[Sir Edward Leigh in the Chair]
I beg to move,
That this House has considered reform of county court judgments.
I know there is about to be a vote in the main Chamber, Sir Edward, so this might be the shortest speech on record in Westminster Hall. Even if it is not, I imagine I will be interrupted at some point.
This debate comes as the culmination of 20 years of frustration. Before I came to the House, I worked in the banking sector, in particular the personal banking sector. I was totally frustrated that people who had bank accounts and were very good customers of Lloyds Bank found themselves in all sorts of trouble because they had what I like to call “rogue” county court judgments against their name. Very often those judgments were born not out of large debts, but out of getting into a dispute with a mobile phone company or, worse still, a gymnasium of some type.
That is the problem with county court judgments: we imagine they are used for large debts when debtors simply refuse to repay their creditors. It makes sense that this mechanism for debt recovery must exist as a last resort. Without CCJs, it would be very difficult if not impossible for creditors to be repaid. However, there is evidence that CCJs are not being used in the correct manner by all sorts of companies. In some cases, they are used to demand payment of small debts, disproportionately affecting those subject to them.
A county court judgment is not something anyone wants on their credit record. Once a court makes a judgment against someone accused of having a debt, the record will remain linked to that person for six years on the register of judgments, orders and fines, whether or not the debt is paid off. The only exception to the rule is when the debt is paid off in under a month. There can be a devastating effect on a person’s credit rating, cutting off access to all but the most unfavourable credit deals. A mortgage will become only a dream to someone with a CCJ against their name. That is why it is vital that the CCJ process is improved and, above all, reformed.
CCJs are the go-to option for many creditors, even before alternative means of resolving disputes have been explored or before attempts have been made to settle such disputes. They are simply not being used as a last resort. According to The Money Charity, 2,102 consumer county court judgments are issued every single day, with an average value of £2,030. [Interruption.] I think that is the bell.
Sitting suspended for a Division in the House.
Just before the bell rang, I was about to say that a recent investigation published by the Daily Mail found that 900,000 CCJs were issued last year, a greater than 33% increase on the previous three years. The investigation highlighted the particular case of ParkingEye, a company responsible for many private car parks in this country and a significant user of CCJs to enforce fines. In the past three years, the company has made more than 60,000 county court claims against drivers, including one uncontested case in which it was awarded only 1p in compensation. Some of my constituents have written to me seeking advice after being threatened with CCJs and other heavy-handed tactics used by that company.
Duncan Bannatyne, writing in his book “Anyone Can Do It”, says that if a person does not honour their contract with his gymnasium, he will have no hesitation in taking them to county court. Again, I find that practice rather sharp. It is clear that civil court actions must have justice at their core, but can we really call it justice when a person has a CCJ on their record to a value of 1p? Such a CCJ could influence a lender’s decision on whether to give that person a mortgage or loan.
I congratulate the hon. Gentleman on securing the debate. I declare an interest as chair of the all-party parliamentary group on alternative lending. One issue that has been raised with me is credit scoring, on which getting a CCJ has a huge impact. CCJs are an outdated method. Does he agree that, combined with reform of CCJs, we should consider reforms to allow real-time credit scoring and encourage greater information sharing?
Absolutely. As a member of that all-party parliamentary group, I pay tribute to the hon. Gentleman’s chairmanship. He knows my interest in real-time credit scoring and that I think the situation is in desperate need of reform. I have always said that such reform would be a win-win situation: a win for the lenders because they would know to whom they were lending, and a win for the consumer because lenders would drive down their prices. I have been campaigning for real-time credit scoring since I came into Parliament, and I thank him for fully supporting the campaign, but that is for another day.
I recently had a lucky escape from a CCJ. In the past three years, I was involved in a minor collision outside my home here in London with a vehicle owned by the taxi firm Addison Lee. When Addison Lee got into dispute with the insurance company, rather than negotiating with the insurance company, it went over the top of it and tried to issue me with county court proceedings. Had I not received the documents in time, a county court judgment would have been registered against me, even though it was my belief that the insurance company was dealing with the claim. Luckily, I was fortunate enough to be able to act straightaway and seek legal advice, which prevented the CCJ, but people with similar cases have not been so fortunate.
My second key concern is that some people served with CCJs do not receive any notification if they have moved house. The only legal requirement for the service of court documents to an individual is merely a last known residence. There is no legal requirement per se for the court documents to be delivered or received. Indeed, court documents are considered validly served even if they are returned to the court marked undelivered. The result is that some people are unaware that there is a CCJ against their name until they apply for credit, such as when buying a car or a house.
The Daily Mail investigation raised the poignant case of a young couple from Northern Ireland who were told that they could not take out a mortgage on a new home because one of them parked for 20 minutes in a restricted airport carpark. The CCJ claim was sent to an old address, so the couple were completely unaware of it. Ultimately, the couple had to pay £200 to satisfy the CCJ and get the mortgage. I hardly think parking in the wrong parking bay is sufficient cause to turn someone down for a mortgage on a home. It is clearly important and in the interest of justice that those who are accused of owing money are given the best possible chance to defend themselves and respond to the claim. It is simply not acceptable that the courts are unable in some cases properly to inform those accused of owing a debt of the accusation and, more importantly, of their rights.
The third major concern about CCJs is the huge and often disproportionate effect that they have on people’s access to finance. CCJs are recorded for six years on the register of judgments, orders and fines if they are not paid within one month. Credit rating agencies make significant use of that register when deciding whether to give credit in the form of loans, mortgages and other finance. A person subject to a CCJ, by default or otherwise, has several options. If they can pay within one month, the debt will not appear on the register or harm their credit rating. If they can pay in full but not within one month, the CCJ will be listed for six years and be marked “satisfied”. Ignored CCJs can result in charging orders, attachment of earnings orders and warrants of execution that allow bailiffs to seize property to the value of the debt. There are processes for setting aside CCJs or making counter-claims if the claimant owes money.
Those who need access to credit but have a bad credit rating due to a CCJ against their name sometimes turn to credit repair companies in search of quick fixes. That is usually a mistake, because there are no quick fixes, as the director general of the Office of Fair Trading made clear:
“County court judgments cannot be removed from credit files unless they have been discharged (within a month) or were incorrectly granted.”
Sometimes the only credit available to those with CCJs offers extremely unfavourable terms to the borrower, such as high-interest payday loans. Those issues paint a very negative picture of the effectiveness of CCJs, and of how they are used in general, the way they are issued and the disproportionate way they affect people.
Reform is clearly needed. Although it is perfectly legal and within creditors’ rights to make claims against debtors for even the smallest of debts—it is correct that debts must be repaid—can the fact that so many people are taken to court over small debts be justified? There is a case for creating a new mechanism that creditors can use to seek redress for debts owed to them below a set value, similar to that in Scotland, with small claims for debts of less than £3,000, summary cause actions for debts of £3,000 to £5,000, and ordinary actions for debts of more than £5,000. That would allow credit rating agencies to draw a more accurate and reliable distinction between serious debts that may demonstrate genuine inability or unwillingness to repay loans and mortgages, and minor debts that do not.
More emphasis must be placed on mediation between companies and debtors in advance of CCJ claims being submitted. CCJs should be a last resort for creditors. Creditors should be able to demonstrate that they have made every possible effort to recover their debts amicably and by mutual agreement before heading to court. Those two measures, alongside other reforms, would help to reduce the rapidly increasing number of CCJs, which are issued daily.
The way that CCJs are issued must also be reformed. Those who face the threat of court action for debts must be given all the information they need to know their options. At this point, it would be remiss of me not to pay tribute to the important and useful advice provided by Citizens Advice on this matter. The first responsibility should be with the courts, which should make every effort to explain people’s rights and options fully if they are threatened with a CCJ.
Without those improvements, we must consider the 14-day period in which a CCJ can be challenged to be too short. The vast majority of people served with a CCJ are not legal experts and must be given time to decide how to proceed. As it stands, the threat of high fees and fines, and the complicated nature of CCJs, can force people to submit and accept a judgment, even if they had the chance and legal right to oppose it. In my experience with Addison Lee, had I not sought legal advice and made a challenge, I would have lost out financially. I was able to take on Addison Lee only because the insurance company was willing to meet the costs of my challenge. It is important that everyone who faces the threat of a CCJ is given the best possible chance and the support they need to make a challenge, as I was.
Crucially, the courts must always be satisfied that the person who is threatened with a CCJ is aware of the process. It is not fair, right or in the interest of justice that someone can have a CCJ recorded against their name by default just because they did not receive any notification of it—it could even have been sent to the incorrect address. Without a requirement that the courts must be satisfied that the accused debtor is aware that a claim is being made against them and has received the court documents, cases such as those uncovered by the Daily Mail will continue to emerge.
Lessons can be learned from the Scottish system for delivering court summons. Documents are first sent by recorded delivery. If that fails, court documents are sent out with sheriff officers. Such a system would address the problem of unknown CCJs in the rest of the UK. Reform must be made to address the disproportionate impact that a CCJ can have on a person’s ability to access finance. Credit rating agencies clearly make use of the register of judgments, orders and fines. Debts settled within one month are not placed on the register, but is that one-month limit arbitrary? All debts, once settled, should be removed from the register entirely once they have been cleared.
My suggestion of a new kind of CCJ for small debts might make a difference if credit rating agencies viewed them as less damaging. Of course, even a minor debt should be expected to harm a person’s credit rating, but the size of the debt and the size of the loss of credit rating should be proportionate to one another. It seems madness that people can be turned down for financial products simply because they are in dispute with a mobile phone company or a car parking company. This debate is fundamentally about whether county court judgments provide a sense of justice to creditors and to debtors. As it stands, they do not, as they appear to lean too heavily in favour of the claimants. Why else would their use by creditors be expanding so rapidly? That is a particular problem.
The Government are, I believe rightly, attempting to increase home ownership and access to finance, but the expansion of CCJs will surely hinder that effort. It is clear that some people with CCJs recorded against them are unaware of the fact until they get a nasty surprise when they check their credit rating. I am an Opposition MP, but I am happy to say that the Government have done good work in standing up to payday lenders and trying to increase access to finance by making sure banks access the right people. However, all that will be lost because of this abuse of the county court judgment system. As long as it is in play, that work will mean absolutely nothing.
Although it is not possible to know exactly how many people have CCJs made against them without their knowing or being able to provide a defence, the fact that the situation is possible is a problem in itself. For the people affected, having a CCJ on their record can mean the difference between being able and not able to own their own home. In some reported cases, it has even prevented access to finance for something as simple as a mobile phone contract. The Government have to introduce reforms to rebalance CCJs and allow debtors to defend themselves properly.
Debtors must have the best possible chance of understanding the legal action being taken against them. More effort should be made to resolve debt issues without heading to court, and if court action is the only available course a distinction must be made between high and low-value debts. Those subject to CCJs must be given more time and information so they have the best possible opportunity to make a challenge and defend themselves. The Government must also take action to mitigate the impact that CCJs can have on access to finance, which is already a problem for so many. I fear that if the Government do not reform CCJs and take action to address the issues I have raised, more people’s lives will be ruined.
The hon. Gentleman is making a powerful case. I am not sure whether he is aware that the French philosopher Voltaire said, “We look to Scotland for all our ideas of civilisation.” Although I will not say we need to go that far in respect of this matter, does the hon. Gentleman agree that when there is best practice, or better practice, in other nations on these islands, it is incumbent on the Government to look at that and learn from it?
I did not think that Voltaire would be mentioned in a debate on county court judgments; I congratulate the hon. Gentleman on getting that quote in. In politics, we have to realise that if something works and works well, it does not matter if it is not our idea; if it is a good idea, it should be rolled out. I am glad that the hon. Gentleman is here representing Scotland. He knows the system there, and it does work far better than the one we are discussing. It provides better justice for those who have CCJs against them and has a better system for ensuring that people receive the summons. That is something we should learn from.
I do not have much time, so I shall bring my remarks to a close. I welcome the Prime Minister’s comments last month about the ongoing investigation of the use of CCJs and the disproportionate effect they can have on the lives of the many people who have been caught out by them. I wait in anticipation to see what reforms are initiated to protect people from the predatory use of CCJs. I know the Minister well: he is a fair man with a strong sense of justice. I hope that today he finds a way to right the wrong done to so many people.
It is a pleasure to serve under your chairmanship, Sir Edward. I congratulate the hon. Member for Islwyn (Chris Evans) on securing this debate. He has for many years had a strong interest in consumer finance, to which this debate is allied.
I recognise that concern has been expressed about the number of county court judgments that are made against individuals and businesses, the majority of which are entered without a defence being provided by the debtor. Last year, 745,235 county court judgments were entered in default of a defence. That figure represented 85% of the total number of county court judgments entered. I was concerned to read the reports in the Daily Mail that money claim forms have been sent to out-of-date addresses, despite the fact that the individuals and businesses concerned had updated all their records. The paper said that the knock-on effect was that those individuals and businesses had been unable to obtain credit.
Although many default judgments will be made because defendants simply do not have a defence to the claim, the Ministry of Justice is investigating the number of default judgments that were made because the defendant did not receive the claim, and the reasons why that occurred. We will then consider whether any steps should be taken to ensure that the system is not open to abuse. That will include working across Government and with the authorities responsible for regulating the businesses that use the county court to recover debts.
Seeking a county court judgment should be a creditor’s last resort, when all other attempts to recover the debt have failed. Unfortunately, we know that debtors often fail to engage with creditors, for a variety of reasons. If the court system required debtors to acknowledge a claim, it would have serious repercussions for creditors, particularly small and medium-sized enterprises, which would be unable to recover money that was owed to them.
Those who experience debt problems represent a broad spectrum of society, from people experiencing debt as a consequence of deprivation, poverty or other circumstances, through to those who have deliberately refused to pay for products and services used. Some of those facing court action are in difficult situations because they themselves are owed money that has not been repaid. In addition, the Daily Mail’s investigation highlighted instances in which individuals had county court judgments entered against them without being made aware that they owed the money in the first place.
The current rules on county court judgments seek to strike a balance between the needs of claimants—many of whom are individuals, small businesses and public bodies —who must have recourse to an effective legal process to regain money owed, against the rights of defendants to be informed of a claim against them. The court rules do not require the claimant to make sure or prove that a claim is received by the defendant. That would be very expensive for claimants and the system would be open to abuse by individuals and businesses that are seeking to avoid paying their debts. The court rules also do not require the court to verify that the defendant’s address is correct.
More than 1.1 million county court money claims are issued each year. It would be impossible for Her Majesty’s Courts and Tribunals Service to process claims quickly if they had to verify address details in every case. The onus is on the parties to provide the correct information. Claimants must sign a statement of truth confirming that the details in their claim, including the address of the defendant, are true. Anyone who deliberately provides false information to the courts faces prosecution. Individuals and businesses must update creditors such as utility companies, and public authorities such as the Driver and Vehicle Licensing Agency, about any change of address.
Safeguards exist to protect defendants. If somebody discovers that they have had a county court judgment issued against them but they do not owe the claimant money, they can apply to the court to have the judgment set aside. If they are successful, the CCJ will be removed from the register of judgments and the individual’s credit rating should be restored.
I shall now respond specifically to some of the points made by the hon. Member for Islwyn. He asked about the disproportionate impact of CCJs on credit ratings and the difficulty of removing judgments from the register. As he said, the judgment will be removed from the register if it is paid in full within a month. If the judgment is paid after a month, the debtor can get the record marked as satisfied in the register. It will stay on the register for six years, but people will see that it has been paid.
The hon. Gentleman asked about the 1p judgments for parking that were mentioned in the Daily Mail. The documents were obtained by the newspaper under the Freedom of Information Act, and showed that those county court judgments were made. We have discovered that the figures provided were the result of data entry error. Default judgments have not been issued for nominal sums, such as a penny. A money claim cannot be issued for less than £25. On top of the amount owed, a claim may also include issue and a claimant’s solicitor’s costs.
On the concern that proof of service is not required, the rules were introduced following a consultation in 2006, and strike a balance between creditors and debtors. Before their introduction, there was great expense for both claimants and defendants in ensuring that claims were served.
On the question about action taken before the issuing of a claim, claimants are encouraged to contact defendants before taking action, which will always be the last resort. An existing protocol that encourages early engagement with a debtor is being revised, with the assistance of the credit and money advice sectors, to provide debtors with a further opportunity to engage with the claimant.
The vast majority of organisations responsible for bringing county court claims are large debt recovery agencies, utility companies or parking companies. It is important to balance the needs of businesses to recoup money owed to them with the need to give people a chance to defend themselves against money claims. The Ministry of Justice is working with the Department for Business, Energy and Industrial Strategy and the Department for Communities and Local Government to look at what more could be done to protect people from the potentially damaging effects of having a claim entered against them about which they knew nothing.
We hope that businesses will engage with the Government on what more can be done to ensure that claims are pursued only after the right checks have been carried out. The Ministry of Justice will continue to provide support and analysis on the court side of this issue, and will report back in due course. I thank the hon. Gentleman for the opportunity to discuss this subject.
Question put and agreed to.