Advice Scotland Partners with Carrington Dean

Advice Scotland Partners with Carrington Dean

Advice Scotland will shortly be partnering up with The Carrington Dean Group Ltd to offer telephone advice to any visitors who want personalised advice on their situation.

Carrington Group are one of the Scotland’s largest providers of formal debt solutions and are also the largest payment distributor for the Debt Arrangement Scheme.

They are regulated by the Financial Conduct Authority and do not charge for the advice they provide. 

The reason I have decided to enter into this arrangement, is because visitors to Advice Scotland have increased and I have seen a dramatic increase in the number of people contacting me for advice.

Traditionally I have alway resisted the temptation to provide personalised advice, based on individual’s circumstances, and instead have focused on providing generic information on debt.

I have also always referred people onto free sources of advice, such as those provided by Citizen Advice Bureaux and also Local Authority Money Advice Agencies, and will continue to do so.

Provision of Telephone Advice

However, it is clear to me there are people who would like a telephone call and an opportunity to discuss their situation with someone, which is not something I am able to do.

Advice Scotland, has always been a personal blog  and was never intended to become a provider of advice services.

However, the new Debt Arrangement Scheme (Scotland) Amendment Regulations 2019 have created a new opportunity.

Firms like Carrington Dean can now provide access to the Debt Arrangement Scheme without charging a fee, which means if anyone requests a call from them, the advice they will receive will be from a firm:

  • Regulated by the Financial Conduct Authority;
  • That doesn’t charge for the advice they provide; and
  • Can also provide free access to the Debt Arrangement Scheme.

No Service Provides Access to all Solutions

It is true Carrington Dean does not provide access to all solutions, such as Minimum Asset Bankruptcies, however, there are few organisations that provide access to all solutions. Stepchange in Scotland passes cases to insolvency practitioners, for a fee; as do all Citizen Advice Bureaux and Local Authority Money Advisers (albeit not for a fee). Carrington Dean don’t, as they are also insolvency Practitioners.

Carrington Dean, also, do not do Debt Management Plans, which in a Scottish context, have become heavily discredited, because of the existence of the Debt Arrangement Scheme; and will also act as the Payment Distributor in cases, meaning they will be a one stop free-provider for that solution.

Once launched, if anyone wishes a call back, they will be able to request it and their information will be sent directly to the Carrington Dean Case Management System. One of their team will then call the client back. People will have to agree to share their information with Carrington Dean

Carrington Dean will provide all the advice.

This new relationship won’t influence the content of Advice Scotland , which will remain, as was always intended, to be my personal blog site.

MSP Case Study on Trust Deed Raises Questions

MSP Case Study on Trust Deed Raises Questions

Colin Beattiie (MSP) provides case study on Trust Deed

A Scottish Parliament MSP who presented a case study that concerned a constituent who had been in a Protected Trust Deed, as evidence of what‘s wrong with the personal insolvency remedy, has raised a number of questions.

The MSP, Colin Beattie, used the case study as an example of abuses that go on in Protected Trust Deeds, whilst examining the Accountant in Bankruptcy, Dr Richard Dennis, on how the remedy operates.

He gave the example of a woman, whose family were constituents and who passed away whilst in her 4th year of her Protected Trust Deed.

She had already paid £6,000 into the Trust Deed, which she had entered as she had £20,000 in debt.

As she was a Homeowner, the family received a breakdown as to what the cost would be to wind up the Trust Deed.

That sum was £28,000, which initially appears  ridiculous for a £20,000 debt, especially as £6,000 had already been paid into the Trust Deed, meaning the total cost could have been in excess of £34,000.

In actual fact during the evidence session by the Economy, Energy and Fair Work Committee, he described the eventual cost as not moral and said it was “banditry”.

Colin Beattie provided a breakdown of the figure:

  • £7,000 was for statutory interest 
  • Trustee Fee £2,500
  • Trustee Realisation Contribution Fee 1,270
  • Trustee Realisation Lump Sum Fee 3,000
  • Legal Fees £3,000

He also added there were additional fees such a AIB Supervision fees, which are £100 per year, so for 4 year Trust Deed would be £400.

Not Clear Cut

However, an understanding of how the costs had been arrived at, shows the figures may not be as obscene as believed and in actual fact, if the lady had used any other solution to deal with her over-indebtedness, they may have been similar or possibly even worse.

What would have been the Options?

As it is believed £6,000 had been paid into the Trust Deed over 4 years, it probably safe to assume the Lady was able to pay £125 per month to her debts, or thereabouts.

If this is all she could afford, repaying her debts in full would not have been a realistic solution, as even with interest and charges frozen, a £20k debt would take over 13 year to repay. For most people, the idea of not having any disposable income for 13 years is not an attractive one and many lenders would consider such a lengthy repayment period unreasonable.

It is likely, therefore, if all the options had been discussed with the lady at the time she sought advice, a Debt Management Plan or the Debt Arrangement Scheme would not have been considered a viable option.

The lady may then have looked at insolvency options, such as Bankruptcy or a Protected Trust Deed.

These would have involved her paying the £125 per month for 48 months, or maybe even 60 months, as she was a homeowner, with the last 12 months going towards addressing any equity she had in her home.

We don’t know why the lady eventually chose a Trust Deed over a Bankruptcy, but generally Trust Deeds are considered to be less risky when you own a home, as Creditors will often agree to disregard more equity so you don’t have to sell your home. It may, therefore, mean this was a consideration.

However, when someone passes away, and there are sufficient assets to pay all the debts owed, the law, not just of insolvency, but Succession requires all debts must be repaid from the winding up of the estate.

The £20,000 of original debt would, therefore, have to be repaid in full.

Also, where there are sufficient assets in insolvency, the creditors also must be paid interest on this debt of 8% per annum.

This is known as Statutory Interest, and is owed to the Creditors, not the Insolvency Practitioners. This would explain the £7,000 in Statutory Interest that Mr Beattie spoke of.

Second, the Trustee’s standard fees for managing the Trust Deed over the 4 years are £2,500 and £1,270 (this latter fee is the cost of collecting the 48 payments).

It would appear the legal fees are the costs charged by the solicitors who eventually sold the property and are paid to them.

The £3,000 fee is the percentage the Trustee is allowed to charge on the sale of the property, for the work they have undertaken in selling the property.

All these fees are governed by legislation, except the legal fees and the Scottish Government have the power to change them.

In actual fact, it was Mr Beattie’s Committee, the Economy, Energy and Fair Work Committee that recently approved the Bankruptcy Fees (Scotland) Regulations 2018, which governs many of the fees. So if the fees are immoral, although legal and an example of banditry, it was Scottish Government Regulations that proposed some of them and the Economy Committee that recommended them to Parliament.

It is clear, therefore, the majority of the costs incurred in winding up the estate were not made up of the Insolvency Practitioner’s fees, but were either the costs of paying off the Lady’s debt and winding up her estate, which if it had not been carried out by the Trustee, would have had to some extent been incurred by her Executor on her passing.

What if another Option has been chosen?

However, what if another option had been chosen?

We have already looked at how long it would have taken to repay the debt in full, over 13 years, so it is understandable why a repayment solution wasn’t chosen.

However, if the Debt Arrangement Scheme had been chosen, it could be argued that £6,000 of the debt would have been repaid to creditors leaving only £14,000.

This is possible, but not certain.

One of the things that occurs in a Debt Arrangement Scheme is when someone dies during it, the Programme is revoked and as a consequence creditors can apply all the interest and charges that they could have applied had the person not been in the Scheme.

Even a contractual rate of 5% on a consumer debt of £20,000 is £1,000 per annum and we know many forms of credit have higher levels of interest applied to them.

It legally is possible, therefore, just paying £1,500 per annum to a debt of this level over 4 years, with interest being re-applied would not reduce the debt by much and in actual fact, the debt could increase.

Now the argument is few creditors would reapply interest and charges, but the truth is we cannot be certain. It is legally possible.

Also, its true to state not all creditors stop interest and charges on debt in the Debt Arrangement Scheme, even though the law requires it, but write it off once the programme is completed.

Also it is true that many creditors in the Debt Arrangement Scheme only reduce the balance owing on a debt in the Scheme by the amount they receive, which is not the same as what the consumer pays, as the payment distributor and DAS Administrator fee is deducted first (albeit this is a cost incurred by the creditor). These fees are now 22%.

In practice, therefore, where cases are revoked it is likely these fees are incurred by the Consumer, not the Creditor, unless challenged

The problem is many clients who stop paying their Debt Arrangement Scheme, don’t continue with the advice agency that was helping them, so most probably don’t challenge the fact they have incurred these fees.

On top of that, as the lady passed away the Lady’s family would have had to appoint a solicitor to wind up the estate, as estates with heritable property are not considered small estates.

It, therefore, is possible that had the lady chosen a debt management option like the Debt Arrangement Scheme, the eventual cost of winding up the estate could have been similar, if not close to, the eventual costs in the Trust Deed as a solicitor would have to have been involved in winding up her estate and her debts paid in full.

It is also, likely, had the lady chosen Bankruptcy as the solution to her debt problems, the cost of winding up the estate may have been greater than that quoted by the Trustee in the Trust Deed.

It is hard not to sympathise with families who find themselves, in this situation, as they are struggling with the shock of a bereavement only then to possibly learn for the first time the extent of the deceased family members debts and also that they were in an insolvency solution.

On top this, they then get a bill for £28,000, which although they are not liable for, has to be paid from the estate.

It is clear from information provided by Mr Beattie, the Insolvency Practitioners fees made up only a very small part of the £28,000, and most of the costs were related to the settling of the debt, winding up her estate and paying statutory fees.

Much of which would have been incurred by her Executor if she had not been in a Trust Deed.

Lessons to be Learned

However, some important policy points arise from Mr Beattie’s case study.

First, if the Scottish Government want to present the Debt Arrangement Scheme as a less risky solution than Trust Deeds, because at least if it fails someone’s debts will be lower, then they must change the law to ensure creditors cannot reapply interest and charges if a case is revoked.

It is all very well stating most creditors won’t, but there is every possibility, legally, they could and a consumers debt may end up being higher considering the levels of contractual interest and fees consumer creditors can charge.

Second, they should explore legal devices to ensure if a case is revoked the 22% payment distribution fees and DAS Administration fees are removed from the balance of debts owed.

Third they should also change the law to ensure that the effect of someone dying in the Debt Arrangement Scheme is not their Programme is revoked.

Instead they should apply a 12 month moratorium to the case to allow an Executor to be appointed and settle the debts if there are sufficient assets available to so.

Finally, the Scottish Government should reduce the level of Statutory Interest that is applicable, from 8% to 1-1.5% above the Bank of England Base Rate.

This is long overdue and even in 2016 Scottish Government Minister, Paul Wheelhouse, described it as punitive. They still have not acted.

Can School Meal Debt be Recovered?

Can School Meal Debt be Recovered?

Ross Grier, the Scottish Green Member of the Scottish Parliament has called on the Scottish Government to cancel what is believed to be over £1 million in unpaid school meal debt.

The revelation that the amount of unpaid school meal bills now owing to Scottish Local Authorities is in excess of £1,168,755 will surprise many.

However, the amount owning is expected to be even more as debts owing to:

  • Glasgow City Council;
  • Edinburgh City Council;
  • Midlothian Council;
  • Falkirk Council;
  • West Dunbartonshire Coucil;
  • Renfrewshire Council; and
  • Clackmannanshire Council

are not in included in that figure.

However, of those that responded to the Freedom of information requests, Aberdeen City Council is owed £434,545, whilst North Ayrshire Council is owed £168,854.

Other Local Authorities that are owed money are Aberdeenshire Council that is owed £98,985; Fife Council that is owed £55,455; and Dundee City Council that is owed £20,650

Speaking on publication of the figures, Ross Greer said:

“Children are going hungry in Scotland and we know that means-tested free school meals miss out far too many families who need them”.

“This frankly astonishing mountain of school meal debt should be written off immediately”.

However, Aberdeen City Council co-leader Douglas Lumsden has hit back at Mr Greer, stating:

“It is complete hypocrisy by the Scottish Greens to be calling on local authorities to write off money and take it from other front-line services”

“The Greens constantly prop up the SNP Government to allow them to pass a budget that continues to make Aberdeen one of the lowest funded councils in Scotland”

“We will continue to try and recover outstanding amounts owed while protecting the most vulnerable in society”.

Who is Liable for School Meal Debt?

Questions must be asked, however, against whom can the debt be recovered?

The Education (Scotland) Act 1980 does allow Scottish local authorities to provide children with school meals, but such provisions are only legally required where children are in Primary 1-3 or in receipt of certain income-based benefits.

The Act does say they “may” provide School meals to other children under S53 (3) (b), but interestingly it also states where the local authority chooses to do so, they can only charge the pupil.

(3) The authority may provide or secure the provision of—

(a) other food or drink to pupils falling within subsection (7),

(b) food or drink to other pupils.

(4) Where the authority provides or secures the provision of food or drink under subsection (3)(a) or (b) to pupils, it may—

(a) do so free of charge, or

(b) charge the pupils.

Being realistic, therefore, as parents cannot legally be charged for the school meals and, no Scottish Local Authority operates restrictions of school meals, where there is a debt, the question must be asked how recoverable is the debt, if it can only be recovered from pupils, who have no income?

Free school meals are available to children in Primary 1, 2 and 3 in Scotland, regardless of parental income.

Children are also entitled to free school meals where their parent or guardian is in receipt of

  • Universal Credit (where their monthly earned income is not more than £610)
  • Income Support
  • income-based Job Seeker’s Allowance
  • income-based Employment and Support Allowance
  • support under Part VI of the Immigration and Asylum Act 1999

Children are also entitled to free school lunches if their parent or guardian receive:

  • Child Tax Credit, but not Working Tax Credit, and their income is less than £16,105
  • both Child Tax Credit and Working Tax Credit and have an income of up to £6,900

For more information on Free School Meals visit the Scottish Government Webpage on eligibility.

Could Scotland abolish Sheriff Officers?

Could Scotland abolish Sheriff Officers?

Does Scotland need Sheriff Officers?

I don’t think so.

I think with several legislative changes, the requirement for Sheriff Officers could be removed and the process as to how debts are recovered could be radically reformed.

This I believe would significantly reduce the costs involved for those seeking to recover debts, and for those who owe debt.

Scottish Diligence Statistics

The reason for me believing this has been brought on by the recent release of Scotland’s Diligence Statistics for 2018-19, which cover the types of legal debt recovery procedures that are used by Sheriff Officers.

These statistics bring into sharp focus the issue of how Council Tax debts in Scotland are being collected.

What the statistics show is that almost 88% of all work carried out by Scotland’s equivalent of Bailiffs, Sheriff Officers, is to recover Council Tax debts,  and probably adds close to £30 million onto those debts in the form of Sheriff Officer fees (Unanswered questions over local authority debt statistics – The Herald; 18th December 2019)

The type of work carried out by Sheriff Officers on behalf of Scottish councils includes:

Now this is concerning, as what the statistics also show is that the use of Sheriff Officers to recover debt by non-local authority creditors has fallen by 24.3% since 2011-12, but over the same period Scottish local authorities increased their use by 27.8%.

Also, in 2018-19, this continued with the use of Sheriff Officers by non-local authority creditors falling by 42%, whilst local authority use increased by 15%.

Which begs the question are Sheriff Officers advising Local Authorities to take a more aggressive approach to debt recovery to compensate for the loss of work by other creditors?

It also raises the question whether a radical overhaul of how Diligence (legal debt recovery) is executed in Scotland could significantly reduce the amount of fees that are being applied to the debts of those in default?

Scottish Councils should have their powers to recover debts increased

Now, a simple answer to this problem may simply be to increase the power of Local Authorities to recover debts.

Take, for example, Direct Earning Arrestments. These are types of wage arrestments that are used by Local Authorities and the Department of Works and Pensions for benefit overpayments. They are effectively wage arrestments.

However, unlike Earning Arrestments (which are governed by the Debtors (Scotland) Act 1987), there is no requirement for Local Authorities to use Sheriff Officers to execute a Direct Earning Arrestment. They simply send the Arrestment Schedule to the Bank themselves.

This begs the question why for Earning Arrestments, we could not allow local authorities to do the same ? If they can do it for one type of wage arrestment, why not for another, removing the requirement to use a private sector Sheriff Officer.

Which then begs the question, why then not also allow them to do the same for Bank Arrestments?

And if we are going to allow them to do that, then why not also allow them to send Charge for Payments by post?

This would arguably save tens of millions of pounds being added onto Council Tax Bills in the form of Sheriff Officer fees.

Council’s would not be alone in having such enforcement powers. As mentioned above, the Department of Works and Pensions also have the power to execute Direct Earning Arrestments without using Sheriff Officers.

The Child Support Agency and Child Maintenance Agency also have similar powers when it comes to Direct Earning Orders for child maintenance payments.

But not all debts are for Council Tax

However, this raises the question what about other debts, as not all debts are for Council Tax and not all debt recovery procedures are those mentioned above.

Well there is a simple answer to that question, in that these remaining types of debts and procedures could be recovered and executed by Court Enforcement Officers employed by the Courts.

In Northern Ireland such a model already exists where it is Court Officers rather than private Bailiffs that recover debts.

Court Enforcement Officers could therefore be employed on a full cost recovery basis by the Scottish Courts and Tribunal Service to recover these other types of debts and to carry out other types of enforcement procedures, for both Local Authority and non-Local Authority debts. They could also take on the role of Fine Enforcement Officers, who already exist in every court and can also execute bank and earning arrestments without having to use Sheriff Officers.

As all this would be done on a cost-only recovery basis, I believe it would help reduce the cost of recovering debts in Scotland for both those in debt and those that are owed debts.

It would also bring forward some radical reform to how debts are recovered in Scotland, which inevitably will have to occur anyway.

The simple fact is, if our entire system of enforcing Court Orders is being susidised by a form of Local Government taxation that none of the major political parties support, then reform will eventually be inevitable, as will how debts are recovered in Scotland.

It would seem logical to me, to begin that process of reform, sooner rather than later as currently Sheriff Officers have become overly dependent on Local Authorities for work and this is only adding to the misery of those struggling with Council Tax debts, as they are disproportionately bearing the burden of funding this no longer sustainable industry. 

Debt Advice Route Map Takes Wrong Turn

Debt Advice Route Map Takes Wrong Turn

The release of the Scottish Government’s much anticipated, and two months’ overdue, Debt Advice Route Map, is one of those moments, if you were driving your car, you would re-examine your Sat Nat and wonder why you ended up in a boggy field.

It wouldn’t have been so bad, if this Route Map had been published two years ago, like when it became clear local authority money advice services had suffered 45% cuts in the three pre-ceding years.

However, after two years of preparation, and five meetings of the Tackling Problem Debt Working Group, the only thing remarkable about the process and the Group’s final recommendations, was how unremarkable and uninspiring they were.

The reality is, despite the abundance of press coverage of this Route Map, the only thing certain at present is Scotland’s free, face-to-face money advice services will face more debilitating funding cuts over the next 12 months.

Minister, Jamie Hepburn, in this report, offers nothing that will prevent that.

The Tackling Problem Debt Working Group

The report described the meetings of the Tackling Problem Debt Working Group as:

 “…lively, challenging discussions, revealing the complexity of the debt advice landscape, and its clear links with wider advice provision”.

This may as well read: the meetings were consumed by discussions and arguments by the participants about what was in it for them and there was a serious lack of any strategic vision or thought as to the future of free money advice in Scotland.

Hence why the resultant Route Map was two months’ late and hence why it has already had a lacklustre and disappointing reception by front line advice workers.

What is lacking from the Route Map?

Well other than having no strategy as to how to increase capacity in the free, face-to-face money advice sector, when demand is on the increase and 14.2% of the Scottish population are struggling with problem debt, it offers no extra funding for free debt advice services.

The Financial Conduct Authority Debt Advice Levy, which it deals with, was devolved in January 2019, and is not new funding, and is already funding the already under funded money advice sector in Scotland.

So, any suggestions this Route Map contains proposals that will see more Scots offered more face-to-face, free debt advice, is nonsense.

In addition, the proposal commits to funding National Debt Helplines that are already funded by the banks or under-utilised and begs the the question why, when funding for front-line, face-to-face services are so underfunded, the Scottish Government are proposing to use public funds to fund services already self-funded through arrangements they have with the banks (Where Has the Scottish Debt Advice Levy Gone?)

The problem is the Tackling Problem Debt Working Group failed to contribute meaningfully to the debate on what is the future of free money advice in Scotland.

It had no new ideas and the debate, judging from the minutes and papers that came out the meetings were poor, and much of its reasoning was based on the flawed and now discredited Peter Wyman Report into the Funding of Free Debt Advice in the UK.

This Debt Advice Route Map is not one of those golden moments in Money Advice in Scotland, such as the one that followed the Striking the Balance Report produced in the early years of the Scottish Parliament that led to a significant increase in funding for free money advice; or even that which followed on from the Debt Action Forum in the aftermath of the Credit Crunch.

No this is more a speed bump on the road that is leading to the decline of free, face-to-face money advice services in Scotland.

With Brexit now approaching fast on the horizon, the truth is the Scottish Government have no strategy, no Road Map, and they don’t even have control of the brakes on the run-away car crash that is awaiting those Scots who will soon be seeking help with problem debts.