Rip-off charges

This afternoon, Glasgow MP Mohammad Sarwar will launch his Prevention of Excessive Charges Bill in the House of Commons. The Bill has full cross-party support. Govan Law Centre has been working closely with Mr Sarwar to campaign for stronger legal protection for UK citizens against unfair default charges.

The culture of charging in consumer contracts has become an insidious and unethical business in recent years. A form of mass exploitation whereby our banks and other UK businesses rip-off customers at weak points in their life.

Charges are akin to a debilitating disease in our society. They crush the ability of ordinary people to make ends meet in very difficult times. They push people into unnecessary financial hardship and expose countless households to eviction and repossession.

In my experience, default charges and fees are generally imposed when a person is down on his or her luck - ill, unemployed, going through a relationship breakdown or other life crisis. Moreover, they lead or contribute to a cycle of debt, poverty and homelessness.

From a legal perspective, the common law in Scotland and England has always pre-supposed that a contract is entered into freely by parties who have the choice to reach consensus on the terms of the contract.

The Unfair Terms in Consumer Contract Regulations were originally introduced in the UK in 1995 to reflect the reality that there was seldom any equality of arms in contracts between a consumer and a business. Most businesses employ standard 'take it or leave it' terms and conditions of contract.

Consider the most infamous of contractual charges: unauthorised bank overdraft charges. The average bank charge back in 1998 was £12. Eight years later that charge had increased by 558% to £67 - £39 for a letter, £28 for a monthly unauthorised fee and 30% APR unauthorised interest.

Clearly, there is now an urgent need for law reform to tackle excessive charging in consumer contracts. Existing protection is reactive and requires the customer to opt-in and traverse all of the difficulties associated with accessing civil justice and raising a court action.

The fact that the OFT's test case challenging the fairness of UK bank charges has been running now for almost two years without any resolution – and is likely to run for a lot longer with an impending House of Lords appeal - confirms the weakness in the present system.

There is a cogent case for amending current consumer law protection to require the imposition of any charge or fee to be proportionate to the cost of the missed payment, default or overdrawn sum as a matter of fairness.

Mohammad Sarwar’s Bill suggests that no charge or fee in a consumer contract should exceed 2.5% of the value of the transaction where there is a default or failure, or attempt to exceed an agreed overdraft.

To take a typical example. A worker’s wages drop to statutory sick pay due to illness. That week four direct debits are unpaid. The worker’s bank will impose £184 in charges, while her creditors will levy unpaid direct debit fees of £25 per item. She will face £284 of charges that week – the equivalent of one month’s statutory sick pay. Under the proposed Bill those charges could not exceed £20 in total.

Politicians cannot stand by and watch hardworking individuals and families in the UK suffer any longer. It’s time to put an end to rip-off Britain.

Preventing repossession

The announcement yesterday (21 April) that the UK Government's Mortgage Support Scheme is now in force with most lenders co-operating, and sub-primes coming on board, is the best news we've heard in a long time during this dark economic period.

The ability to defer up to 70% of a mortgage for two years will provide a vital respite which could save thousands of Scottish homes from being repossessed during the recession. Sadly, most Scots won't be able to enjoy this new scheme as repossession cases do not call in court and, unless you are proactive and instruct a solicitor, decree will pass against you automatically.

You will face homelessness long before you can sort out all of the paperwork. Community law centres and others have been warning the Scottish Government of the weaknesses in our system for the past 15 months, yet, incredibly, protection for homeowners has become weaker, not stronger.

For example, last month the Scottish Government restricted its Homeowner Support Scheme to homeowners in the cheapest of dwellings. Also excluded are those entitled to benefits for housing costs.

With all of these restrictions, I would be surprised if 15% of Scottish homeowners were eligible for any help under the Scottish Government's scheme. Yet the new UK Government scheme will cover 80% of UK homeowners.

However, help is hypothetical as legal representation is required to secure sufficient time to put solutions in place. Households in England and Wales are entitled to free court representation, so they can access the new UK scheme and other solutions. They also have more time to negotiate with their pre-action court protocol.

In Scotland, there is no free representation and even people on breadline benefits are expected to fund their own legal aid bills. There is no pre-action protocol either. The result is that Scottish homes are being needlessly repossessed. The Scottish Government has provided homeowners with a couple of fig leaves for protection against repossession. This has to change. When will we get the same protection that homeowners south of the border enjoy?

Monkey business

Science tells us that if you give a million chimpanzees a million typewriters they will eventually reproduce the entire works of William Shakespeare. Until they do so, they will definitely thrash out more workable housing policies than the Scottish Government.

In one fell swoop the Scottish Government has closed off access to its Home Owners' Support Fund for homeowners facing repossession in Scotland. In real terms over 1 million Scottish households have just been excluded from applying for help under the Mortgage to Rent or Shared Equity schemes.

In a bizarre twist of irony, Cabinet Secretary Nicola Sturgeon claimed on telly last week that the Scottish Government was 'far ahead of the game compared to south of the border' when it came to preventing needless repossessions.

She pointed to the £35m to be invested over the next couple of years in the flagship ‘Home Owners Support Fund’ – money which underpins the national Mortgage to Rent and Shared Equity schemes. But her safety-net claims have been exposed as a Lilliputian fig leaf.

Previously, almost anyone in serious mortgage trouble was entitled to apply to the Mortgage to Rent scheme for help so long as their home was not above the average price of properties in their locality. Locality was a flexible, undefined concept. But from last month the Scottish Government has introduced ‘local’ maximum property prices which are so ridiculous they exclude 75% of all owner-occupiers in Scotland.

For example, if you're a family facing homelessness in a three bedroom flat in Glasgow, East Renfrewshire or East Dunbartonshire you are now excluded from Scottish Government help unless your home is worth less than £105,000. The current average property prices in those local authority areas are £135,000, £199,000 and £206,000 respectively. And these rules apply to help under both the Mortgage to Rent Scheme and the new Shared Equity Scheme.

Govan Law Centre has a client in Pollok facing repossession who lives in a modest three bedroom house worth £150,000. The Home Owners' Support Fund is her only hope - a couple of weeks ago she would have got help under the Mortgage to Rent Scheme, but now she is excluded.

Most of our clients in Greater Govan and Greater Pollok are excluded under these incompetent rules and Nicola Sturgeon might want to explain to her constituents how they are now going to avoid homelessness during the recession?

The Cabinet Secretary has broken a lifeline for Scottish homeowners. I’m calling on the First Minister to remove these restrictions urgently so that no Scottish household will become homeless because of this incompetent policy change.

Law for the people

At the recent Law Awards in Edinburgh, Lord Paddy Ashdown made a telling observation that reckless bankers and Al-Qaeda have flourished because they operated at a global level which circumvents the nation state; a global environment where the rule of law is all too often absent.

Protecting the financial security of Scottish citizens will require the type of new international legal solutions as advocated by Prime Minister Gordon Brown. And I would argue that our financial meltdown is proof beyond doubt that a consumerist approach to vital services is no longer sustainable. The proposed Alternative Business Structure for our legal profession represents a consumerist approach which offers nothing for vulnerable citizens.

How then can Scotland’s legal profession and laws better reach those in need? This month’s changes to the civil legal aid system, while welcome, do almost nothing for the poorest members of our society. The lower income threshold has risen by a mere £199 per annum, so those on certain benefits or low incomes still have to pay contributions which they cannot afford whilst they are repaying rent arrears and other liabilities.

An obvious solution would be to raise the lower eligibility limit for civil legal aid, and for that matter shift all of the bands upwards. This would enable private practitioners to provide more access to civil justice. But more resources should be targeted to provide at least one community law centre in each local authority area. Not an organisation to compete with private practice, but rather a free professional legal resource that could target unmet legal need locally.

We need to start challenging the fact that too many of our laws and legal remedies are inaccessible, while too many of our public and private bodies ignore the law as a matter of course – and if most citizens have no real legal remedy, is it any wonder? We have too many ‘paper rights’ and not enough real ones in Scotland.

For example, most social tenants cannot force their public landlords to carry out major repairs; most homeowners facing repossession don’t have the money to pay the Scottish Legal Aid Board to hire a lawyer; and our law on disability rights looks great on paper but how much difference has it made to people with significant impairments in real life?

Sometimes we can get so caught up in the process of law, we forget that the process is only there to deliver a solution for human beings. Whether that be resolving conflict or disputes fairly, or righting the wrongs of companies, bodies or individuals. We need to do much more to develop accessible remedies and solutions. And we need to introduce proportionality of cost with the value of the dispute wherever possible.

I also believe we should be challenging the burgeoning and aggrandising of our Scottish Legal Aid Board. The Board has doubled in staff size and operational costs while its budget hasn’t moved much over the last decade. It is wrong in principle for the paymaster of legal services to become a key provider of those services. Increasingly, we are seeing this both in the criminal defence and civil law side of our profession.

This growth does not represent best value for clients in need, nor does it encourage innovation. For example, a sizeable chunk of the £3m going to the Board to help prevent homeowner repossession will be used by the Board to employ another team of its own solicitors. These solicitors will be subject to the same means testing rules which prevents homeowners being able to access legal representation. In England, money has been put into schemes were free representation is provided at the county court by solicitors.

So let’s redirect some of the Board’s self-funding or operational costs to the frontline – let’s use this public money to create at an independent community law centre in every local authority area across Scotland. A centre that doesn’t have to means test, and a centre that can target the unmet legal needs of the most vulnerable of our citizens at a local level.

Dismantle GHA

The wrangling over the GHA's repair contract is but another chapter in the life of the UK's most dysfunctional social landlord.

I can give you another one. The Scottish Government has rightly put £35m into the Mortgage to Rent Scheme so that homeowners facing homelessness can become a secure tenant with a housing association. Yet the GHA won't participate in this scheme. It uses obfuscation to explain why it can't participate, why it cannot proceed to second stage transfer, why it cannot build the number of new homes it said it would.

Never-ending excuses from an organisation with never-ending public subsidy. These failures prejudice ordinary citizens. We have a client in Govan who may become homeless because other housing associations are unable to purchase her home due to GHA communal repair issues - but if the GHA worked with the Scottish Government's Mortgage to Rent Scheme they could become her landlord.

It's heartening to see the Scottish Government and Glasgow City Council now at one on the need to dismantle the GHA. However, calls for the Housing Regulator to investigate the GHA are misplaced. Regulator civil servants have been complicit in the cover up of GHA failures and bad practice. If the Scottish Government does not take urgent steps now I believe the GHA could become Scotland's mini-Enron.

Those steps must surely include the appointment of an independent inspection team, including forensic accountants and well respected housing association directors. The task would be to examine the GHA's management failures, identify financial waste, and report on a strategy to dismantle the GHA and deliver on community ownership. The Scottish Ministers have power under section 69 of the 2001 Housing (Scotland) Act to do this. And after any independent inspection they could appoint a manager to deliver on the agreed strategy.

Glasgow cannot afford to get this wrong.