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View Full Version : Revealing fact about transfer of ownership of storecards


vulture_bank
19-12-2007, 12:11 AM
the source of this information is none other than

http://www.competition-commission.org.uk/rep_pub/reports/2006/509storecards.htm

http://www.competition-commission.org.uk

whilst technically this information applies to storecards it can also relate to the cases of abbey halifax allliance and leicester etc effectively transferring their business to MBNA

there is extremely revealing information in this thread hence the title

the views are provided by the credit card companies not the storecard issuers who generally have "little knowledge " on these matters

Ge are of course heavily involved in the views






Switching provider of a store card programme:

providers’ approach and customers’ rights

1. This appendix presents the conclusions of the CC’s scrutiny of the legal requirements and the industrial practices relating to the transfer of a store card programme to a new provider. The CC drew these conclusions from the responses to questionnaires it sent to store card providers and the Consumer and Competition Policy Directorate of the DTI relating to the assignment of customers’ contractual rights and providers’ contractual obligations when a portfolio of store card receivables is transferred to a new provider. Store card providers were also asked about the different ways in which the switch of a store card programme from one provider to another can take place.

Assignment of customers’ contractual rights and providers’ (including in-house providers’) contractual obligations when a portfolio of store card receivables is transferred to a new provider

2. The questions were based on the premise that the identity of the person/corporate entity with whom the customer contracts changes as a result of the transfer (and not a situation where a customer has a contractual relationship with a corporate entity and it is only the ultimate ownership of that entity which changes).

Question 1:
Is each customer required to sign a new credit agreement with the new provider or is this unnecessary in certain circumstances (eg, if the original credit agreement includes clauses on the right of the incumbent provider to transfer the rights to a third party)?

Summary of responses

• The CCA does not prohibit assignments of regulated consumer credit agreements. However, uncertainty exists on whether a customer is required to sign a new credit agreement with the new provider.

• The uncertainty stems from the law of contracts and revolves around the effectiveness of consent to assignment, in fact, at common law, rights under a contract can be assigned, but duties under the contract can only be assigned with consent. Generally, consent can be given via a clause in the original contract or at a later date in which case a signature is usually required.

• Two schools of thought exist on whether, in the case of Regulated CCA agreements, consent for the transfer of obligations to a third party can be given via a clause in the original contract or must be given in writing (ie, by signing a new agreement), failing which the agreements may become unenforceable against the borrower.

• All providers have included in the terms and conditions of their credit agreements with customers’ clauses on their ability to transfer rights and obligations. Therefore, according to the view that consent can be given via a clause in the original contract, by signing the credit agreement, a customer gives his or her consent to the transfer of his/her duties to the new provider and there should be no need to sign a new agreement.

However, if a provider agrees with the opinion that consent for the transfer of obligations to a third party for Regulated CCA agreements can only be given in writing, to avoid the risk that the agreements with the customers become unenforceable, the contract between providers may be structured so that the new provider acts as an agent for the incumbent.

• Furthermore, ’clauses in agreements permitting the assignment of rights and obligations (like those in providers’ terms and conditions) may also be subject to challenge as falling within the ‘grey list’ of the Unfair Terms in Consumer Contracts Regulations 1999 (Schedule 2, paragraph 2(1)(p)) which states that a term which has the object or effect of ‘giving the seller or supplier the possibility of transferring his rights and obligations under the contract, where this may serve to reduce the guarantees for the consumer, without the latter’s agreement’ is deemed unfair and will therefore not be binding on the consumer’.

• This risk, however, can be mitigated by wording such clauses in a way that clearly indicates that the transfer would not have a detrimental effect on the customer’s rights.

Question 2:
Is there any legal requirement for the customer to receive any notification of the transfer of their contract to a third party? If so, please specify.

Summary of responses
• Industry practice is to send customers notification of the transfer of a portfolio.

Question 3:
Are there any constraints/limitations imposed by the Data Protection Act or the Consumer Credit Act on the ability of the incumbent provider to transfer the portfolio to a new provider? If so, please give details.

Question 4:
Does either of the statutes in (c) affect the way in which the transfer is carried out? If so, please explain.

Summary of responses

• Neither the Data Protection Act nor the Credit Consumer Act impact on the ability to transfer portfolios of receivables between providers. However, providers must ensure that their data protection notifications permit the transfer and receipt of the cardholder’s personal data.1

Different ways in which the switch of a store card programme from one provider to another can take place


Question 5:
How does the process differ when the existing portfolio at the termination of the contract is not transferred to the new provider, who instead launches a new store card programme?

Summary of responses

Transfer of a portfolio:

1 All providers’ credit agreements with customers analysed by the CC include such clauses.




2 This would not be the case if the retailer decides to continue accepting the cards issued by the incumbent provider as well as offering the cards of the new programme. This scenario, however, is unlikely to occur as current market practice is for providers to have exclusivity for the supply of a store card programme.

The new programme needs to offer customers terms identical to, or more favourable than, the ones of the previous programme, otherwise customers must be issued with a new credit agreement and their written consent must be sought.

• New provider does not commence recruitment of customers from scratch but instead sends customers a ‘notice of assignment’ informing them that the company servicing the account has changed.

New programme without transfer of existing portfolio of receivables:

• The new provider can design the product from scratch without concern as to whether changes could be described as having an adverse impact on customers and can issue entirely new product types.

• New provider commences recruitment of customers from scratch either at point of sale or through mailing customers based on the previous use of a customer list, if available. This means that customers will be given/sent a new credit agreement to sign.

• Incumbent provider usually2 ceases actively promoting the old programme soon after the launch of the new store card programme but retains the rights to collect outstanding debt and continues to service accounts in the same manner until balances outstanding are paid.

• Incumbent provider gives adequate notice to customers that the facility to make further purchases using the card would be terminated from a given date.

The new provider issues new cards to customers whether it acquires the existing portfolio or not.

Question 6:
On a change of provider, which is the more common occurrence, the acquisition of the existing portfolio or the launch of a new programme by the new provider? How would you account for this?


Summary of responses

• According to providers the more common occurrence is the acquisition of the existing portfolio. The advantages of this approach include:

— a more seamless transfer from the retailer’s and the customers’ perspective;

— enabling the incumbent to realize the value of the asset in advance; and

— providing the new provider with an income-generating asset.

• Providers have submitted that restrictive clauses in contracts can make the transfer of portfolios difficult. The CC’s analysis of contracts shows that older contracts tend to be silent on what happens to the existing portfolio when the contract expires. Lack of contract clauses on retailers’ or third parties’ right to purchase the portfolio, together with confidentiality clauses on customers’ credit data, might create issues for the transfer of a portfolio to a new provider.


2 This would not be the case if the retailer decides to continue accepting the cards issued by the incumbent provider as well as offering the cards of the new programme. This scenario, however, is unlikely to occur as current market practice is for providers to have exclusivity for the supply of a store card programme.


3 Excluding receivables sold to debt collection agencies because considered uncollectible.

More recent contracts, however, include clauses on the rights of retailers or third parties to purchase the portfolio of receivables.


Question 7:
Are receivables transferred only when a new provider is brought in? Or do transfers of receivables occur in other circumstances (eg securitisations)? If so, please describe these circumstances and provide an indication of the frequency of such transfers.

Summary of responses

• According to all providers receivables3 are only transferred when a new provider is brought in (be it an external provider or the retailer). Only one provider seems to have direct experience of securitization, having securitized its debt in the past.

Overall conclusions

3. Switching between providers of store card programmes can take place in two ways:

• by transferring the portfolio of receivables from the incumbent to the new providers; and

• by launching a new programme without transferring the portfolio of receivables.


4. The first approach tends to be the most common and presents the following advantages:

• it allows a more seamless transfer form the retailer’s and the customer’s’ perspective;

• it enables the incumbent to realise the value of the asset in advance; and


• it provides the new provider with an income generating asset.

5. Recent contracts between retailers and providers include clauses on transfer of portfolios that aim at facilitating the sale and purchase of the portfolio of receivables when a contract expires. Older contracts are often silent on this matter and that might have created problems in transferring portfolios.

6. Neither the CCA nor the Data Protection Act impact on the ability to transfer portfolios of receivables between providers.

7. Where a portfolio of receivables is transferred to a new provider, and the original credit agreement with the customers includes clauses allowing the incumbent provider to transfer/assign their rights and obligations under the contract, customers need to sign a new credit agreement only if the new store card programme reduces their guarantees and rights or they are offered a completely new product.

8. Where a new programme is launched and the portfolio of receivables is not transferred to the new provider, customers are notified that the old programme would be terminated at a certain date (after which it would not be possible to make purchases on the old card) and that only the accounts with outstanding balances would continue to be serviced by the incumbent provider until the balances are paid off. The new provider would start marketing the new store card to customers from scratch.


9. In all cases customers must be notified of the change in provider.

InKogneeToh
19-12-2007, 10:38 AM
• The CCA does not prohibit assignments of regulated consumer credit agreements. However, uncertainty exists on whether a customer is required to sign a new credit agreement with the new provider.

• The uncertainty stems from the law of contracts and revolves around the effectiveness of consent to assignment, in fact, at common law, rights under a contract can be assigned, but duties under the contract can only be assigned with consent. Generally, consent can be given via a clause in the original contract or at a later date in which case a signature is usually required.

• Two schools of thought exist on whether, in the case of Regulated CCA agreements, consent for the transfer of obligations to a third party can be given via a clause in the original contract or must be given in writing (ie, by signing a new agreement), failing which the agreements may become unenforceable against the borrower.

• All providers have included in the terms and conditions of their credit agreements with customers’ clauses on their ability to transfer rights and obligations. Therefore, according to the view that consent can be given via a clause in the original contract, by signing the credit agreement, a customer gives his or her consent to the transfer of his/her duties to the new provider and there should be no need to sign a new agreement.

However, if a provider agrees with the opinion that consent for the transfer of obligations to a third party for Regulated CCA agreements can only be given in writing, to avoid the risk that the agreements with the customers become unenforceable, the contract between providers may be structured so that the new provider acts as an agent for the incumbent.

• Furthermore, ’clauses in agreements permitting the assignment of rights and obligations (like those in providers’ terms and conditions) may also be subject to challenge as falling within the ‘grey list’ of the Unfair Terms in Consumer Contracts Regulations 1999 (Schedule 2, paragraph 2(1)(p)) which states that a term which has the object or effect of ‘giving the seller or supplier the possibility of transferring his rights and obligations under the contract, where this may serve to reduce the guarantees for the consumer, without the latter’s agreement’ is deemed unfair and will therefore not be binding on the consumer’.

• This risk, however, can be mitigated by wording such clauses in a way that clearly indicates that the transfer would not have a detrimental effect on the customer’s rights.

This bit is interesting and has started me thinking about the 'assignment' issue again - in relation to DCAs specifically.

1) If a debt is assigned to a DCA, we should always check that the original agreement contained a clause allowing for this.

2) If, as is stated here, the rights under an agreement can be assigned, but the duties can only be assigned with consent, which of the 2 differing 'schools of thought' is the correct one?? Can the consent be deemed to have been given by signing the original contract containing an appropriate clause, or does the debtor have to give explicit written consent at the time of proposed assignment?

3) The likes of Cabot have repeatedly asserted that when a debt is assigned to them, only the rights are assigned and not the duties. There are 2 sets of 'rights' and 'duties' - the creditor's and the debtor's. So, if what they are saying is correct then what is assigned must be:

The creditor's rights and the debtor's rights

But not

The creditor's duties or the debtor's duties (i.e. obligations)

If it was otherwise, it seems to me, as is suggested above, that a term that allows for one party's duties to be assigned (the debtor's) but not the other's would most surely be deemed an unfair term under the UTCCA and thus unenforceable. So what I am saying is that where Cabot etc. state that they have no obligations to the debtor under the contract assigned to them, then neither has the debtor to the DCA!