Govan Law Centre (GLC) has written to the Minister for Business, Innovation and Energy in Scotland, Mr Paul Wheelhouse MSP, expressing our concern that many creditors are gaining a massive financial windfall at the expense of financially vulnerable people in Scotland who are finding it tough to make ends meet.
The financial windfall for creditors occurs because of a lacuna in the law. Scotland's judicial rate of interest has remained at 8% per annum, at a time when inflation has been at a historic low for many years; as has the Bank of England's base rate, which remains at 0.5%.
To give a practical example. GLC has a client who entered into a protected trust deed just over a decade ago with a mix of unsecured loans, credit cards and overdrafts in the sum of £27,321. Our client owns a house in Glasgow South West with equity, has four dependent children and his wife has recently died from cancer. This family now face repossession.
Our client made his monthly payments over the years without fail to the trustee, and was advised by the insolvency firm to enter into this arrangement with a view to re-mortgaging at a later date, however, this was prior to the financial crisis. Just over a decade later and our client owes those creditors a staggering £52,507. We believe this is grossly unfair.
A further additional £14,736 is owed for the fees of the trustees and their solicitors (the overall sum due is £75,474 on a debt of £27,321; and this sum is growing daily).
GLC's Principal Solicitor, Mike Dailly said:
"Any member of the public investing savings in an ISA or savings vehicle would expect to gain interest of 0.5% to 1%. Yet, creditors are entitled to 8% interest on debts which are subject to a protected trust deed or sequestration. We believe this is an unjust windfall, and a lacuna in the law which could easily be rectified by the Scottish Government reducing the judicial rate of interest on debts to a percentage more aligned to the base interest rate by way of a Scottish statutory instrument".
"We would be happy to meet with the Minister for Business, Innovation and Energy and/or his officials to provide further examples, and discuss how this issue could be best addressed to minimise the need for avoidable repossessions, and striking a fair and equitable balance between the interests of creditors and debtors in Scotland".