June 2013 Archives – Advice Scotland

Civic Scotland Owes Scotland

Alan McIntosh looks at the recent scrutiny of the new Debt Arrangement Scheme Regulations and argues a debt is owed to the people not just by the Parliament, but Civic Scotland.

Alan Cochrane, Editor of the Scottish Telegraph recently wrote a wonderful piece on the Scottish Parliament Committee’s that summed up what many are thinking but few have expressed: that the committees are no longer doing their job[i].

The cause of such failure? The iron clad fist of the Scottish Government which refuses to tolerate dissent from its MSPs.

It’s definitely one of the drawbacks of the SNP’s 2011 landslide and has exacerbated the weakness inherent in our unicameral system.

Cochrane cited the example of the Justice Committee and their consideration of the proposals to close 10 Sheriff Courts and 7 Justice of the Peace Courts; and featured the example of Roderick Campbell MSP, one moment expressing his disappointment Justice Minister, Kenny MacAskill wouldn’t reconsider his plans, but who then voted for them anyway, despite the fact his constituency’s Cupar Sheriff Court would be closed.

Another example was provided last week by the Economy, Energy and Tourism Committee and their consideration of the new Debt Arrangement Scheme Regulations. In addition to the Committee failing in its functions to provide proper scrutiny, what was also revealing was the growing political weakness of Civic Scotland.

The committee invited only three organisations to make written submissions and of these, the two that represented the advice sector both failed to identify key issues affecting their members’ client’s interests.

One of these was the fact the new regulations fail to go as far as they could to protect consumers from the now ubiquitous pay day lender. The new regulations do allow interest on debts to be frozen earlier, but fail to bring protections forward to the earlier point of when a debtor intimates that they intend to apply: a proposal that was overwhelmingly supported by the advice sector during the consultation stage of the Regulations.

The arguments for such increased protection is strong and would benefit not only debtors, but also other lenders who often see their proportion of a debtor’s total debt being reduced during the time it takes for a debtor to get advice and apply to the Scheme. The effect of this is socially responsible lenders then receive less each month and wait longer for their debts to be repaid.

In defending his decision not to make such changes, the Minister, Fergus Ewing, cited the fact currently only 41% of those that intimate an intention to apply actually apply. However, this ignores the fact most advisers only submit an application once the intimation period expires.

Also as the current intimation procedure only protects debtors’ from diligence, where there is no threat from those procedures, intimations are rarely use, which is in the majority of cases. Were, however, it to provide an interest freezing facility, it would be used in almost all cases.

In addition to this Fergus Ewing argued that such increased protection would only create additional problems, in that interest would be frozen and then have to be reapplied if the debtor didn’t make an application; however, as money advisers know, in the majority of cases interest never ceases to be applied anyway and is only written off at the end of successful plans.

In addition to this, another issue that Civic Scotland failed to raise was the implications of new provisions that will see the possibility of all interest and charges being reapplied to a debtor’s debts when they pass away during a plan, despite the adverse effects this may have on their family.

Rather than allowing balances to be frozen at the date of death, to allow a debtor’s estate to be wound up and the outstanding amount paid off, it would appear the Scottish Government is content to allow payday lenders to reapply interest at 4,000% APR to debts that may have been in programmes for several years. In addition to this they failed to raise the issue of what happens in a joint plan when one member of a couple passes away and the other participant only has 21 days to reapply before the interest on their debts are reapplied. Maybe money advice services need to be provided from local co-operative funeral parlours.

These aren’t the only issues that were missed by Civic Scotland. There are others, such as the limiting of payment breaks to 6 months, despite the fact this may result in new mothers being unable to avail themselves of family friendly policies like 9 months statutory maternity pay and may see those that do being penalised; but essentially the big issue is the failure of not only the committee to hold the Minister to account, especially in relation to some of the poorly informed evidence, but also the failure of Civic Scotland to identify and raise issues of concern to their broader constituencies. This may not be surprising considering Kenny MacAskill’s threat to the UK’s Supreme Court that “he who pays the piper, calls the tune” and possibly also the funding crisis that many Civic Scotland organisations are facing. However, the Scottish people deserve better from both the Committees and from Civic Scotland.

Arguably, however, the failure of Civic Scotland is the greater of the two. MSPs are political animals and can often be expected to try and perform the role of a herdsman rather than that of a champion of their constituents. Civic Scotland, however, it could be argued have a moral duty, if not a political one to perform the functions of a second house in our unicameral system and ensure legislation is properly scrutinised and the voices of the people heard. This is what they did with the Scottish Constitutional Convention in the 1990?s when the democratic deficit was at its most acute and arguably has always been their role; arguably even prior to 1707 the General Assembly of the Church of Scotland (an earlier manifestation on its own of Civic Scotland?) did this by wielding not only moral, but political power.

The current weakness of the Scottish Parliament’s committees is a major cause for concern, especially as other legislation such as the new Bankruptcy and Debt Advice (Scotland) Bill will soon be passing through them and if implemented will see huge amounts of powers transferred from the courts to the Accountant in Bankruptcy’s office, creating access to justice issues.

It may be unrealistic to expect Government MSPs to speak out, but it is imperative Civic Scotland does with all its constituent parts, and performs its moral and historical duty of ensuring parliament is held to account.

It goes without saying that policy that underpins the decision to make legislative reforms, or not as the case may be and is based on premises that are not supported by evidence, produces bad laws or allows bad laws to remain in place.

We have already seen this in relation to the Bedroom Tax and calls to amend S16 of the Housing (Scotland) Act 2001. The Scottish Government’s position is that such reforms are not necessary because if local authorities adopt no eviction policies, then there will be no evictions. However, as tenants throughout the country begin receiving threatening eviction letters from Housing Associations (and councils), such reassurances deliver no comfort.

Equally as dubious is the Scottish Government’s stated intentions that in the coming year they will rebalance Scotland’s personal debt laws by introducing a series of legislative reforms that will make it fairer and more effective.

This may appear reasonable, but when the premises that such legislation is being built on is unfounded, such as the Scottish Government’s view that financially distressed debtors are not paying enough, it should come as no surprise to realise we may end up with debt laws that are unfit for purpose and cause untold hardship.

Evidence of this is transparent in the first of the Scottish Government’s measures to reform the law in this area. The Debt Arrangement Scheme (Amendment) (Scotland) Regulations 2013 should send a warning blast from the whistle of Scotland’s personal debt flagship. It’s not that it doesn’t introduce some welcome reforms, such as the ability for debtors to get adverse decisions reviewed and widens access for joint couple applications; but it also introduces provisions that will reduce the length of time many will be allowed as payment breaks and most worryingly, it doesn’t use the Parliament’s full powers to protect debtors from the rising problem of pay day loans by freezing interest at the earliest opportunity.

This is particularly concerning as arguably a more pressing issues is the number of Debt Payment Plans (DPP) that are being revoked. There is some evidence to suggest that if the Debt Arrangement Scheme was any other financial product, promoting it to debtors could be mis-selling. Recent statistics show that although the numbers applying last year increased by 39.6%, other figures show the number of cases being revoked are now averaging 12% annually, which with the average lifespan of a DPP being 7.2 years, suggests significant numbers will never be successfully completed (in actual fact the figures for the last quarter of 2012-13 showed 21% revocations).

There is no evidence based insights into why such levels of revocations are occurring; however, a strong likelihood must be that in these times of austerity, debtors are struggling to sustain long term repayment plans. Considering it is the Scottish Government’s intention to try and make the Debt Arrangement Scheme the default remedy for all debtors, unless they can satisfy some contrived test that personal insolvency is the better option, this must be a cause for concern. Debtor’s paying for years and getting no resolution to their problems is not a remedy.

It also comes as no comfort, in light of this, that the Scottish Government has also recently announced it intends to draw up new spending guidelines which all debtors will be required to use when calculating how much they can pay towards their debts. These figures they have previously announced will be more stringent than those currently used by advice agencies in the UK and which are accepted by the British Bankers Association and Financial Leasing Association.

It’s not as if there are no recent examples of bad policy making that the Scottish Government could learn from. Last year they made another presumption that wasn’t evidence based and which they didn’t consult on: that low income, low asset bankrupts could afford a 100% increase in the application fee from £100 to £200. Despite evidence to the contrary from Money Advice Scotland and Citizen Advice Scotland the changes were rushed through and the result was a 58% reduction in the number of poor debtors who were able to access the remedy.

It must be accepted the Scottish Government have made some concessions on their initial debt law proposals, but most of these have been to the money advice, creditor and insolvency industry. Those that have not been consulted yet have been the consumers who are financially distressed and who will be most affected by the reforms that are in the pipeline.

It can be in no-one’s best interest for tens and over the long term, hundreds of thousands of consumers to be left cash strapped and impoverished because of debt; particularly as the vast majority of those creditors they owe are in actual fact high street banks and lenders who have been bailed out by the public purse (and very often have sold on the debts for pennies to debt purchasers who speculate on profiting from diminished returns).

The truth is the proposition that is being advanced by the Scottish Government that debtors are not paying enough and can afford more, has no evidential basis. The arguments are based on the same Jeremy Kyle School of thought that underpins much of the UK Government’s benefit reforms. On the contrary, there is substantial evidence of poverty being a problem for many debtors and the only evidence of systemic failure that exists, is not in Scotland’s current debt laws or insolvency industry, but in the credit industry that left so many debtors with unaffordable levels of personal debt.

Over the next couple of months I hope to review in more detail the Scottish Government’s plans for legislative reform, highlighting the good, the bad and the ugly of what is being proposed. I also hope to show what is being developed is a personal debt strategy that in many ways risks being based on unfounded premises, antiquated prejudices and in some cases an outdated, Dickensian attitude towards debt in a modern, credit based economy.