Thursday 28 January 2010

High street solicitors fear annihilation by ‘Tesco law’ giants

The Times reports today that hundreds of small independent solicitors across Scotland could be forced out of business after four of the biggest law firms in the country voted through reforms that will enable supermarkets and banks to provide cut-price legal advice on services such as house purchases and small claims.

Yesterday, opponents of the reforms, including the Scottish Law Agents Society, which represents independent firms, and the Faculty of Procurators of Dumfriesshire, expressed anger at the scope of the new measures, which they said would introduce a “Tesco Law,” and change the face of the high street.

GLC's Principal Solicitor accused the bigger practices of “railroading” the changes through the Law Society of Scotland. Mike said: “This was the senior partners in the big firms who wanted to protect their vested interest. The rest of us were asleep. There are thousands of solicitors in Scotland — the difficulty has been in conveying to the profession how significant a change this is.”

Critics fear that the vote will threaten the independence of solicitors and inhibit the constitutional right of the consumer to access justice. The full story in available on the TimesOnline.

Monday 25 January 2010

GLC discussion paper: we want your thoughts & help on pre-paid card charges

GLC would welcome your thoughts and comments on the undernoted 'discussion paper' on pre-paid card charges deducted from customers in sole receipt of social security benefit. You can use the 'comment' section below; or e-mail us with a potential public interest case; see further below.

Discussion paper: the legality of certain ‘pre-paid card’ charges deducted from social security benefits

Some ‘pre-paid cards’ appear to have been targeted at people on social security benefits[1]. Some cards charge a minimum £1.25 fee for each direct credit transfer (DCT) of benefit onto the card, and a minimum £1.25 fee for each cash withdrawal[2].

As benefits are alimentary in nature – in other words welfare payments designed to enable day-to-day life essentials to be purchased – people in receipt of benefit can ill afford to pay such charges for financial services. One question that arises is whether pre-paid card DCT charges or pre-paid card ATM withdrawal charges (‘the charges’) are lawful?

In general, social security benefits (which includes tax credits) are inalienable under social security law, and are not subject to assignation or charge (‘charge’ includes an arrestment[3]). Authority for this proposition comes from section 187 of the Social Security Administration Act 1992 and section 45 of the Tax Credits Act 2002. For example, section 187 of the 1992 Act provides:

187 Certain benefit to be inalienable

(1) Subject to the provisions of this Act, every assignment of or charge on—

(a) benefit as defined in section 122 of the Contributions and Benefits Act;

(b) any income-related benefit; or

(c) child benefit,

and every agreement to assign or charge such benefit shall be void; and, on the bankruptcy of a beneficiary, such benefit shall not pass to any trustee or other person acting on behalf of his creditors.

(2) In the application of subsection (1) above to Scotland—

(a) the reference to assignment of benefit shall be read as a reference to assignation, “assign” being construed accordingly;
For the purposes of this brief discussion paper, we are interested in the contractual nature of the charges under Scots law. Might it be argued that the requirement to pay the charges (importantly, we are only focused on the specific charges mentioned in the first paragraph of this note) is truly a form of assignation between the claimant and the pre-paid card company? Not least because of the mandatory, automatic and cyclical nature of the arrangement.

Traditionally in Scots law, assignation was a form of mandate[4]. If we take the following example: a benefit claimant (‘X’) is due to be paid by the DWP (‘Y’). If X instructs Y to make a payment to Z (a third party), Professor McBryde observes that such an instruction could be an assignation[5]. It will depend on whether the payment is in Z’s favour i.e. whether you are transferring a right, or part of a right, to a third party.

When benefits are paid into a basic bank account or Post Office Card Account (POCA) there is no payment in the third party’s favour. Instead, 100% of the funds are held on deposit on the customers behalf. But consider the position with some pre-paid cards?

When benefit is loaded onto some pre-paid cards, there is an automatic and mandatory alienation of some of the benefit, and therefore not all of the funds are held on the customer’s behalf; and each time the customer wishes to take out cash there will be an automatic deduction of some of the benefit (by the pre-paid card provider) before the cash is issued. These alienations cannot be evaded, and are a core term of the contractual agreement between the parties.

In other words, whenever benefit is loaded onto some pre-paid cards, it is fair to say that some of that benefit stands to be automatically paid over to the card provider, and some will be deducted if the customer wants to take out cash. It may be argued that this fixed arrangement is truly an assignation insofar as a portion of the benefit which is held on deposit is always alienated.

In entering into a contract and signing a ‘DP GEN’ form in favour of the pre-paid card company, the claimant is assigning – or transferring - a fixed proportion of his or her benefits to that company on a cyclical basis. There is no discretion per se. If that is so, then the contractual provisions as regards these charges could fall to be held as void by a court under s.187 of the 1992 Act, or the equivalent provision under section 45 of the 2002 Act.

Govan Law Centre would be very interested to test out these arguments before the court. If you are aware of someone who has been asked to pay such charges from social security benefits in Glasgow on a pre-paid card, please get in touch with Mike Dailly on


[1] Some cards impose charges of 2.95% of the transaction, capped at £2.50 per transaction.

[2] For example: This is in additional to any charge that an ATM provider may require.

[3] North Lanarkshire Council v Crossan 2007 SLT (Sh Ct) 169

[4] Para 12-72, The Law of Contract in Scotland, Professor McBryde (2nd edn).

[5] At para 12-11, McBryde (2nd edn).

Saturday 23 January 2010

Concern over 'pre-paid card' fees

A leaked document obtained by the BBC has revealed concerns from the Department of Works and Pensions (DWP) in Scotland that some 'pre-paid card' companies are targeting benefit claimants.

In Central Scotland, the Clyde and Fife Benefits Delivery Centre received 100 requests from claimants asking for their benefits to be paid onto 'pre-paid cards', despite the fact most claimants were unaware of the high level of administrative charges and fees associated with these cards.

It is understood that companies use stalls in local shopping centres, and have been successful in recruiting customers in, for example, Easterhouse and Castlemilk in Glasgow. An example of these products is the 'Go Card'. It costs £10 to buy and a £7.50 annual management fee is charged after the first month. It costs a minimum of £1.25 and a maximum of £2.50 to have each benefit loaded on to the card and the same charges apply for each cash withdrawal.

GLC's Mike Dailly said:
"Pre-paid cards are wholly unsuitable for anyone on benefits or a low income. They come with a whole host of fees and charges and there is nothing that such products offer which cannot be bettered by a basic bank account or post office account. For example, there are at least eleven basic bank accounts which offer debit card facilities to enable online purchases - all without ATM withdrawal or load-on charges. And basic bank accounts are available to those with a bad credit rating".

"Benefits are designed to provide a 'breadline' standard of living and therefore for anyone to seek to financially target or profit from people living in poverty is disturbing and morally reprehensible. If the rules needs to be changed to prevent the DWP paying benefits to pre-paid cards then the sooner the better as far as Govan Law Centre is concerned".

Listen to Mike discuss this issue with Paul Lewis on BBC Radio 4's MoneyBox. Further dicussion of this issue is available on the BBC's Business pages here. If you need help on basic bank accounts, take a look at the FSA's Money Made Clear leaflet on the range of basic bank accounts available in the UK (opens as a PDF).

Friday 22 January 2010

Call for solicitors to back Scottish Law Agents Society's stance on ABS

Govan Law Centre is calling on all Scottish solicitors to back the Scottish Law Agents Society's proposal to call a Special General Meeting of the Law Society of Scotland to address the significant consumer detriment that is presented by the 'Alternative Business Structures' provisions (ABS)within the Legal Services (Scotland) Bill.

GLC's Mike Dailly said: "It is understood that the Law Society's support for ABS and the Bill was largely the product of Scotland's four big firms procuring mandates in support of ABS from their own solicitors. There is nothing wrong in marshalling support, but it's hardly representative. Furthermore, when support equates to pecuniary self-interest its public interest value is almost meaningless".

"Everyone knows that ABS is an English law solution to an English law problem. In Scotland, it means a few very large legal firms getting together with chartered accountants and bankers, to the benefit of a tiny handful of people. And those people aren't consumers. The independence and integrity of the legal profession is at stake here, as is access to justice and the public interest".

"There is no empirical evidence of the need for ABS in Scotland. What evidence there is points to Scottish consumers losing choice, and access to independent legal advice. While most Scottish solicitors are busy coping with casework demands, we all need to make an effort to support the SLAS. I would ask colleagues to downloadthe SLAS proxy form and back the call for a proper discussion of what the Legal Services (Scotland) Bill means for Scottish consumers and our profession".

Further background information is available on the SLAS site here. Read Mike's blog on this issue on The Firm.

Final Bill proposal published for Property Factors (Scotland) Bill

The final proposal for a Bill which would introduce enforceable statutory 'minimum standards' for property managers in Scotland, and provide for an inexpensive dispute resolution process, has been published today by Patricia Ferguson MSP. Govan Law Centre has long since campaigned for progressive law reform in this area, and we've agreed to draft the Bill and accompanying documents in the public interest.

In order to introduce the proposed Bill it is necessary to gain support from at least 18 MSPs, drawn from half of the parties or groups represented on the Bureau (which in this Parliamentary session means at least two of the four main political parties represented in the Parliament), within one month from today. An extract from today's Parliamentary Business Bulletin is reproduced below.

Patricia Ferguson: Proposed Property Factors (Scotland) Bill - Proposal for a Bill to create a system of registration for property factors, to provide for dispute resolution between homeowners and property factors and to make consequential amendments to the law on real burdens and the Tenements (Scotland) Act 2004 (lodged 21 January 2010).

A summary of responses to consultation on the draft proposal together with copies of each response are available in the Scottish Parliament Information Centre (SPICe).

Supported by: Mary Mulligan*, Cathy Jamieson*, Pauline McNeill*, Margaret Curran*, Paul Martin*, Michael McMahon*, Richard Baker*, David Stewart*, James Kelly*, Des McNulty*, Duncan McNeil*, Hugh Henry*, Elaine Smith*, Marlyn Glen*, Rhoda Grant*, Claire Baker*, Patrick Harvie*, Bill Butler*, Helen Eadie*, Malcolm Chisholm*

Monday 11 January 2010

Unfair bank charges: free help to amend existing complaint letters

What's this about?
Over the last two and half years complaints about unfair bank charges had been placed 'on hold' by UK banks and the Financial Ombudsman Service (FOS). This was because the UK's financial regulator - the Financial Services Authority (FSA) - had granted a waiver, which resulted in all complaints being frozen pending the outcome of the OFT's bank charges test case.

That waiver was lifted by the FSA after the OFT lost its test case before the UK Supreme Court. Most banks will now tell you that because they won they will not be refunding any bank charges, and that this issue is now closed. For example RBS is now writing to customers advising "we do not believe that there is any other legal basis on which the level of these charges can be challenged". It's untrue and incorrect to suggest that bank charges are 'fair' or cannot be challenged. The OFT lost on an extremely narrow technical point, and a consensus remains that bank charges are legally unfair and excessive.

Importantly, the UK Supreme Court was careful to explain that its judgment did “not resolve the myriad cases that are currently stayed in which customers have challenged Relevant Charges”. In particular, the court made it clear that “it remained open to question whether bank charges were fair” in relation to regulation 5(1) of the Unfair Terms in Consumer Contract Regulations.

What should I do now?
If you have an existing complaint with your bank or the FOS, it is likely this will be rejected unless you AMEND your grounds of complaint, to take on board the impact of recent developments, and explain why you are still entitled to a refund of unfair bank charges. There is no need to pay for anyone to help you do this - you can do this yourself, or with the free help or support of a community law centre solicitor, money advice agency or Citizens Advice Bureaux. Details of where to locate free help is set out below.

GLC has drafted the following downloadable example letters for use within the UK:

(1) Letter to bank with amended grounds of complaint:
| Word document link | htm link |

(2) Letter to the Financial Services Ombudsman with amended grounds of complaint:
| Word document link | htm link |

Use the following links to locate free help from a local advice agency in the following locations: glasgow; scotland; england & wales; northern ireland; ireland

It is understood (see the comment thread below) that the FOS has written to some people who have sought to amend their complaints, advising them that it is necessary to first put these 'new' grounds of complaints to the bank. This would effectively mean starting the complaint all over again. A suggested letter explaining why the 'amendments' are not 'new grounds' is here:

(3) Letter to FOS requesting a determination of the original complaint (as amended):
| Word document link | htm link |

There is no guarantee of success, however, we are encouraging UK consumers to insist upon their right to pursue a complaint with their bank and the FOS. If you are successful in obtaining a refund please let us know, by posting a comment will be producing free updated guidance on how to reclaim unfair bank charges in the next week or so, so please sign up to the free MSE e-mail alert, for further details.