Bank Arrestments are Forcing Thousands into Hardship

Bank Arrestments are Forcing Thousands into Hardship

The rise in the use of Bank Account Arrestments in Scotland (also known as Actions of Arrestment and Furthcoming) , to recover debts, is a growing cause for concern and forcing thousands of Scots to experience serious financial harm each month.


In many cases, the debt recovery tool that can only be used by Sheriff Officers, is forcing thousands of Scots into having to choose between buying food, paying rent or heating their home.


In the worst-case scenarios, the legal debt recovery tool is forcing many to seek help from food banks.


Even where the Bank Arrestments are not successful, because someone has insufficient funds in their account, they  still have the costs of the process added to their debt and banks add on a £25 administration fee (which when you only have Universal Credit can leave you suffering severe financial harm until your next payment).

Bank Arrestment Numbers Continue To Rise 

Last year in Scotland over 173,000 non-earning arrestments were executed by Sheriff Officers, with the vast majority being bank account arrestments (a 33% increase on the number since 2011-12).


These arrestments, once served, then force the bank to arrest all sums in the account over £529.90 (the Protected Minimum Balance) up to the amount of debt that is owed.


Unlike Wage Arrestments, however, Bank Arrestments do not restrict how much Sheriff Officers can take over the Protected Minimum Balance (PMB) of £529.90.

With a wage arrestment, only 19% of the amount above the PMB can be taken (until the monthly sum earned is over £1,915.32, when the percentage increases to 23%).

This means if you get your wages arrested and earn only  £1,200 per month, you will only have £127.19 taken. However, with a Bank Arrestment,£670.10 will be taken (assuming your debt is that or more).

It is no wonder, therefore, that last year in Scotland, when over 170,000 Bank Arrestments were executed, approximately only 70,000 Earning Arrestments were carried out.

Why arrest someone’s wages when, if you wait for them to be paid into their bank account, you can get £670.10 instead of £127.19?

Unduly Harsh 

Scots Law has always recognised the potentially harsh effects of Bank Account Arrestments, which is why in 2008 the Protected Minimum Balance was introduced.

However,  the level of protection the PMB provides is grossly inadequate. It has always been linked to the Protected Earnings Limit that exists in Wage Arrestments, but has never included the additional protection of restricting the amount that can be taken above the PMB.

Also, although it has always been possible to challenge a Bank Account Arrestment, on the grounds it is Unduly Harsh, this a Court Based procedure and can take over 8 weeks before you get a hearing in front of a Sheriff. By then it is too late and the undue hardship has already been suffered.

Statutory Debt Solution Review

I would call on the Scottish Government to use its recently announced Review of Statutory Debt Solutions as an opportunity to review what remedies consumers have when their bank acccount is arrested.

There is no question, that Bank Arrestments, one of the harshest forms of debt recovery available, are now excessively being used and risk bringing the whole procedure into disrepute.

Equally, how can leaving families, often with children,having to choose between  heating their homes and feeding themselves not be described as unduly harsh?

As an immediate solution, subject to eventually increasing the level of protection for funds held in bank accounts, I would urge the Scottish Government to replace the Court based procedure for challenging a Bank Account Arrestment, with an administrative procedure.

This would mean allowing people, with the assistance of a Money Adviser or Insovency Practitioner, to apply for a Bank Arrestment to be recalled or restricted to the Accountant in Bankruptcy’s Office.

Such a process would be free, quick and would also require the person  to seek advice, whilst avoiding them having to choose between feeding themselves and their children, heating their home or paying their mortgage or rent.

 

 

 

 

The Iron Fist of Debt Recovery

The Iron Fist of Debt Recovery

It has been a decade since statistics were available into the use of diligence in Scotland. New figures show a country ridden with increased aggression in debt recovery, and a Sheriff Officer profession largely sustained by the enforcement actions of local authorities.

New Scottish Government figures have provided the first real look at how the use of diligence in Scotland has evolved over the last ten years with the abolition of poinding and warrant sales and the implementation of the Bankruptcy and Diligence Etc (Scotland) Act 2007.

What is revealed is that the use of diligence has increased by 134% in the last ten years and that local authorities are now responsible for 84% of all the 387,945 diligences executed in 2011/12. It is also clear Councils are now spending millions more in debt recovery than previously, with 76% of the total 338,701 charge for payments being served being done so for local authority summary warrants (prior to 2008 there was no requirement to serve a charge to execute diligence using a summary warrant.)

Non earnings arrestments have also increased with local authorities now executing more than three times the number they executed in 2002, which indicates increased aggressiveness by councils, but also possibly that more arrestments are failing and being repeated because of changes introduced by the 2007 Act, which introduced protection for minimum amounts in bank accounts.

Earning arrestment figures have also doubled, indicating changes in recovery strategy for councils and other non summary warrant lenders, but also possibly the success of the new s70A of the Debtors (Scotland) Act 1987, which introduced a new requirement on employers to inform creditors of employee’s new employment details when employment with them has ceased.

Not all diligences have, however, proved popular. The replacement to poinding and warrants sales only saw 2,758 attachments and 51 exceptional attachments being executed. Contrast that with the number of poindings in 1997 (18,980) and its clear to see the corporeal property of debtors is now safer than ever.

Money attachments have also not proved a hit with only 502 being executed nationally.

Some diligences are more common amongst certain creditors than others. HMRC, for example, most commonly use non earnings arrestments (6,437) rather than earning arrestments (467). They also are more likely to use money attachments than local authorities and other non summary warrant lenders.

Local authorities most commonly use non earnings arrestments (219,905) than earning arrestments (116,703) and rarely appear to use any other type of diligence.

Non summary warrant creditors in contrast are more likely to use earning arrestments (17,127) than non earnings arrestments (7,643) and are also the highest user of attachments (1,755), possibly indicating more intelligence based recovery as they are more likely to have information on debtors employment, unlike statutory creditors like local authorities. In one sheriffdom there were more earning arrestments executed for summary warrant debts than non earnings arrestments, but that was the exception.

A number of conclusions can be drawn from these statistics.

First, recent criticism that Scotland has become overly debtor friendly is not true, but clearly local authorities are struggling to recover local taxes.

Second, it is also obvious that although many of these problems may disappear should Scotland introduce a Scottish Income Tax, collected at source this will have a dramatic effect on Scotland’s legal debt enforcement system as sheriff officer firms are clearly over dependent on local authority revenue.

Third, if the whole purpose of the review carried out by the fist Scottish Executive into debt recovery which culminated with the Striking the Balance Report was to create a less coercive system then it’s failed. Even allowing for changes in tactics, no one could have imagined a 134% increase in the use of diligence. The recent growth in schemes like the Debt Arrangement Scheme, which now see over 3,000 people applying per year, is still not enough, when over 338,701 Charge for Payments are being served, 134,297 earning arrestments are being executed and 233,985 non earnings arrestments are being applied for. It is clear the collaborative approach that was hoped for is still not being achieved and legal debt recovery is still, in relation to local authorities at least, based on a hit and miss, threat based approach rather than one based on intelligence and working with debtors.

It also doesn’t help that the Scottish Government has still not implement S74D of the Debtors (Scotland) Act 1987, which requires lenders within 48 hours of executing a non earnings arrestment to serve on the debtor a Debt Advice and Information Package advising them where and how to seek advice on how to deal with their debts.

There is no easy answer to the current problems, but encouraging more people to seek advice and agreements with their creditors should be a priority for the Scottish Government; also a further review of local authority enforcement powers under the summary warrant procedure is now long overdue. It should be borne in mind that widespread abuse of these powers and the diligence of poinding and warrant sales is what eventually discredited that diligence and led to its abolition: we can avoid repeats with other diligences by acting now.