As the practice of buying and selling old debts has grown, money advisers across Scotland are now witnessing a rise in the number of people being pursued for old debts.
Over the last few years, I have seen many clients in this situation and have heard of similar cases from other advisers. Many of the clients cannot either remember the debts being taken out or long believed they were written off.
When challenged to provide more information, it is not unusual for the new owners of the debt to struggle to provide documentary proof that the debts are even owed.
They often struggle to produce copies of the consumer credit agreements, they don’t have the account statements showing how the sums were accrued and they cannot point to the contractual basis for charges and penalties that have been applied.
There is also no chance they will ever produce the assignation agreements with which they bought the debt, even if it is the only evidence they own it (presumably not wanting anyone to see how little it was sold for in the first place).
To compound matters, when challenged on whether the debt is statue barred (meaning it cannot be recovered) under the Prescription and Limitations (Scotland) Act 1973 (1973 Act), it’s not unusual for them to reference English Law and the Limitations Act 1980 (1980 Act), which gives them longer to pursue the consumer for the debt.
This is no doubt the situation Mike Dailly of Govan Law Centre found himself in recently, and why he was in Glasgow Sheriff Court yesterday (22.01.2018) in front of sheriff Reid.
In his case Mike made an argument that can best be summed up in his own blog (The paper chase: Can an English governing law clause oust Scots law rights in a consumer contract?), but to summarise, it goes along these lines:
An English debt recovery company (DRC) buys an old debt and intimates to their solicitors to raise proceedings in Glasgow Sheriff Court. The debt has not been relevantly acknowledged for the purposes of the 1973 Act in over 5 years, but the DRC claims the debt is still recoverable as it involves a credit card agreement, within which the governing law is stated to be English Law and, therefore, the 1980 Act applies (meaning the debt is not statute barred until after 6 years).
Mike’s argument is the contract is a consumer contract for the purposes of the Rome I Regulation, Regulation (EC) No. 593/2008, and as such should be governed by the law where the consumer habitually resides (Scotland). However, the Rome I Regulation allow the consumer to choose the governing law that shall apply to their contract, meaning English Law can apply.
However, despite that choice, the law that governs cannot deny the consumer the protection they would normally enjoy under Scots Law, where that is greater than it would be under the chosen legal system. Therefore, the 1973 Act still applies, as it provides greater rights, and the debt becomes statute barred after 5 years if there is no relevant acknowledged or claim.
Consumer Credit Act 2015
Not having the benefit of being a solicitor, I have in the past made a different argument, but similar in approach and one that was recently argued successfully against another law firm resulting in them abandoning their claim against a client prior to it going to court. They too had relied on the 1980 Act.
My approach was under S62(1) of the Consumer Rights Act 2015 there is a requirement for the terms of a consumer contract to be fair. Where it is not, it is not binding on the consumer and the govering law clause is void, unless the consumer chooses to be bound by it.
As to what constitutes fair, section 62 states:
(4) A term is unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties’ rights and obligations under the contract to the detriment of the consumer.
(5) Whether a term is fair is to be determined—
(a) taking into account the nature of the subject matter of the contract, and
(b) by reference to all the circumstances existing when the term was agreed and to all of the other terms of the contract or of any other contract on which it depends.
My argument is a clause in a consumer contract which states the governing law is English law, when the consumer is habitually resident in Scotland, is unfair where the terms of the contract are not individually negotiated. There being no real choice.
Also, with regards to the resources available to the lender, who is acting in the course of a business, the significant imbalance results from the fact the contract is governed not by the consumer’s legal system, but the one which is preferable to the business, which results in a detriment for the consumer as they lose the protections of their own legal system.
This argument is not without some support. The Consumer Rights Act 2015 superseded the Unfair Terms in Consumer Contract Regulations 1999 (1999 Regs) which was essentially worded along the same lines.
In relation to those regulations the Office of Fair Trading (prior to being superseded by the Financial Conduct Authority) had stated in their guidance on the 1999 Regs:
17.4 It is not fair for the aggrieved consumer to be forced to travel long distances and use unfamiliar procedures. International Conventions lay down rules on this issue [The Rome Convention – Mike’s argument], which are part of UK law.
Terms which conflict with them are likely to be unenforceable for that reason, too.
A similar clause is included in the Competition and Marketing Authority’s Guidance on the Unfair Terms in the Consumer Rights Act 2015 at paragraph 5.29.7:
Consumers should not normally be prevented from starting legal proceedings in their local courts – for example, by a term requiring resort to the courts of England and Wales despite the fact that the contract is being used in another part of the UK having its own laws and courts. It is not fair for the consumer to be forced to travel long distances and use unfamiliar procedures to defend or bring proceedings.
Treating Customer’s Fairly
Considering this, it must now be questioned whether those lenders and debt purchasers who are relying on English Law in Scottish consumer contracts are having due regard to the interests of their customers and treating them fairly, as required under Principle 6 of the Financial Conduct Authority’s Higher Business Principles.
It is also not the first-time concerns have been raised about the lack of evidence creditors and debt buyers can produce when raising actions. In 2009 the Sheriff Courts Rules Council produced an Act of Sederunt that required lenders to produce a copy of the regulated agreements when raising an action, but after last minute lobbying by the credit industry and debt recovery solicitors, the regulations were withdrawn. Their concerns were that many creditors would not be able to produce actual copies of the agreements and would only be able to produce “re-constituted” copies.
It is clearly now time for the Scottish Civil Justice Council to re-examine this area. It is clear Scotland’s lower debt courts are being treated like sewers with claims being raised for debts that are either statute-barred or cannot be proven. The calculation being most consumers lack the knowledge or resources to defend such actions.