Rising Living Costs: could the Debt Arrangement Scheme help?

Rising Living Costs: could the Debt Arrangement Scheme help?

As Scotland emerges from Covid, hopes we would be entering a better future appear to be getting dashed quite quickly.

The truth is we are now facing another crisis, in the form of the rising living costs, which over the next year is likely to see gas and electricity prices soar, accompanied by food and fuel prices.

At present inflation is averaging around 5%, but in all likelihood, it could rise to 7%: a level not seen in decades.

However, for most families the real level of inflation is likely to be more, as the truth is lower- and middle-income families tend to spend a higher proportion of their income on those items that are seeing the highest levels of inflation, such as gas, electricity, and petrol.

Also, as more and more businesses begin to return to the workplace, ending working at home, this will place increased travelling costs on many families and, therefore, additional pressure on budgets.

What can be done if your household finances are under pressure?

The problem for many households is that as the cost-of-living increases, it’s not easy to budget. Many of our household essentials are fixed. Mortgage, rent, council tax etc. Some expenditure we might be able to reduce by switching suppliers, such as insurances and broadband providers, but most of these savings will be marginal in what are already highly competitive markets.

However, if people are struggling with their household budgets against a backdrop of rising costs, then they should look at all their household expenditure to see where savings can be made.

So, if our fuel bills are increasing, even if we can’t make savings in relation to them, we should look at where else we can make savings.

But making Savings isn’t as easy as many suggest

The problem is inflation is affecting many of our essential expenditure, so reducing costs is not easy. How do you cut your expenditure on food, when prices are rising and you are already receiving less for your money? The same applies for other items and with the domestic energy markets effectively dysfunctional, with over 30 companies believed to have collapsed in the last year, switching providers will not bring the benefits it once did.

The truth is for many, once they have looked at their budget, the only place they will be able to make savings will be in relation to debt payments, such as credit cards and loans. These costs, however, are also often fixed, and require a minimum payment each month.

Could the Scottish Debt Arrangement Scheme work?

It may be, however,  for some Scottish consumers, the Debt Arrangement Scheme may provide some form of solution. Not only because it may allow people to make reduced payments to their debts, whilst also freezing interest and charges, but because unlike other formal debt solutions in Scotland, there is no requirement under the law that when you make a proposal under the Scheme, that you have to offer your creditors all your disposable income.

This little known feature of the Debt Arrangement Scheme may become a game changer in the coming period, when many are looking for help with their debts. 

It means, that even if you are in debt and need a solution for repaying those debts, you can set up a plan that still has a cushion built into it that will allow you to make a proposal to your creditors that doesn’t mean you have to give them all your disposable income each month.

The benefit of this, is that cushion may still allow you to absorb any further cost of living increases over the coming months and years, without having to miss any payments to your  Scheme.

What is the Debt Arrangement Scheme?

The Scottish Debt Arrangement Scheme is a Scottish Government Scheme, that is not a type of insolvency and allows you to repay your debts over a reasonable period.

It does not need to affect your car, even if you have it on finance, or your home, providing you make your payments as normal. 

It also protects you from Sheriff Officers and all you pay each month, is one payment, which is distributed to all your creditors by a Payment Distributor.

The Debt Arrangement Scheme is also free, so every penny you pay, goes to reducing your debts. If you want to see if the Debt Arrangement Scheme is suitable for you, use our tool below, or speak to us on Messenger. 

Scottish Debt Solution League Tables

Scottish Debt Solution League Tables

Information from the Scottish Government, covering the period from the 20th December 2020 and the 30th of September 2021, shows which organisations provided debt solutions to people struggling with problem debt over that period.

The Scottish Debt Arrangement Scheme

The Scottish Debt Arrangement Scheme is a formal debt repayment plan that allows people to repay their debts. Under the Scheme, those struggling with problem debt can propose to repay their debts to their creditors, using just one payment per month, through a Payment Distributor. Importantly, the Scheme is free to those in debts, although creditors who have their debts included in a Scheme have to pay 22% towards the cost of setting up and administering the Scheme.

The Scottish Government only report organisations that have done more than 25 DPPs. The rest are included in other.

Money Advice Organisation Number of Approved DPPs.
Carrington Dean Group2,035
Harper McDermott592
J3 Debt Solutions241
Interpath Advisory88
Wilson Andrews67
Begbie Traynors61
Citizen Advice Fife37
Wylie & Bisset30

Local Authorities and Citizen Advice Bureaux

Local Authority and Citizen Advice Bureaux, not for profit, local advice organisations also provide Debt Payment Programmes. In the list above (organisations that have done more than 25) only one of these types of organisations appeared, and that was Citizen Advice Rights Fife. Of those “Other” Organisations, 165 DPPs were carried out by Local Authorities and Citizen Advice Bureaux.

Organisation TypeNumber of DPPS Approved
Local Authorities69
Citizen Advice Bureaux96

Bankruptcy: Certificate of Sequestration

For people in Scotland to apply for their own Bankruptcy (also known as Sequestration), they first need to have a Certificate of Sequestration signed.  Between the 1st December 2020 and the 30th September 2021, the following organisations signed Certificates of Sequestration. 

There are two processes that can be used when someone is going Bankrupt in Scotland, one is Full Administration Bankruptcy and the other is using the Minimum Asset Procedure. The figures for Certificates of Sequestration are broken down into the two procedures used.

Money Advice OrganisationNumber of Certificate of Sequestrations (MAP)
Citizen Advice Rights Fife115
Christian Against Poverty44
South Lanarkshire Council – Money Matters39
West Lothian Council37
Inverness, Badenoch and Strathspey CAB30
Aberdeen Council28
North Lanarkshire Council27
Moray Council27
Haddington CAB25
Scottish Government only report organisations doing more than 25 Certificates of Sequestration
Money Advice OrganisationNumber of Certificate of Sequestrations (FAB)
Wylie and Bisset36
The Scottish Government only report Organisations that have done more than 25 COS

Protected Trust Deeds

Protected Trust Deeds are a type of personal insolvency in Scotland and must be administered by private insolvency practitioners.

Trustee OrganisationNumber of Protected Trust Deeds
Carrington Dean1,549
Harper McDermot1,349
J3 Debt Solutions473
Wilson Andrews249
Interpath Advisory197
Wylie and Bisset146
YEG Insolvency (formally AGT Insolvency)95
Begbie Traynors36
Hanover Insolvency34
Parker Phillips Insolvency26
Debt Arrangement Scheme: What is Changing?

Debt Arrangement Scheme: What is Changing?

The Scottish Debt Arrangement Scheme (DAS), the UK’s only formal debt repayment plan, is intended to help people struggling with problem debt and will be changing from the 4th November 2019.

The changes, that will come into force are contained in the Debt Arrangement Scheme Amendment (Scotland) Regulations 2019, and ARE intended to introduce a number of improvements to the Scheme.

Private Management Fees to be Abolished

The first of these change are that no-one who applies to the Scheme will have to pay a fee, even if they apply to the Scheme through a private debt management firm or insolvency practitioner.

In actual fact, charging a fee to the consumer in relation to the Scheme will be illegal after the 4th November 2019.

Automatic Approval

Second, whenever someone makes a proposal to the Scheme, it will now be automatically approved, even if some of the creditors object to it, providing they don’t have more than 10% of the total debt owed.

Where they are owed more than 10% of the debts in a proposal, the proposal will go to a fair and reasonable test administered by the Debt Arrangement Scheme Administrator, who will decide whether or not to approve the programme. However, with 96% of all applications being approved by automatic approval or the fair and reasonable test, it is anticipated even if more applications are not approved, those that are, will be approved quicker after the change are introduced.

Changes in Circumstances

Thirdly, where someone is already in a Debt Payment Programme, the Debt Arrangement Scheme Administrator, must approve that variation if all the creditors agree to it; or the change in the payments will mean the Programme will finish sooner than was originally proposed.

Payment Breaks

Finally, it will now also be possible for those in the Debt Arrangement Scheme to request up to two payment breaks each year (each break cannot be for more than one month), if they experience an unexpected crisis. Where they experience such a crisis, it will be for their money adviser to approve the payment break.

Questions for the Minister

Questions for the Minister

Scottish Government Minister for Business, Fair Work and Skills, Jamie Hepburn, is due to give evidence to the Economy, Energy and Fair Work Committee on Tuesday, 17th September.

The evidence session will be to help the Committee further consider the Debt Arrangement Scheme (Scotland) Amendment Regulations 2019 and follows previous evidence that has been given by the Money Advice sector , the insolvency industry, credit unions and the Accountant in Bankruptcy.

So what line of questioning and what questions may the Committee want to take up with the Minister?

The first question that Mr Hepburn will most likely answer when he begins to give evidence is whether he is willing to withdraw the Regulations, to allow them to be amended, as the Committee has asked, before re-tabling them?

This would  be to allow the 20% Payment Distribution Fee to be split into a Payment Distribution  Fee, a Money Adviser Fee and a Debt Arrangement Scheme Fee.

Money Adviser Fee

Concerns have been raised about the lack of transparency in the Fee Structure by Citizen Advice Scotland, Money Advice Scotland and UK Finance (who represent over 250 Creditor organisations).

In addition  to this, on the 12th September, at a Ministerial meeting with Jamie Hepburn and the money advice, insolvency and creditor industry, it was brought to the Minister’s attention that the two largest Payment Distributors and providers of the Debt Arrangement Scheme, Stepchange and Carrington Dean, would support a short withdrawal to allow the Regulations to be amended and re-tabled. Citizen Advice Scotland also supported the Regulations being withdrawn and amended.

However, at the Ministerial Meeting, the Minister said he was not sure if he could do what he was being asked.

However, there is no question that he can.

Section 7 (1) (b) of the Debt Arrangement and Attachment (Scotland) Act 2002 makes it clear the Scottish Minister’s can make Regulations concerning the operation of the Debt Arrangement Scheme, and in particular s7 (2) (ub) gives them the powers to make Regulations relating to the remuneration of Payment Distributors and Money Advisers.

Furthermore, Regulation under 7 (y) the Scottish Minister’s can make regulations in regards tos

(i) the consideration of applications for the approval, or the variation, of a debt payment programme;

So the Minister can create a three pillar fee structure, that includes a Money Adviser, Payment Distributor and Debt Arrangement Scheme Administrator Fee.

This would ensure Free Sector Money Advisers have a statutory right to be paid, where they are not Payment Distributors, for all their cases regardless  of who the Payment Distributor is.

Some have suggested, however, this is not what the Committee has asked the Minister to do. Instead, they have suggested that a Money Adviser fee be created which allows Free Sector Agencies to be paid in every case.

This is not what my understanding is of what the Committee intended, judging from the context of the submissions that have been made and the evidence that has been gave up to date. If such an alternative interpretation of the wording is even possible, the letter is not dictating how the amended legislation be drafted.

It has not been suggested by any of the Stakeholders such provisions be created. There have been proposals for a Scottish Debt Advice Levy, but this would be over all Formal Debt Solutions and would require further consultation and legislation to cover Protected Trust Deeds, Sequestration and the Debt Arrangement Scheme. It could clearly not be done by these Regulations which only address the Debt Arrangement Scheme.

What has been asked for is the creation of a three pillar fee structure for the Debt Arrangement Scheme, which is possible and has the support of UKfinance and Citizen Advice Scotland. I expanded on this fully in my submission to the Committee on the 11th September, which can be read here.

Even Stepchange and Carrington Dean, (the two largest Payment Distributors) and providers of the Debt Arrangement Scheme, have said they would also support a withdrawal to allow the Regulations to be amended.

One can only imagine that those arguing for such an interpretation of the Committee’s letter are trying to conflate two different proposals, to confuse the issue in front of the Committee.

eDen Software – Are the AIB Ready?

During the AIB’s evidence session with the Committee, Richard Lyle with his experience of working in the Debt Recovery industry, questioned whether the AIB were ready to launch the new Scheme on the 4th November.

Dr Richard Dennis gave assurances they were and revealed they had spent £50,000 acquiring new Payment Distribution software that would allow them to become Payment Distributors.

The problem is, apparently the implementation of the software is behind schedule and beleagured with problems.

Currently, existing Payment Distributors are complaining the new system is causing them multiple problems and Sharon Bell of Stepchange, referenced this in her evidence to the Committee and how it is costing them money.

Apparently, eDen has no letters uploaded on it, some debts are missing, balances are wrong and it’s API connection, which allows it to speak to the software of other Payment Distributors, is not working.

Unsurprisingly, Dr Dennis didn’t mention these issues to the Committee.

Possibly he isn’t aware of them or the extent of the problem, otherwise you would have hoped he would have raised them with the Committee members when asked if the AIB were ready.

However, during his evidence session,  Dr Dennis also on numerous occasions misinformed the Committee that the average payment in the Debt Arrangement Scheme was £400 per month, when it is actually £170 per month.

Neither the Head of Policy or the Head of Trust Deeds and the Debt Arrangement Scheme corrected him during the evidence session, despite the fact they would surely have known he was mistaken, as it was in their consultation  document on returning fees to the free sector.

The real problem is they may not know how their Payment Distribution software is going to work when launched to deliver their own Payment Distribution Service.

Both Stepchange and Carrington Dean use their own software for doing payment distribution, but must also upload their information onto the eDen system, so although the fact the AIB’s system is not working will be an inconvenience for them, they will be still operating.

However, as eDen will be the Payment Distribution  system the AIB will use and they have never operated as a Payment Distributor before, questions must be raised in light of the concerns being raised.

This is a further cause for concern, as it is only by using the AIB as a Payment Distributor under these Regulations that the Free Debt Advice Sector has a right to be paid, but with that it appears may come a period of unnecessary disruption and potential reputational damage for those Agencies that use their services.

These problems also make it likely Stepchange and Carrington Dean will not immediately increase their take up of Debt Arrangement Scheme cases until these problems are solved.  This is probably another reason why they are happy if the Regulations are withdrawn for a brief period and then re-submitted.

Conflicts of Interest

Colin Beattie has also pursued a line of questioning with the AIB over the potential conflicts of interest with the AIB acting acting as both a Regulator and a Payment Distributor.

Possibly, in light of the above problems with the AIBs own eDen system, this brings this issue into sharper focus.

Dr Richard Dennis made the point in the evidence session, it is the Financial Conduct Authority that licences Payment Distributors.

However, as was explained by Kelly Donohue,  Head of The Debt Arrangement Scheme at the AIB, although it is the FCA who licences the Payment Distributors, it is the AIB who authorise them to work in the Debt Arrangement Scheme market and ultimately is they who police them.

You may be a FCA licenced Payment Distributor, but if you don’t have AIB approval, you cannot work in the DAS market.

So, how will AIB police Payment Distributors, if their own service and software is experiencing problems and costing the other Payment Distributors money?

It sounds like a conflict that could be a problem soon after the commencement of these Regulations and a few extra months delay to amend the Regulations may not be the worse thing in the world, as it will give the AIB a few more months to get their systems in order.

Existing Cases – Private Sector

Another issue that was raised at the Ministerial Meeting was the issue of existing private sector cases in the Debt Arrangement Scheme, where consumers are paying a private Debt Management Fee.

The new Regulations will mean in all new private sector cases it will no longer be possible for private firms to charge a fee.

However, for those existing cases, consumers will be tied into their existing fee contracts, many of which will see consumers pay £1,000’s more than they would if they had used a free sector provider.  For many this will mean paying for years more than if their scheme was under the new Regulations.

The problem is the new proposals will not apply to existing cases and the current law does not provide them with any mechanism for transitioning over  to the new fee structure.

This then creates the problem, that with 3-4,000 cases under the old Regulations, 1,000’s may want to stop paying their current Debt Payment Programmes to  get them revoked, so they can apply under the new Scheme.

Dr Richard Dennis even admitted in his evidence in nearly every case this would be in their best interests.

He also admitted the AIB had taken legal advice and that came back to say  applying the new fee structure to existing cases would be legal.

In light of that, would it not be wiser to have a slight delay to explore whether a further amendment should be made?

A quick consultation could run for creditors on this point, whilst the new free structure is amended and as Jamie Hepburn said himself at  the Ministerial Meeting, although consensus was important, it was what was best for  the Scottish people that was paramount.

  • Surely, no-one in Scotland having to pay a fee for the Debt Arrangement Scheme was in the public interest?
  • Surely, 3-4,000 people not having to make the impossible decisions as to whether they should keep paying their Debt Arrangement Scheme was in the public interest?
  • Surely, not having rogues targeting existing private sector cases, to encourage people not to pay their Programmes, so they can steal the cases and generate fees of 20% was in the public interest?

However, the simple fact is because of FCA Regulations, these private sector providers may have to give their own clients that advice, to stop paying their Debt Payment Programmes, as they are required to review cases annually, and at that point advise the client, where a solution is no longer the best one for them, what is the best solution.

Paying £1,000’s more than you need to, for years more than you have to, is hardly best advice, regardless of what the AIB say.

As I have already said, The AIB have a high level of tolerance when it comes to consumer harm. The FCA call deciding what is best advice, the “Granny Question”. What would you advise your Granny?

Few would advise them to keep paying £1,000s more than they need to for years more than is necessary.

Surely, generating and extra £1.5-2 million in revenue for the Free Debt Advice Sector, at a time of reduced funding and lack of capacity, so that 7,000 cases, that generate £15 million per year for creditors, are continued to be supported is in the public interest?

Jamie Hepburn conceded at his Ministerial Meeting with the Sector that the existing private sector cases were a problem and he would have to  take advice. He also said the purpose of these Regulations was not to provide anything other than a token amount of funding for the free advice sector.

However, clearly charities like Stepchange and private firms are not going to operate the DAS for a token payment, so clearly the Regulations are about funding someone, as no-one will access the Debt Arrangement Scheme unless services are paid for.

Why would the Scottish Government want to create a scheme of “winners” and “losers” in the advice sector where the Free Debt Advice Sector are losers?

Dr Richard Dennis also said although amending the fee structure for existing cases was legal, applying it would be problematic.

First there is the issue of current Payment Distributors having to accept a new fee structure.

For two of the largest, however, 5% would be an increase on their current fees.

For Stepchange, for those cases they act as Payment Distributors for other Money Advisers, they would see their PD fee fall from 8% to 5%, but for their existing 3,500 cases, they would see their current 8% fee increase to 20%. They would be net winners overall.

Another huge benefit for all these providers administratively, is all cases would be on the same fee structure. Having some cases on one fee structure and others on another is a problem in itself.

For those creditors that would see their returns being varied, such variations are normal in Protected Trust Deeds and Sequestrations. Also they would be helping to support Free Debt Advice, which they nearly are all on record stating they support and accept they need to pay more for.

There is a further point. Most of these big lenders, who will be impacted, have for years operated a Fair Share Scheme for providers like Stepchange and Payplan and have been paying for Debt Management Plans for years. That Scheme was never extended to the Debt Arrangement Scheme or beyond those two providers, so despite the FCA taking the view that the DAS was the superior product, many have discriminated against Scottish consumers and benefited as a result.

It is only fair that discrimination ends for all existing cases going forward and I cannot think of a more noble reason for the Scottish Government to act in the public interest.

In Summary

The Debt Arrangement Scheme (Scotland) Amendment Regulations are widely supported Regulations, but Regulation 4 is flawed and that is widely recognised across the Sector.

It has many much desired  features , from emergency payment breaks and automatic approval of plans and variations, but we have to ensure these apply to existing cases, as well as new cases; and if they do, why not the fee structure? Effectively all cases need to have their terms varied.

The Fee Structure can be amended by Jamie Hepburn and calls to do so are fully supported by the largest Payment Distributors and providers of the Debt Arrangement Scheme in Scotland.

A short delay is not only supported by the Sector generally, but with the problems with the eDen software, probably wise, and until those problems are ironed out, any delay is unlikely to have a significant impact. We won’t see any dramatic increase in the uptake of the Debt Arrangement Scheme until the software issues are sorted.

It is for Jamie Hepburn to decide what course of action he takes on Tuesday, but if he accepts the Committee’s suggestion, it will be welcomed and supported across the Sector.

Committee Calls on Minister to Review Debt Arrangement Scheme Regulations

Committee Calls on Minister to Review Debt Arrangement Scheme Regulations

The Economy, Energy and Fair Work Committee of the Scottish Parliament has written to the Minister for Business , Fair Work and Skills, Jamie Hepburn to express their reservations about the Debt Arrangement Scheme Amendment (Scotland) Regulations 2019 (see letter here).

In the letter, which follow on from the Committee taking evidence from Money Advisers, Insolvency Practitioners and Credit Unions, the Committee has expressed concerns that the Regulations were laid too early.

They also express their concerns that the Regulations do not outline how fees generated from the free advice sector will be returned to them.

The Committee’s concerns come despite both the representatives of the Institute of Chartered Accountants of Scotland and Money Advice Scotland, David Menzies and Yvonne MacDiarmid, confirming to the Committee that the Regulations should be allowed to pass, whilst expressing their concerns in their Organisation’s written submissions.

Stepchange, who described themselves as “Winners”, also believed they should be allowed to pass, despite the concerns raised that the Free Advice Sector, like Citizen Advice Bureaus and Local Authority Money Advice Services would be losers.

All those who gave evidence in the first panel session expressed their concern with Regulation 4 and Mike Holmyard, from Citizen Advice Scotland, myself and Angela Kazmierczak called for the Minister to amend them first.

I believe that position is the one shared by the vast majority of face to face, front line money advisers, Creditors and Insolvency Practitioners, despite the views expressed by those who supported them being passed.

So what are the Debt Arrangement Scheme Scotland (Amendment) Regulations 2019?

The Regulations amend Scotland’s formal debt repayment scheme, the Debt Arrangement Scheme. They contain a number of provisions, widely welcomed across the debt advice, personal insolvency and creditor industry that will make it easier for people to apply to the Scheme.

They will also make it easier for people in the Debt Arrangement Scheme to miss payments when they suffer unexpected financial difficulties and allow them to be able to miss up to two payments a year for such reasons, without defaulting on their programme.

What the Regulations also do, however, is increase the costs of the Scheme to Creditors by over 100% from a maximum of 10% to 22%.

These increased costs are to ensure:

  • No one has to pay a private sector fee for entering the Scheme; and
  • The full costs of the Scheme, including the costs of being given money advice, are borne by the Creditors, rather than just the cost of payment distribution which was the previous position

Concerns about new Fee Structure?

Despite the positive nature of the Regulations, serious concerns have been raised in relation to:

  • The fact they were brought forward too early before a consultation on returning fees to the free advice sector was concluded;
  • How the new fee structure introduced gives 20% of the 22% fee to the Payment distributor and does not include any express provision in the Regulations for any funds to be refunded to the money advice agency;
  • How money advice agencies will be paid, if at all, and how much.

Speaking about the Fee Structure the Economy, Energy and Fair Work Committee, in its letter to the Minister, has expressed its concerns that the result of the consultation on returning fees to the free sector should have been released before the Regulations were laid in front of Parliament.

The Committee has also called on the Minister to consider creating statutory provision on funding such free advice agencies.

Finally, the Committee has expressed its concern that a new system of consumers having to choose their own payment distributor has no merit and will create unnecessary work for advice agencies and present consumers with impossible decisions for them to make. Instead they have suggested the Minister considers continuing with the “Taxi Rank” system where cases are allocated on a rotational basis from a panel.

The Committee has also asked the Minister to indicate whether the Scottish Government will give an undertaking to carry out a review of all debt options in Scotland.

What can the Minister do?

The Minister, Jamie Hepburn has a number of options.

He can do nothing, and wait and see if the Regulations will be approved despite the Committee’s concerns. This is a risky option, as two previous Regulations, drafted by the Accountant in Bankruptcy, have in recent years been withdrawn (The Bankruptcy Fees (Scotland) Regulations 2016 and The Common Financial Tool (Scotland) Regulations).

If the Committee chooses to write a Report recommending the full Parliament rejects the proposals, this would be extremely damaging and display an unwillingness to listen to the wider advice, personal insolvency and credit industry, including also the concerns of the Economy, Energy and Fair Work Committee.

Alternatively, he could withdraw the Regulations, amend Regulation 4 and re-table them, which is likely to satisfy the Committee and also ensure they would pass after 40 days with wide approval of the Sector.

Thirdly, he could withdraw them, not amend them and not re-table them and say they will be redrafted at a later date, after possibly a wider review of all debt solutions and the introduction of Breathing Space and the UK’s equivalent Statutory Repayment Scheme, which is not likely to commence until 2021.

The danger with this strategy, is first it in effect is a third Regulatory failure by the Accountant in Bankruptcy and must lead to questions about the suitability of some of those in senior positions to continue in their current roles.

It also leaves organisations like Stepchange with no viable funding model for continuing to provide the Debt Arrangement Scheme, as they claim the current 8% they receive is not sufficient to cover their costs.

It also leaves a free advice sector facing a funding crisis with no further sources of much needed revenue.

It also means, in all likelihood the Scottish Scheme, the First in the UK, and the model the UK model is based on will end up becoming an imitation of the UK Breathing Space and Statutory Repayment Scheme.

Ultimately, it would also seem like the Accountant in Bankruptcy are throwing the baby out with the bath water, and is unlikely to restore any goodwill in the relationship between them and their stakeholders, something that is in short supply at the moment.

A final option for the Minister is to ask that the Regulations be passed and promise to bring further regulations forward quickly to explain how free advice agencies will be funded.

However, the problem with this, is it would be a further set of Regulations, commencing at a later date, in a Debt Arrangement Scheme landscape littered with Regulations amending the Debt Arrangement Scheme (Regulations) 2011.

That would be an administrative nightmare for qualified solicitors, never mind money advisers. It would be quicker and cleaner to amend Regulation 4 now.

What should the Minister do?

What the Minister should do is bite the bullet, accept that there is a broad consensus on the Regulations across the Sector (something rarely achieved) and that by withdrawing them and retabling them with Regulation 4 amended, they would likely pass without contest in 40 days.

Those amendments should include:

  • Reintroducing the system of allocating free sector cases using the “taxi rank” system and a panel;
  • Allowing the fees to be applied to all current cases using the variation process to increase funding to free sector advice agencies;
  • Introducing a fee structure of:
    • Payment Distributors – 5%
    • Money Advisers – 15%
    • Debt Arrangement Scheme Administrator – 2%

He should then give an undertaking to carry out a full review of all Scotland’s Debt Advice solutions.

It would put Jamie Hepburn in a strong position, strengthening Scotland’s debt laws at a time when problem debt is on the rise and everyone across Scotland is facing a financially uncertain time. What is there not to like?

It would also provide an immediate injection of new funding into Scotland’s free advice agencies at a time of when funding is at crisis levels and would be a positive compliment to the launching by the Scottish Government of its Debt Advice Route Map, later this month.

Dividing up the Cake: The New Debt Arrangement Scheme

Dividing up the Cake: The New Debt Arrangement Scheme

The Accountant in Bankruptcy (AIB) has published their response to their recent consultation on the Debt Arrangement Scheme (Building a Better Debt Arrangement Scheme) and have revealed what their recommendations to Minister, Jamie Hepburn will be.

Like with many AIB policies, there is something to be commended in some of them, (necessary to get partial Stakeholder support), but much to be concerned about also.

The question needs to be asked, will the new Debt Arrangement Scheme be in consumer’s interests, or will it inevitably lead to people paying more for longer and remaining trapped in debt.

The AIB’s recommendations to the Minister are:

  • The AIB will recommend that providing existing private sector money advisers can show they meet the qualifying criteria, they will be able to act as payment distributors (PD).
  • The Accountant in Bankruptcy will recommend that they be allowed to become a payment distributor.
  • Consumers will be able to appoint their own payment distributor, which will include the AIB.
  • Where no payment distributor is appointed, the AIB will be the default payment distributor and will also act as the PD where an existing PD ceases to or no longer can act.
  • The AIB will recommend that there will be a new statutory fee on creditors included into a Debt Payment Programme of 20% (the AIB, however, don’t specify how this will be broken up between themselves, payment distributors and continuing money advisers).
  • Debt Payment Programmes (DPP) under the Debt Arrangement Scheme will automatically be approved where those creditors objecting have less than 10% of the total debt.
  • Where a variation of an existing DPP proposes the DPP should be reduced in duration, it will automatically be approved.
  • The AIB will be able to propose a variation on behalf of consumers, but only where advice is not required.
  • Short-term payment breaks will be introduced into the Debt Arrangement Scheme that can be approved by the Money Adviser.
  • These will not amount to more than two breaks, each lasting no more than a month, in any rolling twelve month period.
  • These breaks can be consecutive.

Having read the recommendations, I am struck by a number of thoughts:

  • First, these recommendations, if accepted by the Minister, (which is highly likely) are likely to be a significant game changer across Scotland in how advice is delivered and by whom.
  • It’s likely, for example, 6 months after they are introduced, there will few consumers using free sector providers, other than maybe Stepchange, to enter the Debt Arrangement Scheme in Scotland.
  • This is likely to change the face of free sector money advice in Scotland and how it is funded and for many services will be pose an existential threat.
  • Agencies that continue will become poverty farms, with all the stigma associated with that and advisers will find their time consumed with Minimum Asset Bankruptcies, asking for write offs or helping poor people manage being poor.
  • The AIB, if they succeed in clamping down on consumers using protected trust deeds ( see Blue Sky Thinking Scotland’s Debt Law) , will still be okay, as the reduction in trust deed fees will be made up by
    new payment distribution revenue fees.
  • Although creditors will pay more in DAS, they will pay less in Protected Trust Deeds, but the most vulnerable consumers will pay more overall when they have problem debts.
  • The risk to consumers is being ignored, as by pushing more people into the Debt Arrangement Scheme and longer repayment plans, the high levels of failures are being ignored, which ultimately may mean the 20% fees will be borne by consumers, as creditors only pay these if the programme is successfully completed.

Like all AIB policies there are good elements in them, but against a context of the AIB’s interests being conflicted, much to be concerned about.

Consumer interests, as always, are low down on the agenda.

Who is Providing Money Advice in Scotland?

Who is Providing Money Advice in Scotland?

Despite experiencing cuts of up to 45% in funding between 2014 and 2017, new statistics produced by the Accountant in Bankruptcy (AIB), released under Freedom of Information legislation, shows that locally based, face to face money advice services across Scotland continue to be major providers of formal debt solutions.

By Agency Type

The statistics show, by agency, who is providing access to the Debt Arrangement Scheme (DAS) and issuing Certificates of Sequestration (COS) (the primary route used to enter bankruptcy).

Although the largest agency, by far, is Stepchange, the national debt charity, what is also revealed is that local, face to face money advice agencies (which includes local authority services, Citizen Advice Bureaux, and independent advice agencies) continue to provide more access to these debt solutions combined than any other agency type.

Also, as the AIB only list agencies by name where they have done more than 25 solutions within the last year, with 1,251 solutions not being attributed to any agency, the numbers for local, face to face service is likely to be higher.

Stepchange 1,1515481,69930
Insolvency Practitoners52126778814
Local Face to Face3171,4021,71913
Christians Against Povertyn/a70701

The breakdown for face to face advice agencies can be seen below:

Local Authority 16457173543
Citizen Advice Bureaux15371186450

National Providers

Interestingly, the statistics also show that (excluding private sector insolvency practitioners and Stepchange) national helplines and national debt charities provide very few solutions for clients in Scotland.

Christians Against Povertyn/a70704

This is important, as it is believed up to half of the Financial Conduct Authority Debt Advice Levy for Scotland, historically has been going to fund national helpline providers.

Interestingly, organisations like Advice Direct Scotland (who operate Citizen Advice Direct) and the National Debt Line are absent from the statistics altogether and Christian Against Poverty’s statistic are not much more than those of many local advice agencies.

This is also important, as when The Common Financial Tool regulations were passing through the Scottish Parliament, the Scottish Government tried to argue the evidence led by many local, face to face advice agencies was unrepresentative of the sector. Instead they relied on evidence of organisations who either don’t appear in these statistics or only play a small part in providing clients with formal debt solutions in Scotland.

Informal Solutions

However, the true significance of the figures are only understood when they are viewed in the light of the statistics produced by the Improvement Services into local authority funded, money advice services in 2016-17 (this included Citizen Advice Bureaux, council services, and independent advice agencies).

These showed that across Scotland these services reported approximately 111,000 contacts with clients, and of those approximately 49,000 were with new clients.

However, of the 8,022 debt strategies agreed with clients in that year, sequestrations only accounted for 16% , and the Debt Arrangement Scheme 8%.

This clearly shows that formal debt solutions represent a small, albeit significant, percentage of the solutions that were suitable for clients who sought advice from free sector, face to face money advice services in Scotland.

Statistic produce by Improvement Service

FCA Debt Advice Levy

These figures don’t cover Trust Deeds, which are exclusively provided by insolvency practitioners (private sector ) (there were 5,958 protected in Scotland in 2017-18).

What is clear, however, is that local face to face money advice services continue to be a major provider of formal debt solutions across Scotland.

What is also clear is that with FCA Debt Advice Levy Funding now being devolved to the Scottish Government, and with suggestions that up to 50% of it historically has been going to national debt charities, it is now time for these spending committements to be reviewed.

The Scottish Government is  currently consulting on how the funding should be spent from 2020 onwards.

It can only be hoped the importance of locally based, face to face money advice services across Scotland will be acknowleged.

Statistics on Debt Arrangement Scheme 2017-18 can be found here.

Statistics on Certificates of Sequestration 2017-18 can be found here.

The Top 5 Debt Arrangement Scheme Providers 2017/18

The Top 5 Debt Arrangement Scheme Providers 2017/18

The Scottish Government have released figures showing who the top five providers of the Scottish Debt Arrangement Scheme were in 2017/18.

The largest provider by far, was the UK debt charity, Stepchange.

This was followed by four other providers, only two of whom are Scottish-only providers: specialist private debt firm, Carrington Dean and also Citizen Advice Scotland member, Citizen Advice Rights Fife.

In total, there are 16 providers named,  4 of whom are local authorities, 3 Citizen Advice Bureaux and 7 insolvency practitioner firms.

The list only names those providers who did more than 25 Debt Payment Programmes (DPPs) in 2017/18, but notes “other ” money advice providers account for 14.9% of all other DPPs delivered.

Reduction in numbers linked to cut in public funding of money advice services

However, the 2,318 Debt Payments Programmes that were approved in 2017-18, represents a 45% reduction in the number of Debt Payment Programmes that were approved three years earlier in 2014-15.

Local authority funded money advice services over that period also saw a 45% reduction in funding, suggesting the fall in number is linked with cuts in funding for money advice services. 

What is the Debt Arrangement Scheme?

The Scottish Debt Arrangement Scheme is a formal debt repayment plan that allows consumers who are struggling with their debts to repay them through an organised plan.

Benefits of the Scheme are it:

  • Freezes all interest and charges;
  • Those in the Scheme only make one payment per month; and
  • Borrowers are protected from all debt recovery action by lenders.

For more information on the Debt Arrangement Scheme, visit my page on it here.





StepChange Debt Charity Scotland1,15149.65%
Pinnacle Debt Solutions1245.35%
Carrington Dean1044.49%
Citizens Advice & Rights Fife994.27%
North Lanarkshire Council682.93%
Campbell Dallas562.42%
Wilson Andrews522.24%
Murray Stewart Fraser492.11%
South Lanarkshire Council411.77%
Begbies Traynor411.77%
Inverclyde Council HSCP291.25%
Hamilton CAB281.21%
Perth CAB261.12%
The Moray Council261.12%
All other money advisers32914.19%



Parents Clubs Scotland

Parents Clubs Scotland

The Scottish Government have launched their new Parents Club Scotland website, to help support families raising young children in Scotland and to promote child and parental welfare.

Designed to take a holistic approach to family well-being, Parents Club Scotland aims to provide information on new Scottish Government benefits, including the Baby Box Scheme and the newly launched Pregnancy and Baby Payment Grants.

It also contains information on how to ensure your children are receiving a healthy diet and offers, day to day, practical tips on how to entertain your children and how to help get them to sleep.

Financial Health Checks

However, the site is not all about children, it is also about parents and recognising they need information, advice and support.

To that end, Parents Club Scotland is also seeking to promote uptake of the new Scottish Financial Health Check, which the Scottish Government has launched with Citizen Advice Scotland.

The new Financial Health Checks will support parents by providing them with benefit and budgeting advice and showing them how to access their credit reports, whilst also providing them with holistic advice on all their options when dealing with problem debts, including providing information on

For more information on Parents Club Scotland, visit the site here, or to get a Financial Health Check call 0800 085 7145.  Alternatively, browse Advice Scotland for more information.