GLC calls for Scottish Government to deploy its powers to mitigate the scourge of payday lending in Scotland

GLC has prepared a Scottish Parliamentary briefing for all MSPs in advance of this afternoon's debate on payday lending in Scotland ('Cost of Living' debate). Our briefing is available here as a PDF.  We believe that the UK payday loan market is predatory, usury, dysfunctional and immoral. 

In our briefing we address the powers that the new Financial Conduct Authority will have, which we think will be central to tackling the undisputed serious consumer detriment caused by payday lending in the UK.  However, the Scottish Government and Scottish Parliament have a number of powerful levers at their disposal which we believe are equally central to tackling the scourge of payday lending in Scotland. 

GLC has made the following recommendations to improve consumer protection against payday lending in Scotland: 

> Investment in Scottish credit unions to enable them to offer equivalent products to ‘payday loans’ on a fair and affordable rate of interest.  HM Treasury is currently consulting on raising the 2% per month interest cap on credit unions, and we support an increase to enable credit unions to offer a fairer alternative to payday loans in Scotland.[1]

> Improving our debt relief remedies so that Scots entrapped in a cycle of dysfunctional payday loan interest and charges can be untangled swiftly and fairly – Govan Law Centre has proposed a Fast Track or enhanced Debt Arrangement Scheme for this purpose.[2]  This could be done quickly by Scottish statutory instrument under existing legislative powers.

> Education is a key part of the solution, and we believe the Scottish Government should deploy resources to mount an educational campaign to help Scots avoid the pitfalls of payday loans. Such a campaign could be tied in to awareness raising of alternative forms of short-term credit (e.g. through credit union products) and the availability of enhanced forms of debt relief.

 > We would conclude by noting that if no action is taken on these issues in Scotland, then the consumer detriment caused by payday loans will escalate from April 2013 with the introduction of the bedroom tax.  Scottish tenants faced with eviction from the effect of UK Government under-occupancy charges to housing benefit will turn to payday loans, which will exacerbate their problems.  Govan Law Centre has advocated a ‘no eviction for bedroom tax arrears’policy, with bedroom tax arrears being treated as an ordinary debt. This could be achieved by a minor amendment to the Housing (Scotland) Act 2001.[3]

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[1] http://www.hm-treasury.gov.uk/consult_creditunion_cap.htm

[2] http://govanlc.blogspot.co.uk/2012/09/new-fast-track-debt-arrangement-scheme.html

[3] http://govanlc.blogspot.co.uk/2012/11/cross-party-agreement-to-consider-no.html

 

Scotland lags behind the rest of the UK in protecting consumers against claims management companies

The Claims Management Regulation Unit shut down 209 claims management companies (CMCs) in England and Wales between April and November in 2012. Three more rogue firms were suspended and a further 140 were warned. 

The unit, which is part of the Ministry of Justice (MoJ) for England and Wales, is also working with the UK's data watchdog to tackle firms who break the law with unsolicited calls and texts. The MoJ has now shut down over 900 CMCs over the last five years, meanwhile CMCs operating in Scotland remain wholly unregulated and free to rip-off Scottish consumers with impunity.

GLC's Principal Solicitor, Mike Dailly said: "Scotland is now seriously lagging behind the rest of the UK when it comes to protecting consumers from the rogue practices of claims management companies. CMCs have a licence to do as they please in Scotland, with no regulation, minimum standards or consumer friendly rights of redress. In short, CMCs can rip off Scottish customers without fear of any sanction. It is troubling indeed that the Justice Secretary in Scotland does not feel it important to give Scottish consumers the same quality of protection that exists in England and Wales".

CMCs frequently engage in high pressured cold-calling or texting, taking up-front fees from customers through credit and debit card payments over the phone. This year CMCs in England and Wales will be obliged to provide written contract in advance of taking fees, with the Legal Ombudsman being empowered to regulate complaints and award compensation where appropriate. 

Claims firm advertise widely on TV, newspapers and the internet and are not solely concerned with PPI (payment protection insurance claims), for example they encourage people to sue for personal injury compensation, and for other losses. Some firms also use improper cold-calling, by phone or text, to procure clients.

Time to protect Scottish consumers against CMCs

Govan Law Centre welcomes news of additional consumer protection for customers of Claims Management Companies (CMCs) in England and Wales, but remains concerned that Scottish consumers continue to go without any legal protection in relation to CMCs providing services in Scotland.

The UK Government has announced that from next year people who are ripped off or receive a poor service from CMCs will be able to pursue a complaint to the Legal Ombudsman for England and Wales. The Ombudsman can award up to £30,000 in compensation in individual cases. CMCs are regulated by the Ministry of Justice (MoJ) under the Compensation Act 2006 for services provided in England and Wales, whereas in Scotland they remain unregulated, albiet the subject matter is devolved to the Scottish Parliament.

GLC's Principal Solicitor, Mike Dailly said, "Consumer protection is being strengthened south of border in relation to poor service by CMCs – and rightly so - while Scotland remains an oasis for CMCs to do as they please.  Our unregulated market means that the people of Scotland continue to have no redress or protection against CMCs. We call on the Scottish Government to close this major gap in Scots law sooner rather than later'.

Many CMCs are well known for malpractice and ripping consumers off; including not providing customers with contracts or paperwork, not allowing cancellation of their service or refusing to allow any refunds, misleading and exaggerating their success or service during sales calls, taking payments from customers’ bank accounts or cards without authorisation, and using third parties to engage in unsolicited marketing.