As the Scottish Government look to introduce Virtual Pawnbroking and warrant sales for Scottish Consumers who have their debts secured by a Statutory Pledge, read our submission to the Delegated Powers and Regulatory Reform Committee of the Scottish Parliament.
Read more about the Moveable Transactions (Scotland) Bill 2022 here (Statutory Pledge: A New Debt Security for Scotland)..
1 Do you agree that
the law covered by the Moveable Transactions Bill (raising finance on moveable property like cars, machinery or intellectual property) should be reformed?
Register of Assignations
In relation to the Register of Assignations, I welcome this, as debt purchasing is now a significant industry for consumer debt in Scotland and improved regulation of it is required.
Many clients lose track of who their creditors are as their debts are sold, and this makes it significantly harder for them to manage and address their debts.
The practice of assigning and re-assigning debts also cause significant problems for advice agencies in Scotland who are trying to assist people with problem debt, even once they have entered into a formal debt solution such as the Debt Arrangement Scheme.
A Register of Assignation could help improve this situation, if it was a requirement in Scotland that any debt that has been assigned or re-assigned, after a certain date, must be registered in the Register before it can be constituted through the courts or recovered using the law of diligence. I also believe that it should not be at the discretion of the Assignor to decide whether a consumer should be notified that their debt has been assigned or is being re-assigned.
In relation to the creation of Statutory Pledges, I have serious concerns over the creation of this new security, particularly in relation to consumer debts and where the property is secured over the personal property of consumers.
There is no requirement for a new security to be created for consumers. The arguments that are used in relation to businesses cannot be extended to consumers.
At present consumer credit lenders are usually happy to provide consumers with unsecured fixed sum loans to purchase items such as TVs and settees
and where they want greater security over the moveable property they are able to use regulated agreements such as hire-purchase and conditional sale.
The danger is if we create a Statutory Pledge Security that can be used for consumers, that will significantly change the way lenders lend in Scotland, to the detriment of consumers.
I, therefore, strongly believe Statutory Pledges should not be permitted to secure consumer debts over personal property.
3 Do you have any concerns about the proposed dual system for assignation of claims (for example, to repayment of a debt). This means it will be possible to assign claims either by intimation to the debtor (as at present) or by registration in the new Register of Assignations? This will provide flexibility, but will mean that the new Register will not be comprehensive
I do not believe the Registration of an Assignation should be possible in relation to a consumer debt, unless the Assignor is able to evidence they have notified the Consumer. To do anything less, could mean consumers losing track of who their creditors are and this could significantly impact on their ability to manage their finances.
Currently in the Financial Conduct Authority’s Consumer Credit Sourcebook, Chapter 6.5, there is a requirement on those who have regulated debts assigned to them to have to notify the consumer, if there is an assignation of rights. Equally EU Directive 2008/48/EC in Art 17 imposes a similar duty on Assignees.
As the Moveable Transactions (Scotland) Bill places the duty on the Assignor, rather than the Assignee, to register a debt in the Register of Assignations, I
believe that duty must fall on the Assignor before registration can occur.
4 Do you have any concerns about the interaction between the new security over moveable property – which will be created by registration in the Register of Statutory Pledges – and traditional pledge, which involves delivering moveable property to the creditor? Are there any circumstances in which businesses or individuals might wish to continue to use existing methods of raising finance over moveable property?
I believe in relation to Consumers, Statutory Pledges should not be permitted for consumer debts and over the personal property of consumers.
I don’t believe that the case has been made to show that there is a need for a new security to be created to allow consumers to raise personal finance and the arguments for businesses cannot just be extended to consumers, without serious risk of consumer harm.
I predict that the argument will be that some consumers will have priceless art collections, Steinway pianos or Stadivari violins that they will want to use to raise personal finance, but the reality of this new security is not about this. Its about personal car finance and poor people being offered unaffordable
loans, by lenders such as firms like Loans at Homes, Wonga, Amigo Loans and Provident/Satsuma, who have all now either entered insolvency, or have had to apply to the courts for Schemes of Arrangement, that allow them to reduce the level of compensation paid to consumers, because of their poor
practice of mis-selling unaffordable loans.
In a cost of living crisis the creation of consumer Statutory Pledges will only invite other high cost lenders to abuse the process, and secure loans over the personal property of consumers to their detriment.
5 The Bill contains detailed provisions on how the registers will be set up and searched. Do you have any suggestions for improving the approach set out in the Bill?
I believe those who are involved in advising and assisting consumers with their debts, should have free access to both the Register of Assignations and also the Register of Statutory Pledges.
This will assist them to help identify their clients debts and also whether a debt has been secured and over what. It will also help them find solutions to
their client’s problem debts.
I believe it will also assist them in administering debt solutions (whether formal or informal) in that it will help help them verify who creditors are when a debt is assigned during the operation of the solution.
I don’t believe the cost of this free access should be paid for by the public purse, but should be paid for by the Creditors that are assigning debts, otherwise the cost will be an additional burden borne by other creditors and publicly funded advice agencies.
6 The proposals in the Bill would apply to consumers as well as businesses. Do you think there are enough protections in place for consumers?
I don’t believe the Bill creates or can create enough protections for Consumers if Statutory Pledges are used to secure consumer debt over personal property.
The reason for this is many of the types of the debts that they will be used to secure will arise from regulated consumer credit agreements which this Bill cannot change, and are reserved matters .
However, a potential unforeseen consequence of this Bill is it is likely to change the way consumer borrow money in Scotland and not for the better.
We are likely to see an increase in the use of fixed sum loans, secured by a Statutory Pledges for items normally kept in the home, which will make it easier for creditors to repossess the items and circumvent the protections that were introduced for household items by the Debt Arrangement and Attachment (Scotland) Act 2002 and in relation to Exceptional Attachment Orders (which replaced Poinding and Warrant Sales).
Equally for car finance (and other items) we could see a reduction in the use of Hire Purchase and Conditional Sale agreements, which will significantly reduce the rights of consumers, in that fixed sum loan agreements secured by Statutory Pledges, will not contain the same protections for consumers
than regulated agreements contain, such as the right to Voluntary Termination.
I believe there could also be a growth in the use of such securities for consumers in relation to non-regulated consumer credit debts and could include private residential landlords the opportunity to use them to secure rent against not only tenants but the property of tenant’s family and friends.
I also believe we could see an increase in their use by debt collectors, where the debt being recovered does not relate to the purchase price of the item, but other unrelated debts, with collectors insisting on securities over items like cars before agreeing to repayment plans. This would effectively allow them to circumvent the protections introduce by the Debt Arrangement Scheme (Scotland) Act 2002 and also the Home Owner and Debtor Protection (Scotland) Act 2010 in relation to cars.
7 Do you have any other comments on the Bill or this area of policy?
Extreme caution should be exercised by this Committee over this Bill. I don’t believe the Explanatory Notes and Policy documents do enough to highlight the potential consequences of it in relation to consumers and personal borrowing in Scotland.
I am prepare to provide additional oral evidence to this Committee on why this Bill requires significant reform in relation the Register of Assignations and also in relation to why Statutory Pledges should not be allowed for consumer debts (regulated and unregulated).
The Bill is fatally flawed in that it does not take a balanced or proportionate approach to both consumer and business finance and effectively conflates
both, which is clearly wrong.