Memorandum submitted by Govan Law Centre
INTRODUCTION
Govan Law Centre (GLC) is a community controlled
law centre with charitable status (SCO 30193). GLC was founded
in 1995 and is based in Glasgow. We employ six solicitors and
undertake a large volume of defended eviction and mortgage repossession
casework, employee representation before the Employment Tribunal,
education appeals for pupils wth special educational needs, and
social welfare casework generally. Clients contact us directory,
or through referrals from social work, money advice, CABx, Shelter,
and other agencies. Our service is free, and at any one time we
manage around 1,700 client files.
We disseminate free Scottish housing and debt
law advice online at www.govanlc.com and www. bankcharges.info.
GLC undertakes prevention of homelessness casework across Glasgow,
but mostly within the South West where we manage a Prevention
of Homelessness Project in partnership with Glasgow City Council's
social work department. East Dunbartonshire and East Renfrewshire
Councils fund GLC to defend mortgage repossession actions within
their local government areas. We also operate a Parliamentary
Unit which campaigns on various social policy issues and provides
parliamentary drafting to enable MPs, MSPs, trade unions and charities
to promote policies which can tackle poverty and disadvantage.
The Scottish Affairs Committee report Poverty
in Scotland published in July 2000, revealed that one in four
adults, two in three lone parents, 29% of pensioners, and one
in three children, all lived in poverty in Scotland.[1]
Since then some progress has been made in Scotland, [2]
but poverty remains a major fact of life for many adults and children
in Scotland, and the highest concentrations of poverty remain
within Glasgow City.
FACTORS WHICH
CAN CAUSE
OR EXACERBATE
POVERTY AND
SOCIAL EXCLUSION
We would like to focus on four topical and issue-based
problem areas, drawing upon our casework experience, and describing
in summary how these factors can push citizens into poverty or
exacerbate their social and financial exclusion in Scotland.
1. Default or penalty charges
It is common practice for banks and businesses
to impose disproportionate and unfair charges for the most minor
of contractural defaults. Such charges are "penalty charges"
which are unenforceable at common law and in terms of the Unfair
Terms in Consumer Contract Regulations (UTCCR, SI 1999/2083),
yet they are applied as a matter of course in the UK.
A typical example is where a worker's salary
is late by a day and they find that three direct debits are unpaid.
Many banks will impose a charge of £117 (£39 per unpaid
direct debit), together with a monthly charge of £28 and
unauthorised overdraft interest at 30% APR. For someone on minimum
wage of £5.05 per hour, just one set of these charges can
represent almost a week's pay.
That worker still has to pay their direct debits,
but their hard earned salary will be taken to meet the bank's
charges. Often they cannot catch up and next month will be subject
to another set of charges, and so on and so forth until their
family has very little to live on and are trapped in a cycle of
debt and poverty. Unfortunately, for thousands of families in
Scotland this cycle of "debt" is a regular occurrence.
It is not only banks who impose these charges,
many other businesses exploit their customers by levying £15
to £25 "administrative charges" for simple reminder
letters. Besides pushing people into a cycle of poverty, it should
be noted that most mortgage lenders also impose penalty charges
of £40 to £60 per month, simply where a debtor gets
into three months of arrears. GLC has seen mortgage repossession
cases where more than one third of "mortgage arrears"
is made up of penalty charges. GLC has been campaigning on these
issues since March 2005, and launched the first UK website to
provide pro forma letters to enable citizens to pursue
refunds for free: www.bankcharges.info. Our website attracts half
a million visitors per annum, so there is no doubt this issue
affects a great deal of people in Scotland and the UK.
We believe that the UK Parliament should consider
legislation to regulate the level and imposition of administrative
charges in any consumer contract. Citizens can pursue a refund
of unlawful penalty charges, going back five years in Scotland.
GLC would note that in Scotland a consumer can only sue under
the small claims system for a sum no more than £750, whereas
in England and Wales the limit is £5,000. We believe that
there is a case for extending the small claims limit across the
UK—for administrative charges cases only—to £10,000
if citizens can reclaim these charges it can put them on a sound
financial footing, and remove them from a cycle of debt despair.
2. Property management
Around 34% of all households in Scotland live
in either a tenement, four-in a block, multi-storey flat, or converted
flat.[3]
Such occupiers will rely on factors or property managers.[4]
In Glasgow property management is a significant cause of poverty
for two principal reasons.
Firstly, factors are by and large unregulated
in Scotland.[5]
Many homeowners can find it difficult to replace their factor—as
the company may attempt to tie them in contractually and many
title deeds require a factor to be appointed. In our experience
some private firms of factors overcharge their clients, and exploit
their clients by way of sending repeated reminder letters at a
cost of £15 each to the client. Property managers are quick
to sue their customers in the sheriff court for debts, and we
believe this is because the operation of some factors seems to
be geared towards exploiting customers, generating a lucrative
revenue by applying unfair charges and high interest rates, as
opposed to looking after the fabric of the customers' building.
Secondly, in Glasgow around 26,000 owner-occupied
homes are managed by the Glasgow Housing Association's (GHA) subsidiary
company GHA Management Ltd. The GHA has been carrying out structural
renewal work which includes re-roofing and cladding. Grant assistance
may be available subject to means testing but many elderly and
low paid workers are being presented with bills of several thousand
pounds from the GHA after the application of grant assistance.
While homeowners have to pay their pro rata share a problem
has arisen because the GHA has adopted a policy of only accepting
repayment of debts over 12 months.
If a homeowner is unable to repay their factors
bill within 12 months the GHA will automatically take them to
court.[6]
This will often result in an ordinary cause action whereby the
debtor wil then be liable for several hundred pounds in legal
expenses and judicial interest running at 8%. The GHA cites "charity
law" to justify why debts must be repaid within a year, however,
there is no such charity law rule, and unless this policy is relaxed
many vulnerable homeowners in Glasgow will be pushed into further
debt and poverty.
3. Rent arrears and housing benefit
The latest statistics show that local authorities
and housing associations raised almost 25,000 eviction actions
in Scotland in 2005.[7]
Around 96% of cases were for non-payment of rent. Around one third
of actions resulted in decree; and out of that number one third
of households were physically ejected or abandoned their tenancy—some
3,000 households in total. There are no centrally held statistics
on evictions in the private sector—however the data available
confirms that actual evictions rates in the private rented sector
are significantly higher pro rata than in the social rented
sector.[8]
When tenants make a claim for social security
benefit they will be given a housing benefit form as part of their
pack.[9]
However, the housing benefit form has to be completed and returned
to the local authority. Many people do not appreciate the need
to return this form quickly to the local authority. Failure to
do so results in rent arrears, which in turn can result in an
eviction action being raised. It would be helpful if claimants
could complete their housing benefit form and return it to the
Jobcentre along with their other forms, and the Jobcentre could
then pass all housing benefit forms to the local authority. We
believe this small administrative change could prevent rent arrears
and associated problems.
Central Government gives local authorities funding
to make "discretionary housing payments". The Department
of Works and Pensions has issued guidance to local authorities
on the administration of these payments, but our concern is that
this fund is not widely publicised, and many tenants are unaware
of the ability to seek top up payments; which in turn can prevent
eviction and homelessness.[10]
Finally, we note that when tenants are taken
to court for eviction some local authorities do not impose legal
expenses if the tenant has entered into a reasonable repayment
plan.[11]
However, most housing associations, including the GHA Ltd in Glasgow,
recover full judicial expenses which can typically be £300
to £400 including VAT. Housing associations receive public
funding and in the case of the GHA have an in-house legal team.
Having to pay an extra £400 is not easy for a tenant living
on income support or JSA(IB) of £57.45 per week.
4. Credit and social security law
GLC notes that many citizens in Scotland are
pushed into poverty because they are unable to access affordable
credit. The poorest people end up paying for the most expensive
credit. The UK Parliament has made progress within this area by
enacting the Consumer Credit Act 2006, however, we believe more
work needs to be done to enable low income households to access
affordable credit. Credit unions have an important role to play
here, and we would suggest that social landlords should work more
closely with them or indeed resource their own credit unions in
order to help debtors repay their priority debts over a reasonable
period and at a reasonable cost.
Many citizens may have no bank account and have
a poor or zero credit rating. Accordingly, in times of emergency
they turn to the social fund. The flaws and inadequacies of the
social fund are well documented and require urgent reform.[12]
Employment can be a powerful route out of poverty,
but in our clients' experience there is generally a difficulty
between commencing work and losing entitlement to various social
security benefits. We believe there needs to be a more generous
transitional period to assist debtors and their families.
Mike Dailly
Govan Law Centre
21 February 2007
1 Scottish Affairs Committee Report Poverty in
Scotland (2000). Back
2
Poverty indicators for Scotland are available at: http://www.poverty.org.uk/S01/index.shtml Back
3
See Table 3, Scottish House Condition Survey-http://www.shcs.gov.uk/pdfs/SHCS%20Key%20Findings%202003-04a.pdf Back
4
Property managers (traditionally known as "factors")
manage a range of properties in Scotland: from traditional tenements,
modern flats, office blocks, industrial units to shopping centres.
This proposal is concerned with residential property only. Back
5
GLC is assisting Gordon Jackson MSP (Glasgow Govan) with a proposed
bill in the Scottish Parliament to regulate property managers
in Scotland. Back
6
See for example: http://www.eveningtimes.co.uk/news/display.var.1201897.0.nurse
wins more time to pay gha bill.php; and http://www.eveningtimes.co.uk/news/display.var.1186555.0.gha
takes owners to court to pay housing repair bills.php Back
7
See http://www.scotland.gov.uk/Resource/Doc/1033/0039931.doc
(Scottish Executive Homelessness Monitoring Group Discussion Paper:
Preventing Homelessness-addressing rent arrears, September
2006). Back
8
Ibid, para 7. Back
9
See http://www.jobcentreplus.gov.uk/JCP/Customers/WorkingAgeBenefits/Howtoclaim/index.html Back
10
Guidance is available online here: http://www.dwp.gov.uk/housingbenefit/manuals/dhpguide.pdf Back
11
For example, Fife Council. Back
12
See Chapter 6, Inadequacy of the Social Security System, by
Danny Phillips, Improving Debt Recovery in Scotland report,
December 2006, available online at: http://www.govanlc.com/idrwgreport.pdf Back
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