lenders have failed to meet this requirement. They have also failed to point out to customers, as the OFT
requires, where recreated documents have been used.

Lawyer Andrew Settle of Consumer Credit Litigation in Manchester says: 'It's only fair that banks are allowed to rely on
copies of documentation if, say, a fire resulted in the loss of their files.

'But we regularly come across significant discrepancies between the terms of an agreement a borrower actually signed
and the "recreated" one presented by lenders to the court.'
RBS customer Paul Walton, 43, a machinist from Rotherham, South Yorkshire, almost lost his home thanks to an
erroneous - he claims fraudulent - document 'recreation' by the bank.

Paul ran up debts in the late Nineties that were converted to a loan. For eight years he made monthly repayments, but
unbeknown to him RBS applied high rates of interest to the debt, raising it from an original Ä8,000 in 1998 to Ä20,000 by
2006.

Paul asked for a copy of the loan agreement and RBS supplied one. But Paul was then able to find his own copy and he
saw the contracts were different. According to the original agreement, he had repaid much of his debt.

Eventually, RBS apologised and confessed it had 'made an error'. Crucially, it also acknowledged that 'the "true copies"
sent to Paul were incorrect'.

Had RBS tried to enforce its loan in the courts, and had Paul not kept his own copy of the agreement, his home could
have been repossessed. Now Paul and the bank are negotiating how much debt remains to be cleared. The figure is in
the region of Ä3,000.

Paul, whose case has featured in Financial Mail, has been offered money by RBS on condition he keeps quiet, but he has
refused. But instead, he campaigns against the practice of document 'recreation' and has garnered wide support, including
that of his MP, Labour member for Wentworth John Healey.

Paul says: 'In my case RBS used a faked, inaccurate document to try to force me to repay a debt that didn't exist.
Hopefully, this latest case will alert judges to lenders' use of fictitious documents.'

Last week Financial Mail asked RBS, which almost collapsed in 2008 and is now part-nationalised, how card and loan
agreements came to be 'lost'.

A spokesman said: 'There are occasions when an original paper copy of loan agreements is lost. Our current processes
require that loan information keyed at application be stored electronically and so this is never actually ''lost''.'

Apart from OFT rules, banks are also governed by wider rules under the Financial Services Authority. These require
documents be held for 'as long as they may be needed'.

The Manchester case was watched closely by claims management companies, including the highly aggressive - and
successful - Cartel Client Review, which has been pivotal in forcing many such cases before the courts.

Cartel boss Carl Wright said: 'This case has done a great deal of good for consumers, especially by throwing light on the
sorts of abuses lenders have got away with until now.'

'More tales than Enid Blyton'

One lawyer specialising in consumer credit litigation, who did not want to be named, says Barclaycard 'generates more
fairy tales than Enid Blyton' when producing the credit card agreements its customers were supposed to have signed.

Barclaycard, which with ten million cardholders is the biggest card firm, is believed to have lost, mislaid, or never
possessed, hundreds of thousands of files.
 Daniella Lipszyc of Cheshire-based Ultimate Law says Barclaycard is a difficult lender to deal with

With rising numbers of disputes, it is having to 'recreate' these documents on a large scale. The issue is further
complicated because Barclaycard has absorbed cardholders from other companies such as Morgan Stanley and Goldfish.

Financial Mail spoke to four lawyers who specialise in helping borrowers in difficulty. All four say Barclaycard was the
'most difficult' of major lenders to deal with, the 'most arrogant' and the 'most likely to submit incorrect or inaccurate
documentation'.

Daniella Lipszyc of Ultimate Law in Altrincham, Cheshire, says: 'I regularly request documents from Barclaycard relating to
agreements my clients had with Morgan Stanley or Goldfish and all I get sent is a Barclaycard agreement.

'It's obviously not the same as the original agreement and yet there is no explanation of how the document has been
derived. It's not an honest approach.'

By responding in this way, a lender infringes Office of Fair Trading guidelines that state if a creditor provides a
reconstituted copy, it should explain what it has done to avoid misleading consumers.

Barclaycard made no comment on how it deals with Morgan Stanley paperwork, but said: 'We strongly disagree with any
suggestion we commonly issue incorrect paperwork.'