Tag Archives: illegal bank charges

Scotland’s Debt Landscape Possibly Changing

Scotland’s Debt Landscape Possibly Changing

The recent statistics producced by the Accountant in Bankruptcy has shown that the Scottish debt landscape has begun to change.

The number of sequestrations (formal bankruptcies) in the first quarter of this year remained the same with the number for the previous quarter (3,139), but showed a 16 % decrease on the numbers from the same quarter last year.

A similar story can be told for protected trust deeds, with only 2,239 becoming protected in the first quarter, which although up 10 % on the previous quarter was down 13% on the same quarter for last year.

The real story, however, is the 495 debt payment programmes entered into under the Debt Arrangement Scheme, showing a 19% increase on the previous quarter and a 60% increase on the same quarter last year.

The Debt Arrangement Scheme is a statutory alternative to personal insolvency and allows debtor to repay their debts in full, whilst providing them with protection from their creditors. Importantly, it also avoids debtors having to realise assets and  allows interest and charges on debts to be frozen and eventually written off if the programme is succesfully completed.

Launched in October 2004, the scheme has had a troubled beginning with a poor uptake and problems with debtors unable to access it. This has largely been because access is exclusively through an approved money adviser and there has been a shortage of approved money advisers. This has now been partly solved with increased private sector involvement and it is now believe up to 10% of all applications may now be originating in the private sector. Concerns have, however, been raised in relation to private sector involvement with some private sector providers charging debtors up to £1,800 to access the scheme.

However, the increase in the number of the debt payment programmes may not just be a sign that debtors are keen to repay their debts, but that they have no other remedy available to them.

Those  who enter the Debt Arrangement Scheme have to have disposable income to make payments  and, therefore, it may be that increasing numbers of  white collar debtors may be using the Scheme where there has been a drop in the household income and they are unable to use personal insolvency as a remedy. This may be as in personal insolvency debtors are required to realise the value of  assets, such as homes and cars for the benefit of creditors. One of the advantages of the Debt Arrangement Scheme is that debtors do not normally have to realise their assets for the benefit of their creditors.

This creates a problem, however, for those debtors with assets, if they are unable to realise those assets (it may make them homeless or leave them unable to get back and forth to work), resulting in them having to enter repayment plans with their creditors that could take 10 years or more.

The Scottish Government will be introducing a new route into seqeustration also in October, which will allow debtors who cannot repay their debts as they fall due to apply for bankruptcy. This may result in an increase in the number of bankruptcies each year, but may equally result in a reduction in the number of protected trust deeds. In addition to this, the Government, as part of the new Act, will also be introducing new forms of protected trust deeds that will allow debtors to exclude their home from it, allowing them to keep it even though they are personally insolvent. This, however, is likely only to be  in cases where there are small amounts of equity in the home.

It is clear that Scotland’s debt remedy landscape  is now beginning to shift with one debt payment programme being entered into for every four protected trust deeds being signed. It could be tomorrows debtor landscape is one where there is more debt payment programmes and less personal insolvencies. It could also be with the decreasing number of personal insolvencies and increasing numbers of debt payment programmes, Scotland’s personal insolvency industry will now begin diversifying to offer the Debt Arrangement Scheme as one of the services they can offer.

Debt Arrangement Scheme

Accountant in Bankruptcy

Bank Charges Case is appealed to the ECHR

Bank Charges Case is appealed to the ECHR

 

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.