In 1996, Peter obtained a $20,000 loan from a lender. He defaulted on the loan shortly after, and the lender passed the debt to a collection agency. The collection agency obtained a District Court judgment against Peter in 1997 that required Peter to pay $20 towards the debt each week.
In 1999 Peter stopped making the weekly payments. The collection agency tried to pursue the debt further but were unsuccessful because they couldn’t locate Peter.
When Peter applied for a new loan from the same lender in 2018, the lender discovered the outstanding debt, declined Peter’s loan application and froze the account he had recently opened. The lender asked Peter to resume weekly payments towards the old debt before they would unfreeze his account.
Peter agreed to resume weekly payments on the old debt because he needed to access his account to make payments.
Unhappy with the outcome, Peter contacted FSCL for help.
Dispute
Peter thought it was unfair for the lender to pursue a debt that was over 17 years old. He also thought it was unreasonable for the lender to freeze his account.
He wanted the lender to forgive the debt and compensate him for the stress and inconvenience he suffered from his account being frozen.
Review
We found the lender couldn’t enforce the old debt for two reasons.
The first was that under the Limitation Act 1950, debts cannot be enforced more than 12 years after the later of:
- the date the debt was entered into
- the date judgment was obtained for the debt, or
- the date the last payment was made towards the debt.
More than 12 years had passed since Peter took out the loan and judgment was obtained for the debt.
Although Peter had made several weekly payments towards the debt in 2018 to unfreeze his account, we thought this shouldn’t give rise to a fresh right for the lender to enforce the debt. The lender wouldn’t unfreeze Peter’s account unless he resumed weekly payments towards the debt. It would be unfair for the lender to get a new right to enforce the debt by essentially forcing Peter to resume weekly payments.
The other reason the old debt couldn’t be enforced was because the credit company hadn’t taken action for 17 years. Under the equitable ‘doctrine of laches’, 17 years was an unreasonable delay for the lender to take before enforcing their rights. It was reasonable for Peter to assume that the lender had written off the debt in this time, and rely on this assumption when applying for a new loan.
The lender’s general terms of service permitted them to freeze accounts while resolving disputes with their customers. The issue of the old debt was resolved promptly (and the account unfrozen) within 4 hours when Peter agreed to resume weekly payments. While Peter was not happy with this outcome and later complained to FSCL, we thought it was fair for the lender to consider the dispute ‘resolved’ at that point and 4 hours was not an unreasonable delay for unfreezing the account. We thought any stress the frozen account caused Peter would have been minor.
Resolution
We recommended the lender write off the old debt and compensate Peter for any weekly payments he had made since 2018. We didn’t think that compensation for stress and inconvenience was appropriate.
Peter didn’t agree with our decision but didn’t provide any submissions for us to review our decision. We discontinued our investigation of Peter’s complaint.
Insights for consumers and participants
Lenders may not be able to enforce old or historical debts if too much time has passed.
Consumers should be aware that if no action is taken by their lender for a while on an old debt, that doesn’t necessarily mean the debt has disappeared. Whether or not action can be taken will depend on the age of the debt.
