Breathing Space

Blue Sky Thinking Scotland’s Debt Law

Blue Sky Thinking Scotland’s Debt Law

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On the 19th April the Scottish Government’s consultation into Protected Trust Deeds closed. For many the process will have felt like being trapped in a spinning hamster wheel.

The expression Groundhog Day doesn’t do the experience justice.

Another consultation on debt, more forewords littered with un-insightful arguments, and soundbites. 

I don’t believe Minister write these forewords, so hopefully without the risk of offending them, I will say I do think they speak volumes as to the lacklustre mindset that exists within the whole process of developing policy in relation to debt.

I recognise many of the arguments, I may even originally have made some of them in articles ten years ago, but re-reading them now, a decade later, still echoing around policy documents, is despairing.                                                                                 

Scotland’s debt laws are exceptional; the most progressive in Europe; we are the only part of the UK with a statutory repayment plan; we were the first to introduce a statutory moratorium; we need to strike the balance between the debtor and the creditor; those that can pay, should pay…ad infinitum.

The UK Government is playing catch up with Breathing Space, Statutory Repayment Plans, and tougher regulations for bailiffs, but at least their policy development has oomph and is responding to the needs of our time.

I have seen this before, in other countries, such as Ireland, where they may come late to the party, but the process can bring together new people, fresh ideas and perspectives and an enthusiasm to learn from other systems.

For those systems that don’t change, the risk is their complacency finds them stuck on the same track and the gloss fades quickly.

This is Scotland, caught in a post BADAS Act regulatory loop.

And I hesitate to say this, because inevitably the conclusion will be that even the most hardened in the industry are suffering consultation fatigue and this will be an argument for future inaction.

I am, however, suffering consultation fatigue. Fatigue from the same old lacklustre and tired ideas being reheated. Fatigue from the same over-used soundbites.

In 2011, I enthusiastically argued that Scotland’s debt laws were the most progressive in Europe. That was a long time ago and we have been eating out on that accolade for too long.

Debt law and policy began going wrong in 2013, underpinned by the completely unevidenced argument that the pendulum had swung too far in favour of the consumer and only creditors were allowed to make money from debt. The rest of the industry were only there to have their costs driven down by the AIB and to pay rising fees.

I honestly don’t understand why the Trust Deed consultation was run. If it was to ask whether Trust Deeds should be abolished, I could have understood that (although it’s not something I support), but we all know that the AIB are not about to slaughter the goose that lays the golden egg for their fees.

If it was to ask were failure rates too high, I could understand, but the AIB don’t discuss failure rates about any of their products, DAS or Protected Trust Deeds.

If it was to pick up the discussion on protecting equity in personal insolvency, which was shelved in 2010 and has never been revisited, I would have enthusiastically welcomed it.

Instead it’s about making Trust Deeds less accessible and driving down IP fees and forcing more consumers into paying longer in Debt Payment Programmes.  How is that progressive?

In their defence, the AIB argued this is what Creditors and the advice sector want. For Creditors, this means credit unions; and for the advice sector, I would challenge the AIB to evidence this assertion. I thought we were more concerned about consumer welfare, not maxing out creditor returns or minimising what they may pay in fees. Silly me.

In terms of Credit Unions, lets have a consultation on how personal insolvency should affect their debts. Surely this would be a worthwhile discussion. Better than the tiresome process of personal insolvency bashing and driving policy for minority creditors whose total debt makes up less than half of one percent of all debt in personal insolvency solutions.

I have in the past been described as a blue-sky thinker, which I believe in some circles is a derogatory term.

However, if ever Scotland required some blue sky thinking, it is now. We cannot go back to 2011, but if I could, I would hit the reset button tomorrow, so we could return to a time when it could be said Scotland had the most progressive system of debt laws in Europe.

My only consolation is I know the cracks and failings in the Scottish system cannot be bandaged up forever with AIB tinkering and soon it will become apparent to politicians that the arguments and soundbites are out-dated, plagiarised and from another time and no longer apply.

Then the narrative will have to change.

In the meantime, I suspect the Scottish Government will not be submitting any controversial regulations to the Economy, Energy and Fair Work Committee of the Scottish Parliament without two or three parts of the sector supporting them.

I don’t see that support being there for anything covered in the Trust Deed consultation. Certainly not anything that will stand up to robust scrutiny. It will certainly take more than a survey monkey style poll to conclude otherwise.

Learning to Breathe: The English Way

Learning to Breathe: The English Way

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Scottish money advice services should pay particular attention to the plans of the UK Treasury for statutory debt management and breathing space schemes for England, Wales, and Northern Ireland.

The schemes, which will not be extended to Scotland, as they fall within areas devolved to the Scottish Parliament, are already provided for by the Debt Arrangement Scheme (DAS) and the Statutory Moratorium process contained within the Bankruptcy (Scotland) Act 2016.

However, early Indications are, that the UK schemes are promising to surpass Scotland’s 14-year-old DAS Scheme in their forward thinking and their protection for financially distressed consumers and may provide a roadmap for improving the Scottish scheme, which in recent years has been struggling to remain relevant.

Length of Breathing Space and Freezing of Interest

The first proposal for the UK scheme, which is worth mentioning, has been called for by Stepchange, and is for the 6-week protection period, that currently applies to Scottish Moratoriums, to be extended to 52 weeks for UK debtors.

Also during that period, UK consumer champion, Martin Lewis, has called for consumers to be protected not just from enforcement action, but also from interest, fees, and charges being applied to their debts (MSE Call on Government to Give People in Debt Real Breathing Space).

If implemented, this would be an improvement on the current position in Scottish moratoriums, which do not freeze the interest and charges on debts (I argued for such a proposal in 2013, in response to the rise in payday lending, but the Scottish Government rejected it at the time, arguing the balance in favour of debtors had gone too far – see Civic Scotland Owes Scotland).

Recognising Debtor Repayments

Another area relates to a recommendation of the Money Advice Service in their recent report: UK Debt Solutions – recommendations for change, which has called for further exploration of debt ‘rehabilitation’, including better recognition of debt repayment.

It is a simple fact in Scotland, regardless of how much the Scottish Government promotes the Debt Arrangement Scheme over other solutions, bankruptcy can have a less damaging effect on someone’s credit rating than repaying their debts can. In bankruptcy, the debtor’s liability for their debts are ended when the debtor receives their discharge, normally after one year; whereas the person who takes ten years to repay their debts, must accept their accounts will show as being in arrears for that length of time (and their account payment history may appear for another six years after that).

Lack of Capacity

Finally, however, it may be that Scotland still has something to teach in relation to statutory debt repayment schemes, other than the mistakes we made.

It is quite clear that the UK will face the same problems that Scotland has, in that supply for free services is being outstripped by demand and the creation of a statutory scheme is likely to add to that demand.

In Scotland, it was not until after 2011 that the Debt Arrangement Scheme took off, when rules allowed greater opportunity for the private sector to participate. However, the practices of some parts of the private sector, particularly in relation to fees, are as much a cause for concern as they are elsewhere in the UK in relation to debt management plans.

It is partly for this reason, the Scottish Government have indicated they will consult on the introduction of a form of the Fair Share Scheme which is operated voluntarily by the UK clearing banks with organisations like Stepchange and Payplan.

The simple truth is, that although organisations like the Money Advice Trust appear to want to restrict provision of the service in the UK to free providers (Making the Treasury’s breathing space scheme as effective as possible), the capacity of the private sector will be required, although this does not mean services cannot still be provided on a free to consumer basis.

In conclusion

Scotland may have led the way in the UK with statutory debt repayment schemes and breathing space processes; however, that doesn’t mean we have a monopoly on knowledge. There are still things we can learn, as it is certainly true the Scottish schemes are not meeting expectations.