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.