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Bank Owes Duty to Borrower to Investigate Reasons for Payment Default

A recent decision of the Supreme Court will come as a relief to anyone concerned that they may be left with an adverse credit rating if they terminate a credit agreement because of a breach of contract by the supplier of goods.

The case appeared straightforward. A man bought a laptop computer from PC World using a hire purchase (HP) agreement. However, the modem the laptop was meant to contain had been omitted when it was built, so he returned it on the basis that the product did not conform with the contract as it did not match the description given. After some argument, he obtained a refund of his deposit from the supplier.

However, that was the beginning of a new problem. Because he had not made the payments due under the HP agreement, the HP provider (a bank) informed two credit reference agencies that he had defaulted on payments under the contract. As a result, when he later applied for credit, he was turned down because of his 'poor credit history'.

He sued the bank and the laptop supplier for damages for the losses he had suffered as a result of his inability to obtain credit. The Supreme Court ruled that when he terminated the contract with the laptop supplier, he had also terminated the HP agreement. The bank was therefore under a duty to him to investigate the circumstances surrounding his failure to make the payments as it could reasonably assume that informing the credit agencies of his default would damage his credit rating and lead to potential adverse consequences for him.

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