How to tackle payday lenders: GLC's new Payday Loan Survival Guide

With 90% of the payday lending market failing to comply with consumer protection laws to the severe detriment of vulnerable consumers, Govan Law Centre (GLC) believes there is now an urgent need to help people in the UK fight back against payday lenders.

The payday lending market was recently referred to the Competition Commission, and in 2011/12 there were 8.2m new payday loans made in the UK alone. There is every expectation that this number will continue to rise, and with it the financial exploitation of consumers across Great Britain and Northern Ireland.

GLC has therefore decided to publish a free 'Payday Loan Survival Guide' for consumers across the UK. Our new guide explains how consumers can take back control of their finances, challenge unfair interest and charges, stop payday lenders from emptiying their bank accounts, and pay back debts legally due on a reasonable and affordable basis. The guide has been written by GLC's Principal Solicitor, Mike Dailly.

Govan Law Centre's new Payday Loan Survival Guide is designed for all consumers across the UK in difficulty with payday loans, and can be downloaded here (as a PDF) for free.

Our guide is free. It has been produced without funding, and we will be posting a link where charitable donations to GLC can be made by those who would feel able to help our work in this field.

How to tackle payday lenders: GLC's new Payday Loan Survival Guide

GLC welcomes OFT's referral of the payday lending industry to the Competition Commission

The Office of Fair Trading (OFT) has today referred the UK's payday loan market to the Competition Commission for a market investigation. This will result in extensive evidence being ingathered with the Commission having the ultimate power to radically reform the way the payday lending industry behaves. For example, the Competition Commission's investigation into the selling of Payment Protection Insurance (PPI) resulted in a ban on UK banks from selling PPI alongside loans.

The OFT's own investigation into payday lending last year found that there was widespread consumer detriment and exploitation, an endemic failure for companies to adhere to existing legal rules and protections, with one in four loans not being paid back on time, incurring extra charges for roll-overs, with many consumers being entrapped with spiralling debts.

Govan Law Centre (GLC) welcomes the OFT's Competition Commission referral today but notes that it is not unlikely for the market investigation to take up to two years to reach its final stage, meantime UK consumers will continue to be exploited by usury payday lenders with interest rate charges, such as Wonga's, of 5,853% (APR).

GLC believes much more work needs to be done to tackle the failure of many payday lenders to comply with consumer credit law. In Scotland, the Scottish Government is in a prime position to intervene in this market by enabling credit unions to develop their services by offering accessible and fair 'payday loans', while using public education to warn people of the 'health hazard' of payday lenders. GLC would like to see the new full cost of credit capping power being targeted at this market once it becomes available.

The typical Competition Commission market investigation looks like this:

GLC welcomes OFT's referral of the payday lending industry to the Competition Commission

Farepak: will the insolvency practitioner gravy train ever stop?

Over 100,000 victims of the Farepak Christmas club, which collapsed in 2006, will now receive almost 50 pence in the pound, primarily thanks to a charitable fund (17.5 pence) and a new £8m ex gratia payment from LloydsTSB (19 pence).

The work of the insolvency practitioners, BDO LLP, netted 13 pence in the pound yet their fees and outlays cost 19 pence in the pound; £8.2m - in other words they charged 60 pence to recover 40 pence.

The OFT's market study into this industry uncovered market failure in 2010. Big secured creditors, like banks, were able to exert some control over corporate insolvency practitioners (IP) fees and outlays. Yet, the OFT found in 40% of cases where unsecured small creditors were involved there was little or no oversight of IP fees and charges.

GLC's Mike Dailly speaks to BBC Radio 4's Money Box on the apparent licence that IPs have to print money, with little or no effective regulation from the UK Insolvency Service. In GLC's experience a similar problem exists in relation to IP fees and charges in the personal insolvency market.

GLC would like to see the OFT's recommendations - including an independent complaints body with real legal teeth to review IP fees and charges, and the power to impose fines - implemented.

The Insolvency Service consultation on these issue last year produced major industry opposition for any real change. Hardly surprising, when the present system represents the lightest touch of regulation for one of the most expensive and well paid industries in the world. An industry that frequently costs considerably more than it generates in recovered income.

Farepak: will the insolvency practitioner gravy train ever stop?

Faulty goods? Visit the OFT's new Sale of Goods Act 'hub'

The Office of Fair Trading has developed an comprehensive 'online hub', which brings together up-to-date practical guides and information on UK consumer rights in relation to the purchase of faulty goods.   Although aimed at UK retailers and their staff, the 'hub' provides provides helpful customer guides, and useful materials.  So if you've purchased faulty goods and want to know if you can get a replacement or your money back, this is the site for you.

Faulty goods? Visit the OFT's new Sale of Goods Act 'hub'

Dark day for consumers as OFT drops challenge to unfair charges

THE OFFICE OF FAIR TRADING (OFT) has announced that it is dropping its legal challenge to the fairness of overdraft charges. GLC's Mike Dailly, Principal Solicitor said:

“This is truly a dark day for millions of consumers across the UK. The news that the OFT has dropped it legal challenge to unfair bank charges is quite possibly the worst Christmas gift any statutory regulator could give to hard working families struggling to make ends meet and hoping to get a refund of excessive overdraft charges at some stage".

"Before the OFT raised its unsuccesful test case individual consumers were able to obtain £1 billion pounds in refunds. Since the OFT stepped in, all refunds have been on hold for two and half years. As the OFT has dumped its challenge, the banks will move to strike out 50,000 court cases across the UK; the Financial Ombudsman may move to reject 15,000 complaints, while the banks will move to reject the one million or so customer complaints it has placed on hold over unfair charges. Quite literally it's a consumer disaster".

"We believe the OFT was legally and morally obliged to continue with its challenge. Legally because the Supreme Court advised the OFT in its judgment that the door to challenging the fairness of charges remained open under regulation 5 of the UTCCR (Unfair Terms in Consumer Contract Regulations 1999), and separately because new grounds of challenge under the Consumer Credit Act became available from 2007 onwards. Morally, because consumers were doing very well in obtaining their own refunds before the OFT stepped in, and it's wrong to leave them high and dry now".

"Once you assume the role of the UK's leading consumer champion, you can't have a faint heart. You can't desert the public when the going gets tough, you've got to see things through to the end. If consumers are to be thrown overboard without any life jacket by the OFT, then at least the UK Government's current Financial Services Bill contains provisions for 'class' or 'multi-party' actions. It won't be easy, but it may be possible for consumers to use these new provisions to take on the banks directly".

"In Scotland, there is nothing to stop the Scottish Government fast tracking the introduction of a system for multi-party actions, as recommended by the Scottish Civil Courts Review. At present Scotland does not even have the 'Group Litigation Order' rules available in England since 2000, and unless consumers can come together to pull their resources it will be exceptionally difficult to obtain consumer justice against the banks".

"In Scotland, Govan Law Centre has already started to amend claims to take on board the Supreme Court's decision, and new Consumer Credit Act remedies, and is currently awaiting court dates. The campaign goes on, and we'll be issuing some information on the new legal arguments as soon as possible".

Listen to Mike's discussion on this subject on Radio 4's Today Programme.

Dark day for consumers as OFT drops challenge to unfair charges

OFT to announce whether it will continue bank charges fight

Exchequer Secretary to the Treasury Sarah McCarthy-Fry said this week that the OFT will reveal its decision on whether it will continue its challenge to unfair bank charges, next week, on Tuesday 22 December 2009. See the story on MSE for further details.

OFT to announce whether it will continue bank charges fight

Bank charges update: 'where are we now?'

GLC had instructed a senior team of London barristers with expertise in UK banking law on behalf of Martin Lewis of MoneySavingExpert.com (MSE) with a view to identifying stateable legal routes forward, following the Supreme Court's ruling last month. That initial work is complete. There are two possible ways forward.

First, as the Supreme Court itself noted, it remains open to the OFT (and indeed individual consumers) to challenge the legal fairness of bank charges under regulation 5(1) of the Unfair Terms in Consumer Contract Regulations 1999 (UTCCR). Secondly, some consumers may be able to found upon sections 140A and 140B of the Consumer Credit Act 1974 and argue that the terms of contract which permit their bank to levy charges are an 'unfair relationship'due to excessive cost, among other arguments. The onus of proof under s.140B of the CCA is upon the banks to prove otherwise.

A good summary of these arguments has been posted on MSE here.

No amended template documents have been produced at this stage, because it has become apparent that the best solution in the public interest, is for the OFT to raise fresh proceedings against the banks and take further enforcement action. Why?

There are various reasons, including (a) an estimated 12 million UK consumers have paid bank charges in the past and it is unrealistic, unreasonable and impractical to expect all of them to be able to take personal action to reclaim these charges, (b) if the OFT does not take action, there will be widespread scope for claims management companies and 'claims farmers' who operate in a parasitical, viral way, to make a lot of money (e.g. a 40% take of your award, with upfront costs on top)by exploiting vulnerable members of the public.

And finally,(c)the skill and arguments necessary to present claims in adversarial court proceedings is likely to be beyond most party litigants (we saw this in the Hull strike-out cases, where GLC as part of the UK unfair bank charges legal team had to undertake a huge amount of amendment work, with Mr Raymond Cox QC appearing on our clients behalf, in order to stop 44 cases being struck out - we won, but it was a massive amount of work).

If the OFT did decide to take up the new legal challenge(s), and subsequently won, then consumers would be able to seek a refund without the need to pay anyone at all. Furthermore, if the OFT continued its legal challenge this should prevent one million current claims being rejected. If the OFT ultimately, decide not to take this issue forward then we will need to carefully consider our strategy. The OFT are expected to make a decision in the next few days - so watch this space.

Meantime, in Scotland, GLC has enrolled applications to recall sists (stays) in bank charges cases with a view to obtaining compensation for some of our clients in the South West of Glasgow. This is a completely free service, as we are charitable, community law centre. At this stage, we cannot offer this service to non-existing clients or clients outwith the South of Glasgow given resource implications, and the fact a large proportion of our resources are currently dedicated to preventing homelessness, defending eviction and repossession cases across Scotland.

However, we will report on any progress that we can make, with a view to helping consumers strategically in Scotland and in the UK generally.

Bank charges update: 'where are we now?'

'Constitutional rights crisis' for UK consumers?

If the Supreme Court upholds the banks' appeal tomorrow it would be an obvious disaster for the rights of UK consumers; but if the appeal is rejected, don't hold your breath as the banks look set to keep on charging while they keep on fighting the Office of Fair Trading (OFT).

Where does this leave ordinary citizens who have been ripped off by unfair and excessive bank charges? Tens of thousands of court actions for bank charge refunds in the English and Scottish legal systems have been 'sisted' (‘stayed’ in England) since the OFT's test case commenced in July 2007.

The British Bankers Association (BBA) is already playing down the significance of an OFT win before the UK Supreme Court, and there is every likelihood that the banks will continue to fight on, whether by pursuing an appeal before the European Court of Justice, or by defending the case on the facts before the High Court in London.

Govan Law Centre (GLC) believes if the OFT wins tomorrow, there is a danger of a ‘constitutional rights’ crisis if tens of thousands of consumer claims remain frozen.

GLC's Mike Dailly said: “It’s a well established rule of law that UK citizens have a constitutional right of unimpeded access to the courts in England and Scotland. Yet tens of thousands of consumers have now had those rights suspended for two and half years”.

“If the court rejects the banks’ appeal, not only does this mean the OFT can assess the fairness of charges, but crucially it means any consumer is now entitled to ask the court to assess the fairness of their overdraft fees”.

“To put it another way, if the Unfair Terms in Consumer Contract Regulations apply to overdraft fees, there is no longer any question of law in dispute, and the reason for freezing claims disappears. Administrative convenience to the banks can be no justification for denying the British public access to the courts”

“Similarly there would be no need for the FSA to continue its waiver on bank charge complaints which expires in January. If the Supreme Court rejects the banks’ appeal, Govan Law Centre will try and re-active bank charges claims in Scotland as a matter of constitutional and human rights law, and we will work with other bank charge campaigners to do likewise across the UK”.

In IR v Lord Chancellor ex p Witham [1998] QB 575 the court held that the no-one can “abrogate the right of access to justice, unless it is specifically so permitted by Parliament”. This principle has been followed in numerous cases including R v Home Secretary ex p Leech (No 2) [1994] QB 198, and Watkins v. Secretary of State for the Home Department and others [2004] EWCA (Civ) 966.

Tomorrow’s judgment from the Supreme Court will remove the reason why bank charges claims were frozen. The only question left in bank charge cases is essentially one of ‘individual fact and circumstance’. Local county courts in England, and sheriff courts in Scotland, are well placed to assess factual disputes, given that the applicable law will have been settled by the Supreme Court.

Any further attempt to deny consumers the right to proceed with their claims will, in Govan Law Centre’s opinion, be unconstitutional, and separately, contrary to Article 6 of the Human Rights Act 1998 (which guarantees individuals the right to have their civil rights determined by an impartial tribunal within a reasonable period of time).

'Constitutional rights crisis' for UK consumers?

Banks face D-Day over unfair charges

The epic fight between the Office of Fair Trading (OFT) and Abbey, Barclays, Clydesdale, HBOS, HSBC, Lloyds, Nationwide BS and RBS/NatWest will finally come to a head on Wednesday. The newly formed UK Supreme Court will decide then on the appeal brought by the bankers against earlier rulings that their overdraft charges can be assessed by the OFT for fairness. For a full analysis see the article in The Independent on Sunday.

Banks face D-Day over unfair charges