For more information visit my page on Charge for Payments
Charge for Payments
A Charge for Payment is a legal documents that is served in Scotland by Sheriff Officers and Messenger at Arms. They are served to formally demand payment of money and give only 14 days to make payment. If the Charge is not complied with there are consequences.
When can a Charge for Payment be Served?
If a creditor raises a court action for payment of money and is successful in getting a court order (also known as a decree), then they can serve a Charge for Payment to demand full payment of the money. First, however, they must extract the decree from the court, which they cannot do until 14 days have passed. This is to allow the consumer to appeal the decision if they choose. If there is no appeal the extract decree can then be take to a Sheriff Officer or Messenger at Arms to be served on the consumer.
They then have 14 days to pay the debt in full. If they fail to make the payment, the creditor can then instruct the Sheriff Officers or Messenger at Arms to take further action. This includes executing:
• an earning arrestment;
• a bank account arrestment (a Charge is only required where a summary warrant has been used); or
• an attachment of property held outside the debtor’s home, including an attachment of a vehicle;
A Charge for Payment doesn't need to be served to execute an inhibition.
For certain types of debts, it is not necessary for the creditor to raise a court action before they serve a Charge for Payment. This is possible for debts which are not regulated by the Consumer Credit Act (such as credit cards and bank loans) using a procedure known as summary diligence.
To use the summary diligence procedure, the debtor must explicitly consent to the procedure being used when they take out the debt and it is most commonly used for debts which have been taken out when someone is acting in the course of a business, or where the debt is for a landlord’s guarantee or for a credit union loan.
The summary diligence procedure allows a creditor to register a debt for preservation and execution with the courts, most commonly in the Books of Council and Session. When the creditor believes the debtor has defaulted on the agreement they can extract the registered debt from the Books and deliver it to a Sheriff Officer or Messenger at Arms and instruct them to serve the Charge for Payment. Where the debtor disputes that they were in default, they can challenge the competency of the Charge, by applying for it to be suspended and reduced, whilst interdicting the creditor from taking any further enforcement action on the strength of it. This, however, is a complicated and legal advice should be sought from a solicitor.
Apparent Insolvency and Bankruptcy
A Charge for Payment is also an important document legally, as once it expires, it makes the debtor apparently insolvent. This is a legal term, but importantly means the creditor (or indeed another creditor) can raise a petition for the sequestration (bankruptcy) of the debtor, providing the other conditions for making someone bankrupt have also been met. To use an expired Charge for Payment to sequestrate a debtor, the creditor must do so within 4 months of the Charge expiring.
Although to sequestrate a debtor a creditor must show £3,000 or more is owed by the debtor, it is not necessary for the debt contained in the Charge for Payment to be more than £3,000. The expired Charge proves apparent insolvency. Providing the creditor can show in total, including what is owed in other debts, is more than £3,000, the Charge can be relied upon in any bankruptcy petition.
How to Prevent a Charge for Payment being Served
If it is feared a creditor may serve a charge for payment, there are certain steps that can be taken to prevent them from doing so. First, a statutory moratorium can be registered with the Accountant in Bankruptcy office, providing one has not already been registered within the last 12 months. This prevents creditors from taking any further enforcement action for a period of six weeks. This is a free process and can be done relatively quickly. Statutory moratoriums’, however, only allow some breathing space and it is incumbent on the debtor to obtain advice to find a more long-term solution.
Alternatively, where a court action has been raised, a Time to Pay Direction can be applied for before the court grants decree. If this is allowed by the court, it allows the debtor to enter an installment plan with the creditor and prevent them taking any further action, whilst it is being maintained.
How to Stop a Charge for Payment being used after it is Served
Again, a statutory moratorium can be used, even after a Charge for Payment has been served and has expired. Again, this is only possible if it has not already been used in the past 12 months and only allows six weeks breathing space to allow for a more permanent solution to be found.
Alternatively, even after a court order has been awarded, or a summary warrant granted, the debtor can apply for a time to pay order, which again, allows the debtor to enter an installment plan with the creditor and providing it is maintained, will prevent a Charge for Payment being relied upon for any further action.
Can the Debt Arrangement Scheme be used to stop a Charge for Payment?
The Debt Arrangement Scheme (DAS) as a remedy, can be used to stop a Charge for Payment being served. As soon as an application has been made, no Charge can be served for any debt that is included in the DAS. If the DAS is approved, the protection continues.
Stepchange, the UK debt charity and provider of Debt Management Plans (DMP) has claimed to have launched a new debt solution for people who are struggling with their debts.
However, there are concerns the new plan is just a normal Debt Management Plan and offers Consumers nothing new.
On their website Stepchange states the new plan will last for 12 months and cannot guarantee:
- It will not damage people’s credit rating; and
- Will stop interest and charges from being applied to people’s debt.
In addition to that, it will not stop Sheriff Officers from taking action against consumers, such as serving Charge for Payments, and also executing Wage and Bank Account Arrestments.
Why may the CVPP not be suitable for many Scots?
For these reasons, the CVPP will be a sub-standard product for many Scots who are struggling with their debts.
Instead in Scotland a far more suitable option is likely to be the Scottish Government’s Debt Arrangement Scheme.
The Debt Arrangement Scheme is a formal debt solution, that allows people to repay what they can afford to their debts, but unlike the CVPP,
- Automatically, freezes all interest and charges
- Stops any existing Earning Arrestment
- Protects people from Sheriff Officers and being made bankrupt
- Allows them to make just one payment to a Payment Distributor, each month, who then pays all their debts for them
- It is also free to people, regardless of whether they apply through a local authority money advice service, a charity or a private sector provider.
- Also, like Stepchange’s CVPP it is flexible, so if people’s circumstances improve they can increase their payments to allow their debts to be repaid sooner.
What Stepchange say about the CVPP
Speaking about the new Plan in a Press Statement, Stepchange has said:
“We have developed the CVPP in consultation with HM Treasury and is supported by the Money and Pensions Service [MAPS] – which will be signposting potentially eligible consumers to it via its online Money Navigator assessment tool.
We have also consulted widely with the lending industry and other creditors while developing the new plan.”
How does the CVPP Work?
However, from reading the information Stepchange have provided, it is difficult to understand what “development” was required for the CVPP and what input HM Treasury or MAPS had, as it is in essence identical to a DMP.
- You include your debts into it;
- You make one payment per month;
- These are distributed to your creditors.
However, where the CVPP appears to differ is
- It is only supposed to last for 12 months (although it is not clear what happens at the end of those 12 months – Stepchange suggest you speak to your creditors); and
- Unlike DMPs Stepchange suggest you don’t need to go through the full Debt Advice Process to enter one.
Does the CVPP pose Problems?
Well, first of all, there is the problem of what you do at the end of the 12 months.
To be clear if you miss contractual payments, you will go into arrears with your agreement.
The Financial Conduct Authority has also been quite clear to Lenders, they must now report these missed payments to Credit Reference Agencies, where it is a firm’s practice to do so.
So, it will damage people’s Credit Rating.
Consumers will also receive a Notice of Arrears, which under the Consumer Credit Act 1974, must be served after they are in more than 2 months arrears. This is not optional for Lenders and must be sent every 6 months, whilst the Consumer remains in arrears.
Whether the Lender places the debt into Default will be for them to decide and Stepchange are silent on this.
In relation, to what happens at the end of the CVPP, is unclear, but it’s likely for most it will just become a Debt Management Plan, albeit the person may increase their payments if they can.
The reality is for many, after 12 months of making reduced payments, accounts will not just return to normal. People will not just be able to return to making normal payments, and using their card as before.
In my opinion, this should be clearer to people. Telling people they will just have to speak to their creditors is not enough. Arguably people are going to be left believing after the 12 months, everything just goes back to normal.
This is almost impossible and Stepchange should be clearer about the impact a CVPP will have on people and their credit rating and ability to obtain credit in future.
Avoiding Full Debt Advice
Equally concerning, is what the effects of the CVPP being an alternative to full money advice solutions will be for consumers.
It is not even clear it will have any benefits and a more traditional solution might be better.
Lets be clear a CVPP is a Debt Management Plan and for many, not only is this not always the best option, but can make their situation worse.
The problem here is it is also not clear if consumers entering CVPPs, will still go through the traditional Money Advice Process.
This seen as best practice in helping people with their debts.
The first step of which is to maximise someone’s income, and identify benefits and other sources of income they may be entitled to. This part of the process is important as it may help avoid someone entering a CVPP and damaging their credit rating.
Second, it is about exploring all the options with clients, including Individual Voluntary Arrangements and Bankruptcy in England, Wales and Northern Ireland; and in Scotland, the Debt Arrangement Scheme, Protected Trust Deeds and Sequestration.
If the full Money Advice Process is not being used, will these other options even be discussed?
Will people possibly be put into a CVPP, without exploring other options?
This may make people’s situation worse and may even see the amount people owe increase.
The problem is Stepchange is not clear what the benefits are of people not looking at all the options open to them just now, and have no clear exit strategy for people after 12 months, other than speak to your lender.
The problem is people may spend a year in a solution that is completely inappropriate for them and they shouldn’t haven’t entered into in the first place.
My concern is the CVPP is more marketing than substance.
It is in essence a Debt Management Plan, but is being spun as something else which has added benefits, of which I see none for the Consumer that is not offered by a DMP.
It would be interesting to know what the Financial Conduct Authority’s view on this is, as they are the regulatory body that authorises organisations to provide debt advice.
Interestingly and, maybe notably, they are not named as one of bodies Stepchange developed this product with.
Mortgages and Secured Loan Payments
If you are experiencing difficulties paying your mortgage (or any other secured loan), you should speak with your lender.
Most lenders have now committed to showing more forbearance, which means being more flexible, for customers that have been effected by the Covid 19 Crisis.
It is likely they will do this by offering a payment break on any payments due for up to three months.
During that period, therefore, providing you can get an agreement with your lender, they should be okay if you miss some payments. It is important to note, however, you must have their agreement. If you don’t have their agreement, this is not a payment break, but a missed payment.
If you “miss” any payments, it is likely it will be reported as such to credit reference agencies, and this may damage your credit rating. Alternatively, if you get the agreement of your lender, this will not be a “missed” payment, and should not damage your credit rating.
During a payment break, no charges should be applied for missed payments, although interest and charges are likely to still be applied.
Credit Cards, Loans, Store Cards etc.
You can also seek payment breaks on credit cards, personal loans and store cards.
The UK’s Financial Regulator, the Financial Conduct Authority, has said it will bring guidance forward that will require these lenders to give you a payment break if you are affected by the Covid 19 Crisis.
These payment breaks will not stop interest and charges being applied, unless your lender agrees to put these on hold also, so your debts may increase during a payment break.
Again it is important to remember, you only have a payment break if your lender agrees to it, so if you just miss a payment, this is not a payment break, but a missed payment and will affect your credit rating. You may also have missed payments applied to your debts.
Hire Purchase/PCP Agreements and Payday Loans
The Financial Conduct Authority has indicated it will not require these types of lenders to give you a payment break. However, that is not to say they may not agree to if you contact them.
You should, therefore, contact these lenders also if you believe you will not be able to make your normal monthly payments and ask them if they can help you.
Token payments are a short-term debt remedy that can be used to help someone when they are struggling to repay their debts and cannot make their monthly payments.
Typically, token payments are payments of £1 or £5 per month and are paid to each creditor with their agreement.
Every creditor should receive the same amount and be treated equally.
Why will Creditors Accept Token Payments?
Creditors are usually prepared to accept token payments when they are sent an income and expenditure that shows only a small amount of disposable income; or no disposable income. However, where no disposable income is available, and a short-term solution is sought, a Moratorium should be considered first. This means you don’t pay anything.
The reason why Token Payments should only be considered as a temporary solution, is they normally won’t repay your debts in full. They are used when it is hoped someone’s situation may improve, so a more final solution like Sequestration (Bankruptcy) is not considered to be appropriate. If your situation does improve, you will be expected to increase the amount you pay each month.
It is best an offer of Token Payments is made through an advice agency, like a Citizen Advice Bureau or a Local Authority Money Advice Service, as it will reassure the Creditors that proper checks have been carried out and will also ensure best advice has been provided and another solution is not appropriate.
The argument your advice agency should make on your behalf is, as you don’t have much money, once you have paid your essential bills, you should be allowed to pay only a nominal sum. This small sum is not intended to repay the debt in full but is an acknowledgement that you owe the debt.
This serves several purposes.
Benefits of Token Payments
First, it lets the creditors know you are not trying to avoid your debts and accept you must pay them. Second, it prevents the debt being written by the operation of Prescription, as each payment, even a small payment, constitutes a relevant acknowledgment of the debt. Thirdly, it buys you time, which with the good will of your creditors will hopefully allow your situation to improve and hopefully you can then make a more meaningful offer.
Normally, when a Creditors accepts token payments they will do so only for a short period of time, after which they may agree to renew the agreement for another short period of time. This will usually only be after an updated financial statement has been provided by the money advice agency.
There are no limits to how often the agreement can be renewed and it is not unheard-of for token payment agreements to last for several years.
However, it is important to emphasise that Token Payments are not a long-term solution, as they won’t resolve your over-indebtedness, so it is important they do not last too long.
Interest, Charges and Fees
For Token Payments to be an effective short-term remedy, it is important to make sure the creditor agrees to freeze all interest charges and penalties whilst they are allowing you to make token payments.
The reason for this is because if interest, charges are fees are still applied to your debts, they will only grow and make your situation worse.
In addition to freezing all interest, charges and fees, it is important to also ask the creditors freeze all debt collection activities and legal action during the agreement period.
Regular Review of Token Payments Agreements
When a creditor who you are in a Token Payment agreement with requests a review, this should be done by the money advice agency.
They should draft a new income and expenditure and should also explain any mitigating circumstances and reasons why you are not able to pay your debts (for example, unemployment, illness etc.)
The advice agency should also consider, when they carry out the review, whether Token Payments are still the best option for you and discuss other options, such a Moratoriums, Write-offs and Sequestration.
How will Token Payments affect your Credit Rating
When you enter into a Token Payment agreement with your creditors, you will miss your monthly contractual payments with them.
This will impact on your credit rating and may affect your ability to obtain debt again in the future.
Parking Charge Notices are not actually a fine. They are a service charge that private landowners and car park owners can charge when you park on their land.
Legal Basis for Parking Charge Notices
What makes these charges legal is they are based on contract law. This means when you park your car on a private landowner’s land you can, in certain circumstances, be deemed to have entered into a contract with them.
For a contract to be formed they must first offer you the terms on which they agree to let you park on their land.
This is usually done by displaying those terms and conditions on a sign before you drive onto the land. It is important the terms and conditions are displayed before you drive onto the land.
This is because under the law of contract the landowner must offer the terms before you accept the offer. As you are deemed to accept the offer when you drive onto the land, the terms and conditions must be displayed before you enter (you are expected to look for them).
Displaying the Parking Terms and Conditions
The sign that displays these terms, therefore, should be displayed at a height that is easily visible, not too high and not too low. The type face should also be of an easily readable font size, again not too small.
The term should also state clearly the terms that you can park on the land or in the car park. It should also state what happens if you don’t observe those terms.
So, if a ticket should be displayed in your car, it should say this. If you are only allowed to park for a certain period, it should state this also.
It should also state what happens if you don’t abide by these rules.
If there will be a service charge, it should state this and how much it will be.
How do Parking Companies know who you are?
Parking Companies will operate cameras on their sites or will employ Parking Attendants.
If you breach the terms of the contract, they will identify your car using the Parking Attendants, who will most likely take a photograph of your car or they will use CCTV to do so.
They can then fix the fine to your car, but equally they may post the notice out to your address.
They can do this if they are a Private Company registered under the Approved Operator Scheme operated by the DVLA. This allows certain firms to purchase the details of the registered keepers of cars.
In 2017-18, Firms registered with these bodies purchased details of over 5 million car owners from the DVLA.
Can Parking Charge Notices be Challenged?
Parking Charge Notices can be challenged and should if you think they are wrong, as they can be enforced through the Courts.
Providing they are constituted properly, they are legally binding contracts.
There are a number of strategies you can utilise in challenging a Parking Charge Notice if you believed it has been applied wrongly.
Is the Firm Registered?
The first thing to check: is the Firm registered as a member of a recognised trade body that allows it to be part of the DVLA’s Authorised Operators Scheme?
If a firm is not registered and, therefore, not part of the Approved Operators Scheme, they are unlikely to be able to find out who you are from the DVLA.
You may, therefore, want to ask yourself, do you want to pay a fine to a Firm that has attached a fine to your windscreen or handed it you, but is not likely to be able to get your address from the DVLA?
Some argue you should just ignore them, but if they do locate you, they can still take you to Court. Alternatively, you can still write to them outlining the reasons why you think the charge is wrong. Some may choose not to write to them until they receive a letter through the post from the Firm.
If the Firm is registered, then the next route that should be used to dispute the Fine is to use the Firm’s internal appeal process and their Trade body’s independent adjudication service.
This is a free process, doesn’t involve lawyers and also doesn’t prevent you raising a defence in Court if you fail and the Firm then takes you to Court.
There are a number of possible arguments you could use, both during the appeal process or in Court.
Some of these are outlined below for illustrative purposes, but you may want to tailor them to suit the specifics of your case.
Remember gathering evidence is important, so ask for evidence from the Firm and scrutinise it. There has been incidents of private firms fraudulently tampering with photographic evidence and being banned by the DVLA from the Approved Operator’s Scheme, so stay alert.
You can also gather your own evidence. Photograph the signs, as these are crucial to whether a contract was formed, take written statements from those that were with you. If a ticket machine was out of order, then photograph it.
Was a Contract formed?
As stated above, if the firm did not display it’s terms in an easily accessible format before you entered the contract, and only displayed them once you entered the car park, then arguably those terms do not apply to your contract.
Equally, if the sign does not expressly say you will be charge a certain amount if you break the terms of the contract, then the firm may not have any legal basis for charging you the amount they are trying to charge you.
Is it Factually Correct?
Some firms, even firms that have been part of the Approved Operators Scheme, have been found to be fraudulently tampering with photographs, showing vehicle owners over-staying their time in a car park, when they didn’t.
One firm, who has now been banned by the DVLA, was found to be sending fines to people stating they have overstayed, when they had not.
In one set of photographs, it was shown the cloud formation in the sky behind a car was the same, despite the timestamp on both photos showing hours of a difference between them.
Another showed the boot of an adjacent car open in both photos, despite the timestamp in both photos being hours apart.
For this reason, if you dispute what the Firm is saying, ask for evidence to show that you committed the breach they allege you committed.
Is the Service Charge Reasonable?
Previously it was believed that the charges private firms charged did not have to be paid, as they were not legally enforceable. This was because they called them “penalty” charges or “fines” and under the law of contract, punitive charges are not allowed.
This means firms can only charge you for a breach of contract for a reasonable amount that represents their loss.
This was the decision in a UK Supreme Court case (ParkingEye Ltd v Beavis  UKSC 67) and applied to England, Wales and Northern Ireland. It does mean Firms can enforce reasonable charges, however. In Scottish case heard in Dundee Sheriff Court a similar decision was made in Vehicle Control Services v Mackie.
Firms, therefore, may only charge a reasonable amount if you stay beyond your allotted time on the land.
What constitutes reasonable is hard to ascertain, but if you believe the charge a firm is charging you is excessive and punitive, they should provide proof it represents a reasonable assessment of their losses.
Ultimately, it is for a court to decide if the charge is reasonable or not; but it should be borne in mind, if a challenge is made on these grounds and unsuccessful, not only may you have to pay the charge, but also the other party’s legal costs.
Were you driving the Vehicle?
If you are the Registered Keeper of a car but were not driving it at the time the fine was charged, you can argue that you are not liable for the fine.
To do this, you would need to notify the Company, once you receive the notice.
It is likely you will be expected to give the name and contact details of the person that was driving the vehicle. If you don’t, then at present although there is no concept of Registered Keeper’s liability in Scotland, a Court may presume, in the absence of you identifying the driver, that you were the driver.
The law in Scotland is expected to change with the introduction of the Transport (Scotland) Bill, which will introduce the concept of Registered Keepers Liabilty.
This will mean where the identity of the driver is not known, the Registered Keeper can be held liable.
If your defence is the car had been stolen, you will be required to provide proof of this by providing a police crime reference number.
Don’t be afraid to cite mitigating circumstances, if something caused you to commit a parking violation. so if you had to park over a bay because of another driver’s parking (you may want to take a photograph as evidence); or if you were late back because of a disability, don’t be afraid to point this out.
You may also want to appeal to the owner of the land who may be different from the Parking Firm. So you could write to the Hospital if you parked on hospital land, or to the supermarket (especially if you have been in their shop spending money. You may want to show them your receipt).
How to Appeal a Parking Fine Notice
Parking firms should operate an appeal process. If they are members of the British Parking Association or the International Parking Community, this is a requirement of their membership.
When you receive a notice from a firm it should notify you also of their internal appeal process and how you make an appeal.
The firm should acknowledge receipt of your appeal within 14 days of them receiving it; and ultimately decide it within 35 days of it being made.
If they choose to reject your appeal, they should notify you of the Parking on Private Land Appeals (POPLA) Tribunal process if they are members the British Parking Association; or the Independent Appeal Service if they are members of the International Parking Community
Previously appeals to POPLA was not possible, if you were in Scotland or Northern Ireland, but this change on the 1st May 2019.
These are independent processes and you can submit an appeal after you have used the Firm’s own internal process first.
Going to Court for a Parking Charge Notice
If you dispute a Parking Charge Notice and intend to defend it in court, you should seek advice first.
You can obtain advice from your local Citizen Advice Bureau or from a solicitor.
More information can be obtained on going to Court by visting the Scottish Court Website.
How are Parking Charge Recovered?
Like with the Penalty Charge Notice, private firm Parking Charge Notices can be enforced through the courts and recovered using Sheriff Officers and diligence, legal debt recovery procedures, such as:
- Serving Charge for Payments;
- Executing Earning Arrestments;
- Attachment of a vehicle; and
- Arresting a Bank Account.
Can Parking Charges Damage your Credit Score?
If a Decree is obtained from the Court and the amount owed not paid with 30 days, it may be registered on your Credit Report.
It will, therefore, damage your Credit Score.
Can your Vehicle be Clamped for a Parking Violation?
Wheel clamping has been banned in Scotland since 1992. So no private firm should clamp your car.
If your vehicle is clamped, even wrongly, you should not remove the clamp yourself, but contact the Police. If you remove the clamp yourself you may find yourself charged with vandalism.
Parking (Code of Practice) Act 2019
The Parking (Code of Practice) Act 2019 was passed by the UK Parliament in March 2019. It provides the Secretary of State with new powers to issue guidance to private parking firms and to issue guidance relating to fees and penalties.
As at the time of writing this article, this Code of Practice has not been produced. It will apply across the whole of the UK.
Sorry. Due to the volume of questions, I am no longer able to answer questions relating to Parking fines.
Penalty Charge Notices (PCN) and Excess Charge Notices (ECN) are issued by local Authority Parking Attendants.
What stands these notices apart from those issued by the Police and Traffic Wardens, is they are not issued for committing an offence, but for parking somewhere that you are normally allowed to park, but have done so in a way that breaks the terms and conditions of being able to do so.
You, therefore, may not have displayed your ticket, over-stayed how long you could park or straddled your car over two parking bays.
The local authority treat these wrongdoings as civil wrongdoings. This, however, does not mean you should not take the fine serious, as legally it can be enforced using the courts.
If you received a Penalty Charge Notice, the ticket will be fixed to your windscreen. You will also be told in the notice why you have been issued the fine and you will be given 28 days to pay it.
Normally if you agree to pay the fine and do so within 14 days, it will be reduced by 50%.
However, if you don’t pay the fine within 28 days or appeal it, a “Notice to Owner” notification will be sent to the registered keeper of the car.
If the fine is not paid within 28 days of the “Notice to Owner” being received, or challenged, the local authority can issue a “Charge for Certificate” and increase the fine by 50%.
Appealing a Notice
If you don’t accept you should have received the fine, you can challenge it. You must do this within 28 days of receiving the fine.
The first stage of the appeal process is to appeal the decision to the local authority. The Notice will have details of how you do this on it.
If your appeal is successful, you will be notified, and the Notice will be withdrawn. If your appeal is rejected, you will be told and informed what the next stages are if you want to pursue the dispute, otherwise you will have to pay the fine.
You cannot pay a Penalty Charge Notice and appeal it at the same time.
If you don’t accept the local authority’s rejection of your appeal, you can appeal that decision to the Independent Parking Adjudicator. The local authority will tell you how to do this if they reject your appeal.
What happens when you don’t pay a Penalty Charge Notice?
A Penalty Charge Notice (PCN) is a fine that local authorities can charge because of Orders that have been made by Scottish Government Ministers using powers contained in Acts of Parliament. There is, therefore, a basis in law for local authorities charging them.
They can then register the debt with the Courts (without a hearing) and use Sheriff Officers to enforce it. This means being able to use legal enforcement procedures, such as:
It is not unusual for clients in formal debt solutions to find they are still subject to debt recovery action by the Department of Works and Pensions (DWP) for benefit overpayments, when they believed such action should have stopped.
So can the DWP still recover overpaid benefits whilst a claimant is in a formal debt solution?
The answer depends on whether the debt owed is included in the solution or not.
How do you know?
In terms of personal insolvency in Scotland, there are two types of formal solutions: the first is a protected trust deed and the second is sequestration (which includes bankruptcies accessed through the Minimum Asset Procedure).
In terms of both these solutions all debts are included up to specific dates. For sequestration, that date is known as the “date of sequestration”. So any benefits overpaid up to that date are included.
In terms of Protected Trust Deeds, the relevant date is the date when the trust deed was granted.
Date of Sequestration
What date constitutes the date of sequestration depends on the route that was taken to make the debtor bankrupt.
If a creditor makes the debtor bankrupt, then the date of sequestration is the date the petition to sequestrate the debtor was warranted by the court. This is also known as the first order date ; and is always before the date when the court awards the bankruptcy.
Where the debtor has applied for their own bankruptcy, the date of sequestration is the date the bankruptcy is awarded.
Can the DWP recover debts that are included?
In essence, the DWP don’t, although arguably they could during the bankruptcy or protected trust deed if they were to use direct deductions from benefits or a Deduction from Earnings order.
The Department of Works and Pensions recover benefits according to guidance (see here).
This guidance states in relation to personal insolvency, at paragraph 6.3:
Once the insolvency period has commenced, any deductions from benefit
should cease, and any deductions made after the start date of the insolvency should
be refunded to the debtor. This includes any monies recovered for a fraud debt
And at paragraph 6.7 in relation to sequestration, it states:
Where the recoverable overpayment period is entirely before the start date of the bankruptcy order, or where the overpayment period spans the bankruptcy order, recovery should be suspended until after the end date of the order. This is regardless of when the overpayment decision is made, for example a decision could be made after the order date. On discharge the outstanding balance is written off unless it is a fraud overpayment, when normal recovery action should commence.
What, is important, therefore, is the date the overpayment occurred, not the date that it was decided there had been an overpayment.
Protected Trust Deeds
In terms of Protected Trust Deeds, the law is similar, although the important date is not the date of sequestration, but the date the trust deed was granted.
It is also important to note the guidance only applies to trust deeds that are protected and not unprotected trust deeds. Recovery action, therefore, does not cease until the trust deed actually becomes protected.
It also important to note, that the overpayment is only written off when the debtor is discharged. If the debtor is refused a discharge by his Trustee, recovery action can be commenced again.
In terms of whether the debt is included or not, all debts are included providing they arose in a period prior to the trust deed being granted.
The relevant paragraph in the guidance is at 6.9, where it is stated:
The recoverable overpayment(s) must be included in the Protected Trust Deed and any debts not included will not be discharged at the end of the period. Recovery is suspended until discharge at which point any debt included in the Protected Trust Deed is written off unless it has been classed as fraud when normal recovery action can commence, or recommence. Unprotected Trust Deeds are not considered a form of insolvency and recovery will continue as normal.
The Debt Arrangement Scheme
The Debt Arrangement Scheme is different from protected trust deeds and sequestration, in that it is not a form of personal insolvency, albeit it is a formal debt solution.
Debts remain owed until they are paid off in full, although all interest, fees and charges are stopped from the date an application is made to the scheme, providing it is subsequently approved.
In terms of benefit overpayments, this is also covered by the DWP guidance at paragraph 6.15, where it states:
DAS is NOT insolvency, but is a government-run, voluntary debt solution administered by the AiB [Accountant in Bankruptcy], but not involving the courts. It allows the debtor to freeze any interest, fees and charges on their debts whilst repaying their debts in full over a longer period by way of a Debt Payment Programme. The debtor makes agreed regular payments to an approved payments distributor who then makes payment to DWP Debt Management if included in the DAS. If our debt is included in the DAS we would suspend recovery until the period ends, but where it is not included we would continue with deductions throughout the DAS period.
All debts are normally included in debt payment programmes, but unlike with trust deeds and sequestration, where they are included by operation of law, in the Debt Arrangement Scheme the claimant must notify their adviser they have the debt and the adviser must include it.
If the debt payment programme is subsequently revoked, the debt again becomes recoverable .
Can a debtor bring a protected trust deed, granted after the 28th November 2013 to an early end, without making 48 monthly payments or paying the creditors all monies owed to them?
This is a question I have recently been asked as the assumption is that since the Protected Trust Deed (Scotland) Regulations 2013 commenced, this is not possible. I answer it below.
Composition in Protected Trust Deeds
One of the most useful tools that the Personal Insolvency Law Unit have had at its disposal in assisting our clients has been discharges on composition. In many cases, it has allowed us to finalise a debtor’s Protected Trust Deed and release them from their obligations, whilst protecting their home, which they would have lost otherwise.
To understand what composition is, it’s worth re-reading the comments of Sheriff Reid in the case of Allison Donnelly v Royal Bank of Scotland at paragraph 58:
“….a discharge on composition is a procedure whereby the creditors agree to an absolute discharge of the debtor, usually in return for part-payment of their debts. Composition may be judicial or extra-judicial, and it may be general (i.e. it applies to all creditors) or partial (i.e. it applies to some creditors) (McBryde, Bankruptcy (2nd ed.), 18-62). There is only one form of judicial composition and it is general in nature (Bankruptcy (Scotland) Act 1985, section 56 & schedule 4). In any event, the essence of a composition is that it operates as a complete discharge, freeing the debtor from all debts and obligations for which he was liable at the date of sequestration, terminating the trust or sequestration process, and reinvesting the debtor in his estate to the same extent as it had vested in the trustee (Goudy, supra, 408).
Post 2013 Protected Trust Deeds
In 2013 the Protected Trust Deed (Scotland) Regulations, stated unless the conditions in regulation 4 to 10 were met a trust deed could not gain Protected status (regulation 3(1)).
The conditions required to be met under regulation 8 were:
- Any payment period proposed in the Trust Deed must be for a minimum period of 48 months (regulation 8 (2) (a)); and
- This could only be for a shorter period, where the shorter period allowed all the debtors debts to be paid in full (interest included). (regulation 8 (3)).
Termination of Protected Trust Deeds
However, this doesn’t mean a debtor has to pay all 48 monthly contributions or all the debts in full to obtain a discharge and bring the Protected Trust Deed to an end.
Regulation 24 (2) (Discharge of Debtor) states to obtain a discharge a debtor must be considered to have co-operated with his trustee and met all his obligations under the trust deed.
To meet his obligations a debtor may have to make all 48 contributions (although arguably if he can show his circumstances didn’t allow him to, there is still an argument he didn’t refuse to co-operate or that he failed to meet his obligations under the Protected Trust Deed).
We need to look at the Trust Deed document itself, which will vary. Most Trust Deed documents will, however, lay out the basis in which trust deeds can be terminated. This may be because the debtor has refused to co-operate (and, therefore will be terminated by the Trustee – grounds to refuse a discharge), but equally usually includes a clause that allows a discharge on composition.
So in short, Trust Deeds, even those granted after the 28th November 2013 can be brought to an early close. It is the Trust Deed document itself which outlines how Trust Deeds can be terminated.
A debtor who seeks a discharge on composition is not failing to co-operate or failing in his obligations, but merely bringing the arrangement to an end in line with the provisions included in the deed, if it allows composition.
The conditions outlined in Regulation 8, only need to be satisfied for the Deed to become Protected.
Discharge on composition is an inherently sensible and equitable remedy that debtors can use, with the agreement of their creditors, when the circumstances of a case make it advisable.
Walls v Santanders UK PLC
A recent decision by Sheriff Cubie at Glasgow has destroyed any hope that Scottish bank customers will be able to use the small claims procedure to reclaim bank charges.
The fatal blow which prevents litigants using the procedure arose after the Sheriff agreed the case should be remitted to ordinary cause procedure due to it complexity.
Mrs Walls had raised an action using the small claims procedure to reclaim £3,000 of bank charges. Small claims procedure in Scotland allows litigants to claim up to £3,000 in the sheriff court, but importantly protects them should they be unsuccessful. Where the claim is for under £200, the fee for raising the action is £15. Where it is for more it is only £60. Even if the consumer is unsuccessful and expenses are awarded against them, where the claim is for more than £200, expenses are limited to £150 where the claim was for £1,500 or less and 10% of anything above that. This means normally a consumer risks only incurring expenses of £300.
However, by allowing the case to be remitted to ordinary cause, expenses can be unlimited meaning a consumer who raises an action for £3,000 could be faced with expenses of £10,000 or more where unsuccessful, particularly as the banks tend to be using senior counsel in such cases.
For many the risks in such cases will clearly be too high for consumers to risk raising such actions unless they have access to legal aid.
What is more worrying about this development is the banks are claiming the revised arguments used in such cases by Mike Daily, the principal solicitor of Govan Law Centre, which concerns amongst others the unfair relationship test, are too complex to be heard using the small claims procedure. This argument has been deployed after obiter comments by judges in the recent Supreme Court test case on bank charges. It was suggested although charges cannot be challenged on the basis of the level of the charges, they may still be challengeable by reference to the relationship between the lenders and borrowers.
The unfair relationship test was a new legal test introduced into the Consumer Credit Act 1974 by the Consumer Credit Act 2006. Its introduction was specifically to replace the extortionate credit test which had over 30 years prove to ineffective as a remedy to protect consumers.
There is now a suggestion, however, by Sheriff Cubie that it may not be appropriate to use small claims procedure when using the unfair relationship test due to its complexity. This could effectively deny Scottish consumers from not only raising actions to reclaim bank charges unless they can access legal aid, but also may eventually prevent them from being able to use the important unfair relationship test under the small claims procedure.
The implications of this decision to remit the case to ordinary cause, which Mike Daily had challenged on the grounds that it was a breach of Article 6(1) of the European Convention of Human Rights (right to a fair hearing), is that any wealthy defender may by forwarding spurious, but complex legal arguments deny consumers access to a fair hearing by remitting the case to the ordinary cause procedure. Although, it could be argued litigants will still have access to a fair hearing, if the risks of the costs heavily outweigh the amounts being claimed, most litigants will not raise actions. Some would argue banks are cynically betting on this. The result is the merits of the banks defence has still to be decided and are unlikely to be in this case as Mrs Walls has already indicated she will unlikely continue with the claim.
Furthermore, such tactics could also be used by banks whenever they raise actions against debtors for payment of money and the debtor intends to defend the action. The result: to frustrate debtor attempts to deny their liability for such debts.
Mike Daily has called for changes in the court rules so that when any action is raised in small claims, the rules relating to expenses should follow the action even if remitted to ordinary cause. Importantly, however, if there is an attempt to exclude the use of the unfair relationship test in small claim actions, then arguably the summary and ordinary cause rules should be altered to ensure regardless of what procedure is used to raise an action, the level of expenses even in these actions should be restricted by the amount the action is for.
Anything less will leave scottish consumers exposed and vulnerable to spurious claims for money by wealthy creditors.
Mike Daily has now applied to appeal the decision of Walls v Santander UK PLC to the European Court of Human Rights.
However, despite the rejoicing of many creditors and recovery lawyers, Mike Daily has another bank charges case still in the courts. In the case of Sharp v Bank of Scotland, the consumer raising the action is entitled to legal aid and its likely the cases will be heard later this year and the merits of the banks defences will be considered.
The tragedy, however, will be even if Sharp is successful in reclaiming her bank charges, unless the court rules are changed, many consumers not entitled to legal aid, will be denied access to justice.
For more info see Govan Law Centre.