Govan Law Centre (GLC) has submitted its written response to the Parliamentary consultation on the Moveable Transactions (Scotland) Bill. We are grateful to the Delegated Powers and Law Reform Committee to be invited to give evidence in person on 20 September 2022 at Holyrood.
We have considerable concern that the bill could be detrimental to consumers. We believe the bill could inadvertently introduce legislation that erodes consumer protections that have been hard won and potentially reintroduce debt enforcement reminiscent of warrant sales which would remove dignity from the debt recovery process in Scotland.
By consumer we mean “an individual acting for purposes that are wholly or mainly outside that individual’s trade, business, craft or profession”: section 2(3), Consumer Rights Act 2015. Section 15E(1) of the Civil Jurisdiction and Judgments Act 1982 defines “consumer” in similar terms: “in relation to a consumer contract, means a person who concludes the contract for a purpose which can be regarded as being outside the person’s trade or profession”.
Statutory Pledges used elsewhere in the UK, from the perspective of consumer credit, tend to focus on motor vehicles and this market is currently adequately served by hire purchase and conditional sale agreements in Scotland along with the associated recovery and diligence processes for recovery for non-compliance with the agreements. We do not believe the positive cases that are made for the creation of this type of security for business can be extended to consumers.
The UK wide Money Advice & Pension Service within its consumer guidance on logbook loans (the very type of security this bill looks to introduce) states in its section How Much Does a logbook loan cost? that the “typical Annual Percentage Rates (APRs) are 400% or higher, so this is an expensive form of credit. For example, if you borrowed £1,500 and paid £55 a week for 78 weeks, you would repay over £4,250 in total. This means you would have paid over £2,750 in interest in order to borrow £1,500.”
They also state “logbook loans are expensive and risky and it’s best to avoid them if you can”. We believe borrowers who are prepared to agree to interest rates at such a level have clearly exhausted more sustainable forms of credit and will likely turn to these types of lenders in times of desperation.
We also have concerns in relation to proposed changes for notification to consumers of assignation of debts. A number of clients that we assist with financial difficulties will often have a number of debts that have been sold by the original lender to a debt purchasing company. We have concerns that by operating a dual system, there is a possibility that borrowers could be in a situation where debt(s) owed by them are assigned and they would have no knowledge of this; if the creditor only opts to intimate the assignation via the new register.
This could lead to confusion for a borrower as to who the debt is owed to and who should receive payment. For debt purchasing companies it may be substantially administratively easier for them to send multiple notices of assignation to the new register rather than notifying each individual borrower by correspondence.
We believe borrowers should always receive notification about their debt and if it is assigned and by removing this obligation creates the potential to impact on consumers losing track of who they owe money which in turn could be detrimental to their ability to manage their finances.
The Bill creates an anomaly in that assigned debts subject to regulated credit agreements have to be intimated to a borrower in terms of Financial Conduct Authority (FCA) rules, that are underpinned by Part IXA of the Financial Services and Markets Act 2000: see rule 6.5.2: https://www.handbook.fca.org.uk/handbook/CONC/6/5.html
The Bill’s assignation provisions would create a two-tier system for consumers. If creditors do use the new register to provide details of assignation, we believe it should be accompanied by confirmation that the borrower has also been notified.