18th September 2013
As a result of technical flaws in some of their loan paperwork Barclays may have to refund around £100m to 300,000 borrowers. This suggests an average refund payment of £333 per borrower. The bank is yet to declare whether their other products, such as Barclaycard for example, were subject to the same errors. We investigate what this will mean for borrowers that have since started an IVA (individual voluntary arrangement) or other debt resolution procedures.
The scenario initially appears to have much in common with errors previously identified by Northern Rock. Under the Consumer Credit Act there are detailed requirements as to the information given to borrowers and the way that it is presented to them. Barclays and Northern Rock appear to have identified breaches in their own compliance with these rules that render them unable to fairly charge interest on the debts.
A key differentiator between these two instances however is that those borrowers who fell into arrears appear to have been especially vulnerable to the Barclays problem. Statements for those that changed their payments dates and arrears notices sent to those that fell behind on their repayments were both subject to technical errors. These factors suggest a high prevalence of debt problems (or former debt problems) for those that will soon be contacted by the bank about this matter.
Starting from the point that a relevant mistake was made the borrower will be entitled to a refund of interest from Barclays. This refund of interest will itself have interest added to it. Those that are yet to pay off their loan in full are likely to have the amount due to them deducted from their loan balance. Accordingly many Barclays’ loan borrowers that have entered into debt management plans might find that the remaining term of their DMP is reduced.
If you’ve entered into an individual voluntary arrangement (with an affected Barclays loan debt included as a creditor) it remains to be seen precisely what will happen. Borrowers that are in an IVA will very probably not receive a direct refund and, if they do, might be expected to pay it over to their insolvency practitioner (depending upon the precise terms of their arrangement). The bank might try to “set-off” the amount against their claim to the IVA. This would marginally reduce the amount that they later receive as a dividend. Insolvency practitioners might request that the money be paid directly to them. However, given the amount of the sums due, this appears to be unlikely.
A few affected Barclays loan borrowers might have completed their IVA since this happened. Certain banks try to offset similar payments (like PPI claims) against balances that were written-off in personal insolvency. Other banks may choose to pay the client in the same circumstances given that the IVA completion effectively means there is no remaining debt to set-off this payment against. Where these different views on the same issue stand in relation to the law isn’t currently clear.
Do you have personal experience about being in an IVA and these Barclays refunds? Please let us know about how this develops in our forums.