Ombudsman writes £100,000 off on 'irresponsible' loan secured on Glasgow couple's home

A Glasgow couple who borrowed £20,000 on a APR of 16.2% over 40 years - at a whopping total cost of almost £124,000 - have been successful in arguing that their lender failed to undertake a proper affordability check, had overridden its own lending criteria, and irresponsibly sold an unaffordable product to the couple, which was secured on their home.

The couple, respresented by Govan Law Centre, could not pursue a claim against their independent financial advisor (IFA) firm, which had since folded, and the lender sought to hold the IFA responsible for any failing. The Ombudsman held that 'I did not consider that White Label had properly assessed how the loan would be affordable so far into Mr and Mrs C's retirement'. The Ombudsman ordered the lender to release the couple from the current loan agreement, effectively writing-off £100,000 in terms of the secured loan agreement.

The couple's solicitor, GLC's Mike Dailly said: "This is a fantastic result for our clients who would have otherwise been looking at repossession. It raises two important principles; first, that a lender is ultimately responsible for their own product and cannot always avoid liability by pointing to a third party financial advisor who sold their product as an intermediary, and secondly, a lender has to adhere to its own lending criteria and make sufficient enquiries to assess affordability".

The Ombudsman's Final Decision is here.

Ombudsman writes £100,000 off on 'irresponsible' loan secured on Glasgow couple's home

Glasgow mortgage repossession action dismissed for failing to comply with Consumer Credit Act

A sheriff at Glasgow Sheriff Court has dismissed a mortgage repossession action concerning two 'second charge' secured loans for failing to comply with sections 87-88 of the Consumer Credit Act 1974 (CCA) and the Consumer Credit (Enforcement, Default and Termination Notices) Regulations 1983 as amended.

In the case of Citifinancial Europe plc v. Rice, Sheriff Deutsch pronounced a judgment which found that the section 87 default notice served under the CCA was defective and incompetent  because it failed to properly identify the loan agreements, the parties to the agreements, and failed to provide clear specification of the matters complained of.

The court distinguished the present case from American Express v. Brandon, where a defect in a default notice was overlooked as de minimus and non-prejudicial. While such arguments were possible in Sheriff Deutsch's opinion, in the present case the errors were 'fundamental' and the action for possession fell to be dismissed.

The pursuers were represented by Aberdein Considine & Co., Solicitors (Gordon), while the defender was represented by Govan Law Centre (Dailly).

Glasgow mortgage repossession action dismissed for failing to comply with Consumer Credit Act

Are UK payday lenders breaching EU irresponsible lending rules?

Are UK payday lenders breaching EU rules on irresponsible lending and if so what does this mean for consumers?  Govan Law Centre publishes a brief thought paper by Mike Dailly examining the 2010 Consumer Credit (EU Directive) Regulations introduction of section 55A and 55B to the Consumer Credit Act 1974. 

GLC and our partners have seen increasing examples of how the need for small, short term loans are being ruthlessly exploited by payday lenders to the detriment of our clients and communities. Households have become entrapped in impossible cycles of indebtedness with monthly default, roll over and eye watering usury interest rate charges.

Often the result of such expensive indebtedness is enforced poverty, personal hardship and threatened homelessness as clients cannot pay their rent or mortgage or buy household groceries as payday lenders hoover money and charges from their bank accounts each month. GLC believes this is unfair, unethical, and against the public interest.

GLC is in the process of actively challenging the right of payday lenders to recover their fees and charges on behalf of our clients and will share any developments in due course.  

Are UK payday lenders breaching EU irresponsible lending rules?

GLC rings alarm over growing mis-selling of consumer credit products across the UK

With around £9bn of Payment Protection Insurance (PPI) mis-sold to UK consumers the issue of the mis-selling of financial products is big consumer news; yet the potential for the mis-selling of consumer credit products - particulary pay day loans and second charge mortgages regulated under the Consumer Credit Act - is relatively new and unchartered waters.

Govan Law Centre believes alarm bells should be ringing over the growing potential for mass mis-selling in the UK consumer credit market, with the growth of aggressive pay day lending and the ongoing mis-selling of expensive home secured loans. Changes introduced by the 2006 Consumer Credit Act have opened new gateways for consumer redress in law and through the independent Financial Ombudsman Service.

GLC todays publishes a 'think piece' paper which discusses the scope and possibility for consumer redress in relation to mis-sold and unfair consumer credit products in the UK. The paper is available here. Thoughts and comments are welcome and can be made below.

GLC rings alarm over growing mis-selling of consumer credit products across the UK

GLC secure unsecured loan write-off using CCA

In RBS plc v. Ahmed, a creditor sought to recover payment under a unsecured loan agreement for a sum just under £2,500, together with its legal expenses, which would have been on the undefended summary cause scale, at Glasgow Sheriff Court.

GLC had defended the action upon the basis the statement of claim was lacking in specification, and was irrelevant on a number of grounds, including failing to indicate whether a default notice under section 87 of the Consumer Credit Act 1974 (CCA) had been properly served prior to proceedings being raised.

RBS agreed to dismiss the action with expenses at 10% of the sum sued in favour of the defender, together with an undertaking to write off the debt under the loan agreement. The case serves to illustrate the importance of advisers always checking court documents for payment, as opposed to taking the debt and charges as stated as being necessarily due at the level claimed, or being lawfully due.

GLC secure unsecured loan write-off using CCA

UK consumers should use statutory rights to reduce interest on credit agreements

Financially vulnerable consumers across the UK taken to court for defaulting on high interest credit - including 'second charge' mortgages - are unaware of powerful statutory rights which can help, according to Glasgow's Govan Law Centre. 

Section 136 of the Consumer Credit Act 1974 (CCA) permits the court to amend 'any agreement or security' in making a time order under section 129 of the Act as it considers just, having regard to the means of the debtor.  That includes the right to ask the court to reduce the rate of interest within a consumer credit agreement.

Most consumers are completely unaware of these statutory rights, which are seldom used, which have the scope to help make unmanageable, spiralling debts, manageable and affordable. Govan Law Centre's Mike Dailly said:

"The reason we believe section 136 of the Consumer Credit Act is so important right now is because of the disparity between interest rates in inter-bank lending and the wholesale market, and what UK consumers are being charged in many credit agreements. The Bank of England's base interest rate is 0.5% and the standard variable rates of most UK banks are around 2.5% at present. Yet many consumers will have second mortgages (regulated under the CCA) with interest running at 11 or 12%, or unsecured loan and credit agreements running at 18 to 30% APR".

"To give a typical example, a client facing repossession through default of a second charge mortgage borrowed £96k at 11.2% APR, resulting in monthly interest payments of £873. The client is eligble for some DWP help with housing costs while in receipt of benefits, but there is a major shortfall. If her rate of interest was 2.5% the differential in monthly payments would be a whopping £674 per month. Accordingly, consumers in financial difficulty should be asking the court to reduce or freeze the rate of interest on credit agreements to a fairer level so they can meet their financial obligations".

Consumers can make an application under sections 129 and 136 on the 'time to pay' form that comes with court papers, or as part of any legal defence to proceedings raised by a creditor. Always obtain independent legal advice from a community law centre or other local advice agency or firm of solicitors.

UK consumers should use statutory rights to reduce interest on credit agreements

Time to tackle shark practices of debt companies and their Scottish solicitors says GLC

Govan Law Centre (GLC) is concerned that the OFT's Debt Collection Guidance is being routinely ignored in Scotland not only by UK debt purchasing companies but more worryingly by certain firms of Scottish solicitors who undertake debt collection as one of the primary activities of business. 

Besides causing unnecessary human misery, unfair, oppressive, and disproportionate business practices are resulting in vulnerable Scottish homeowners being threatened with homelessness as creditors use inhibitions for tiny debts. The practice results in creditors being able to scupper Scottish Government mortgage to rent transactions, where families facing homelessness can have their house purchased by a social landlord. 

Although, the OFT expects solicitors firms who undertake debt collection work as one of their primary activities of business to obtain a 'Category F' consumer credit licence, most Scottish debt collection firms of solicitors operate under the Law Society of Scotland's 'group consumer credit licence'.  GLC believes this results in a lack of effective regulation of Scottish law firms undertaking debt collection work because the Law Society of Scotland does not specifically regulate such work, and therefore, this work appears to be largely unregulated in practice.

GLC's Mike Dailly said:

"To give an illustration of the problem, we have a case in Glasgow where it has taken us many months to defend a repossession action and broker a complex mortgage to rent transaction, which is now being thwarted by a Scottish firm of solicitors acting on behalf of an English debt purchasing company for a debt of £810.  Last month the company was prepared to accept repayment at £5 per week, but since obtaining an inhibition it wants all of the money as a lump sum".

"Our client is on incapacity benefit and has offered £100 plus £5 per week but the company's solicitors advise their client says no. We believe this Scottish law firm and company have engaged in aggressive, oppressive, and unfair practices contrary to the OFT's expected standards for consumer debt recovery, and contrary to section 25 of the 1974 Consumer Credit Act".

"Govan Law Centre is considering all legal remedies available to our clients against such companies and their Scottish solicitors - including where appropriate 'naming and shaming' - however, it is quite clear there is a major regulatory role here for the Law Society of Scotland which needs to be addressed, a need for the OFT to intervene, and ultimately a pressing need for the Scottish Government to review the ability of their own Mortgage to Rent scheme to be de-railed by unsecured creditors with relatively tiny debts through the inappropriate use of inhibitions".

Time to tackle shark practices of debt companies and their Scottish solicitors says GLC

Update: unfair bank charges on BBC 1's Rip-off Britain

Unfair bank charges, including clients of Govan Law Centre, were featured on BBC 1's Rip-off Britain at 9.15am on Monday, 29 November 2010.

Sadly, the programme decided to take a soft approach and focus on peripheral issues around charges (e.g. communication concerns) as opposed to the tough question of whether the UK bank charging model was unfair in law, whether it was morally acceptable to exploit vulnerable consumers to subsidise better off customers,  as well as overlooking the plight of thousands of UK consumers still trying to seek refunds of unfair charges.

Update: unfair bank charges on BBC 1's Rip-off Britain

Bank overdraft charges face new legal attack

From the BBC's UK business news: A law centre in Scotland has revived the UK legal campaign against bank overdraft charges. In November, the Supreme Court ruled that the scale of bank charges could not be challenged as unfair under consumer contract rules. But a client of the Govan Law Centre has won the right to challenge the Bank of Scotland's overdraft charges under the Consumer Credit Act. The bank will now have to demonstrate that its charges are not excessive. Read the full story here.

Bank overdraft charges face new legal attack

Sheriff puts Bank of Scotland to proof on bank charges

- Onus of proof now on Scottish bank to show charges were not excessive

THE BANK OF SCOTLAND has failed in its attempt to prevent a customer amending her claim for unfair bank charges, recalling the sist, and fixing a full evidential hearing at Glasgow Sheriff Court this morning (Friday, 19 February 2010).

UK banks have been telling over one million of their customers in the UK that they now had no legal basis to reclaim unfair charges in light of last November's Supreme Court ruling. However, the Supreme Court itself had suggested that charges could still be challenged under different legal grounds, and Govan Law Centre (GLC) had sought to amend their client's claim to incorporate a revised 'regulation 5' case under the Unfair Terms in Consumer Contract Regulations 1999 (UTCCR), and significantly, an additional claim under the new section 140A of the Consumer Credit Act (CCA, as amended in April 2007).

Counsel for the bank, instructed by Dundas and Wilson CS LLP, had objected strongly to the pursuer's substantial amendments, arguing it would be 'improper' to allow the customer to amend her claim in this way. GLC's Mike Dailly, representing the customer, explained to the court that it was necessary to amend the claim in order to take on board legal developments, and although consumers could no longer attack charges as 'excessive in price' under the UTCCR, they could do so under the s.140A of the CCA. The ability to do so was hugely significant, as was the fact the onus of proof to show charges were not excessive was on the bank under the CCA.

In Sharp v. Bank of Scotland plc, Sheriff Baird, a senior sheriff at Glasgow Sheriff Court, rejected the submissions for the defenders, and granted the pursuer's application to substantially amend her Statement of Claim and Crave, recalled the sist, and fixed a full evidential hearing (know as a 'proof' in Scotland) for 11th June 2010.

Mike Dailly, Principal Solicitor at Govan Law Centre said:

"Over the last few weeks, UK banks have been telling one million customers that there were now no grounds to reclaim bank charges, standing November's Supreme Court's decision. Of course, the Supreme Court itself had explained that charges could still be challenged under different legal grounds, and that is what Sheriff Baird has permitted our client to do today at Glasgow Sheriff Court".

"But besides a challenge under reg. 5 of the UTCCR, the Bank of Scotland now faces a fresh challenge that charges were excessive and unfair under the Consumer Credit Act. That is a potentially devastating case for them to answer, because under this new law the onus of proof is on the bank to show that charges were fair. Given that our banks have admitted they subsidise 'free-if-in-credit banking' by squeezing more money out their poorest customers through bank charges, they will now have to defend the indefensible. And, they will have the added problem that we are asking the court to prohibit them from imposing future charges under the CCA".

"In a nutshell, our new arguments are hugely more powerful than the ones deployed by the OFT in their unsuccessful test case. Evidentially, the new arguments require the bank to prove their charges were fair - which is tactically significant for consumers. The new arguments not only enable consumers to seek a refund of past charges, but entitle them to ask the court to prohibit future bank charges. That is hugely significant, and in many respects, we believe the new bank charges campaign is going to be a tougher propsect for the banks than the pre-July 2007 campaign. And of course that previous campaign saw refunds in excess of £1bn for consumers across the UK - so we are incredibly optimistic".

Sheriff puts Bank of Scotland to proof on bank charges