Friday 23 June 2017

How we can make Scots law more fair for consumers

This article first appeared as a column in the Sunday Herald on 18 June 2017.  Here GLC's Mike Dailly explains how we can make Scots law more fair for consumers.

It goes without saying that any good legal system should treat everyone equally. But what happens when it’s stacked in favour of a particular group of people? This can happen by accident as opposed to unfair design.

Scotland’s legal system has a number of injustices that seriously disadvantage consumers. These would be easy to fix in a Scottish Government Bill, especially as the Government in Scotland has already been reviewing ‘diligence’ – the process of enforcing debts.

Here are just a few that are in need of fixing. Getting on the rung of the homeowner ladder is elusive for most people these days. In practice young people or students starting-out will generally look to rent in the private rented sector.

It’s not unusual for landlords to look for a ‘guarantor’ – usually Mum or Dad, who is asked to sign a separate agreement guaranteeing any defaults by their tenant son or daughter. Sounds reasonable, but these guarantee agreements generally have a clause allowing the landlord to ‘register them for execution’. This means they can claim any sum without having to prove the debt in court.

In practice this is misused. I dealt with a case recently where the landlord had registered the guarantee agreement in the ‘Books of Council and Session’ in Edinburgh, claiming thousands in rent and damages to the flat. It was nonsense, but registration allows the landlord to obtain the equivalent of a court order.

This is clearly unfair. It’s completely one-sided, with no opportunity for you to challenge what could be an entirely fictitious claim. The first you might know about anything is when sheriff officers knock on your door.

In theory this could lead to you being made bankrupt, or worse still threaten the loss of the roof over your own head. In the case I was involved in, a court action had to be raised to interdict the use of the registered agreement, and ask a judge to reduce or cancel it. But the point is no private creditor should be able to get the equivalent of a court order on nothing more than their own say so.

This doesn’t only occur with guarantee agreements, it can happen to any homeowner in Scotland who has a dispute with their factor or neighbour. Under the 2004 Tenements (Scotland) Act, a property manager or neighbour in a tenement can register a ‘Notice of Potential Liability’ of a debt in the Land Register.

There is no need to prove the debt. The fact it’s registered against your title deeds means it is unlikely you will be able to sell your home without paying it. This system is open to abuse without any requirement for independent scrutiny. It was only three years ago the Scottish Government got round to introducing a form for the notice to be removed.

One of the most ubiquitous forms of injustice can occur with council tax disputes. You may be entitled to a single person discount, or council tax benefit, or perhaps the figure has just been miscalculated. Disagreements over council tax can hang around someone’s neck like an albatross.

Your local authority will often simply proceed to send what they think is your bill, together with a 10% surcharge to the sheriff court, who will issue a ‘summary warrant’. This is like a court decree. Since April 2008, you can now apply to the court for time to pay if you accept the debt.

But if the figure is wrong, technically you have a right to apply to the local Valuation Appeal Committee. Most people aren’t aware of this route, although even if they are it’s not fast, and doesn’t help if your council has passed the warrant to sheriff officers who are threatening various forms of recovery.

Local authorities in Scotland are also the worst offenders for making people bankrupt for arrears of three thousand pounds or more – even if they are disputed. Once bankrupt, with legal and trustee fees, plus 8% statutory interest, a debt of £3,000 can mushroom into £15,000 to £20,000. This isn’t in the public interest, especially, if the original debt was wrong.

A final example of an area of law in need of reform must be the Scottish Government’s Debt Arrangement Scheme. It was designed to enable people in financial difficulties to obtain respite to make payments to their creditors in a manageable way.

In practice, people who use the Scheme end up paying back 100% of their debts over 7 to 8 years. Once discharged from the Scheme their credit rating may be affected for up to six years. Contrast this with trust deeds, which you can access from private firms. You can pay back as little as 10% of your debts over four years.

Why do we have a public scheme that offers no real incentive to Scottish consumers, giving them an impaired credit rating that could last as long as 14 years? The balance is wrong. There is an easy fix these problems. It just takes the will to do it.


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