Scottish bank charge cases: amended pleadings

If you have a small claims action seeking a refund of unfair bank charges sisted at the sheriff court then chances are it will be dismissed unless you amend the basis of your claim, in light of the Supreme Court's decision in OFT v. Abbey National plc and others [2009] UKSC 6.

MoneySavingExpert.com have produced a detailed guide on bank charges here. Disclaimer: If you decide to amend, and your case is before a sheriff court in Scotland, GLC is providing some example court documents - however, please note these are illustrative and are used at your own risk; also please bear in mind you must amend these to suit your personal circumstances, and you should obtain independent legal advice before using same.

In order to amend a small claims Statement of Claim an 'Incidental Application' must be submitted to the court; if you are a party litigant (i.e. without a solicitor) the sheriff clerk will help you serve this. No court dues are payable to amend. You can attach your proposed Amended Statement of Claim to the Incidental Application, so that all of this is served on the bank.

> Example AMENDED STATEMENT OF CLAIM
> Example INCIDENTAL APPLICATION

Can I use the new CCA unfair relationship test for past charges?
Sections 140A and B of the Consumer Credit Act (CCA) came into force in April 2007. In summary, you won't be able to use the CCA for charges before 6 April 2007 if your account became a 'completed agreement' before 6 April 2007 or between 6 April 2007 and 5 April 2008. In other words if you were still in unauthorised overdraft, incurring charges or owing money to the bank, before 6 April 2007 and after 5 April 2008 then you should be fine (and you should be able to go back as far as you like). These transitional rules come from para 14 et seq., schedule 3 of the Consumer Credit Act 2006.

What happens next?
Once the Incidental Application and Amended Statement of Claim are served on the bank, the case will then call at the date and time allocated to you by the sheriff clerk. You must appear (or be represented in court) at this time in order to 'move' the application i.e. to ask the sheriff to grant the things you are asking the court to do in the Incidental Application.

What am I asking the court to do?
You need to ask the court to allow you to amend the Statement of Claim (as proposed in your Amended Statement of Claim)and the 'crave' (if you want to ask the court to prohibit future charges), ordain the defenders to lodge defences/amended defences, and to fix a diet of proof (an evidential hearing).

Can the bank object to my amendments?
Yes, the bank can object. However, it is entirely a matter of discretion on the part of the sheriff whether to allow you to amend. You would want to point out that these changes have been made necessary because of the Supreme Court's decision in the OFT test case, and this requires you to refine the regulation 5, UTCCR case. You can note that the President of the Supreme Court, Lord Phillips, made it clear that “it remained open to question whether bank charges were fair” in relation to regulation 5(1) of the UTCCR (para 80 of the Supreme Court’s judgment). And that the insertion of a CCA case supplements your case; so it is reasonable to amend. The relevant rule of court which is important here is SmCR 12.1, which provides as follows:

12.1. — (1) The sheriff may, on the incidental application of a party allow amendment of the summons, form of response or any counterclaim, and adjust the note of disputed issues at any time before final judgment is pronounced on the merits.

What happens if I am permitted to amend?
Hopefully, a diet of proof (evidential hearing) will be fixed. As regards the CCA part of any claim, section 140B(9) makes it expressly clear that the onus of proof will be on the bank to show that charges were 'fair'. However, you would still want to lodge evidence to show that charges were excessive to you as an individual customer. One could argue, the banks conceded before the Supreme Court that their charges significantly cross-subsidised 'free if in credit' banking for 42m customers. There are 54m current account customers in the UK, but only 12m customers ever pay overdraft charges. If one were to interrogate that data, it would become apparent that at the bottom of that 12m cohort will be people who incur regular multiple charges (and at the top there will be customers who incur one or two per annum); thus the more charges you incur the more you will be disproportionately contributing to free services for other customers, and the more you will be in finanacial difficulty (with charges on charges, and interest on top). Is that a fair relationship as regards the customer in penury? Or is that a fair balance between the rights of the bank and the position of the customer in penury? Only the court can decide these questions, and it will be important, we think, to lodge evidence to show the impact bank charges have had on the customer's day to day life.

What happens if I do nothing?
Your small claim may be dismissed. Be careful, because the bank may seek an award of expenses. If you do not proceed with a small claim to a proof (in good faith) the restricted expenses protection flies off and you could be liable to summary cause scale expenses. If you want to give up and drop your case it would be wise to ask the bank to agree to this on a 'no expenses due to or by' basis. If you decide to proceed you may be able to get support from one of the free online UK consumer forums such as the Consumer Action Group, MSE, LegalBeagles, or PenaltyCharges.

£2m fleeced from Scottish tenants in unlawful premiums each year

GLC has settled an action for the return of an unlawful tenancy premium, charged to a Glasgow private sector tenant to cover the cost of a credit reference check and the letting agents' administrative costs. The company, one of the biggest estate agents in Scotland, refunded the £235 premium in full, with court costs, without conceding liability.

Estate and letting agents in Scotland regularly require the payment of such charges before they let properties to tenants in the private rented sector. Yet, any charge in addition to rent (or a lawful deposit) is an unlawful 'premium' under Scots law, punishable by a statutory fine on a successful prosecution, and liable to be refunded to the tenant. The relevant law is set out here.

GLC's Mike Dailly said:
"Based on Scottish Government research, Govan Law Centre estimates that tenants in the private rented sector in Scotland could be getting fleeced by £2m or more per annum by estate and letting agents. That equates to around £200 per tenant under the guise of 'administration charges' and/or 'credit reference checks'."

"We believe Scots law is quite clear here. Any charge which is a requirement to obtaining a tenancy is a premium unless it is for rent or a lawful deposit. Premiums charged to tenants may constitute a statutory criminal offence, and the law entitles tenants to seek a full refund of such charges".

"The harsh reality is that many tenants who are being asked to pay these unlawful fees are financially vulnerable and desperate to get a roof over their family's head. This is why GLC is launching a national awareness campaign on this issue, and is providing the online legal know-how to empower tenants and their advisors to secure a refund."

An example Small Claims Statement of Claim is here.

Guidance on raising a Small Claims action in the Sheriff Court is here.

Note on how we calculate our £2m estimate:
The Scottish Government's review of the private rented sector "found that Scottish landlords may be wrongly withholding between £2.2 million and £3.6 million worth of deposits per year, from between 8,000 and 11,000 tenants". Taking 11,000 tenants being charged around £200 in administrative costs, the cost of inventories, credit reference checks, and such like, gives a figure of £2.2m per annum in Scotland.

Royal Faculty debate on Scotland's legal profession

The Royal Faculty of Procurators in Glasgow is to hold an open debate - Tuesday 9 March @5.45pm - led by leading members of the profession, with contributions from the floor encouraged on Scotland's Legal Services Bill and the future of our legal profession.

The Legal Services Bill is at stage 1 of the parliamentary process. Its proposed changes, such as the introduction of Alternative Business Structures (ABS), could make it difficult for Scots to secure access to independent legal firms, restrict access to justice, and ultimately undermine competition in the Scottish 'legal market'.

GLC's Mike Dailly will speak on the issue of ABS, its threat to competition and access to justice generally; and its commodification of justice. In addition, a debate on whether the Law Society of Scotland can continue in its dual role as regulator and representative of the profession will take place, with a contribution from John McGovern, the President of the Glasgow Bar Association. Speakers representing the Law Society of Scotland, and the 'big four' corporate firms in Scotland will present an alternative viewpoint.

This discussion is made all the more important as the Scottish Law Agents Society (SLAS)have called a Special General Meeting of the Law Society of Scotland to ascertain the profession's views on these fundamentally important issues. Please visit the Royal Faculty for more information - if you are a solicitor and cannot attend you can give a Mandate to SLAS to ensure that access to justice in Scotland does not become a commodity, at the morally bereft caprice of the UK's banks or vested corporate interests.

Solicitors poised to derail ‘Tesco law’

The Times reports that the Scottish government’s flagship reform of the legal profession was in jeopardy last night after a powerful association of solicitors announced that it was seeking to reverse a decision of the Law Society of Scotland (LSS) to support key aspects of the legislation.

The Scottish Law Agents Society – representing 1,500 solicitors — will this morning “requisition” a meeting of the LSS, and call for a vote on the issue of “external ownership” of law practices by companies such as banks or supermarkets. A controversial LSS vote in 2008 in favour of external ownership – often known as “Tesco law” — has become a key part of the Legal Services (Scotland) Bill, and is set to become law later this year.

However, galvanised by the introduction of the Bill in October, which introduced external ownership along with other unpopular reforms known as ABS (Alternative Business Structures) opponents are now confident they have the numbers to overturn the proposed changes.

“After taking soundings among our membership, we are certain there is an appetite for a challenge,” said Ian Ferguson, a board member of the Scottish Law Agents Society. “The vote in 2008 in favour of ABS, came after consistent opposition. We have a substantial number of votes, and think we will reverse the decision within a month.”

Mike Dailly, principal solicitor at the Govan Law Centre said a U-turn by the LSS would torpedo the government’s legislation. “The Bill is only progressing on the understanding that it is supported by the legal profession,” said Mr Dailly. “If that position is completely turned round, MSPs would have to reconsider their position.”

Last night, Ian Smart, the president of the LSS, indicated the society would abide by the decision of the general meeting, which must be held within 28 days of the requisition. “The debate will set the profession and so the society’s policy on external ownership of ABS,” he said.

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.

Bill to regulate property factors gets cross party support

Both the Herald, and the Evening Times, report that a bill to curb the power of rogue property factors and strengthen the hand of homeowners has taken a huge step forward by achieving strong cross-party support at Holyrood.

The proposed Property Factors (Scotland) Bill, introduced by the Labour MSP for Glasgow Maryhill, Patricia Ferguson, had to go out to consultation and then pass the normal first hurdle for a Member’s Bill of attracting the support of at least 18 MSPs. In fact, when the deadline passed 45 had signed up and although the bulk were fellow Labour members, the fact that 11 were from other parties indicates a broad enough consensus to suggest the Bill has a real chance of success.

Four MSPs each from the SNP and Liberal Democrats signed up, plus both the Parliament’s Green MSPs and Elizabeth Smith, the Conservative MSP. GLC's Parliamentary Unit has been engaged to draft the Bill. The Herald story is here, and the Evening Times here.

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".