It shouldn’t come as a surprise, but less than six months after the car crash that was the Common Financial Tool (Scotland) Regulations 2018, the Accountant in Bankruptcy are back at the legislative wheel with the Debt Arrangement Scheme (Scotland) Regulations 2019, displaying all the same hubris and poor judgement they did with the 2018 Common Financial Tool Regulations.

The new Regulations are the Accountant in Bankruptcy’s latest attempt at trying to improve the Scottish Debt Arrangement Scheme.

However, it’s not their first attempt, with Regulations having previously been laid in 2004, 2007, 2009 (withdrawn), 2011, 2013, 2014, 2015, 2018 and now 2019.

However, the proposals contained in the 2019 Regulations are likely to be more far reaching than all previous proposals contained in earlier Regulations (and most likely to lead to unintended consequences).

Of all the Debt Arrangement Scheme Regulations, these ones warrant, more than any other, the robust scrutiny of the lead Parliamentary Committee when it considers them.

What’s in the Debt Arrangement Scheme (Scotland) Amendment Regulations 2019?

What they propose are:

• Statutory fee changes that will increase the cost to creditors from a maximum of 10% to a standard 20%; and will allow everyone who needs a Debt Payment Programme to access one for free, with all private sector money advice fees to be abolished;
• Changes to the role of the Accountant in Bankruptcy, to allow them to become a Payment Distributor for the Debt Arrangement Scheme, to administer payments for free sector cases; and
• Finally, to introduce administrative changes that are likely to streamline the process for people once they are in the Debt Arrangement Scheme

Most of these proposals have broadly been accepted by a wide variety of Stakeholders across the sector, from Creditors, Insolvency Practitioners, Money Advisers, Debt Charities and Credit Unions.

So what is the problem?

Well, as always, the problem is in the detail, which is where the unintended consequences arise and the fact the Accountant in Bankruptcy chose to lay the Regulations whilst a consultation on the details was still ongoing (see here), meaning none of the feedback from that consultation will ever find its way into the Regulations.

The problem is also the Accountant in Bankruptcy  chose to lay the Regulations just over two weeks before the Scottish Parliament goes into recess, which inevitably will curtail the ability of the lead Parliamentary Committee to scrutinise the Regulations; repeating what they did when they laid the Common Financial Tool (Scotland) Regulations 2018 (which eventually were withdrawn twice, before being abandoned).

Finally, it’s the fact the model the Accountant in Bankruptcy have adopted, which was never agreed, is one that places no value on the provision of money advice in the Debt Arrangement Scheme and allows for no statutory fees to be charged for that service.

This is a model that will serve the AIB’s own interest, allowing them to charge 20% on all sums paid through Debt Payment Programmes, where they act as a payment distributor, with no statutory obligation on them to refund any specific percentage back to the free sector. 

Nor will there be any regulatory provisions on how those sums are refunded.

Considering this is what the current consultation relates to, laying the draft regulations now is seen, by many, as an act of bad faith on the part of the AIB, and sharp practice. It basically, puts them, and not the Regulations in charge of how much Citizen Advice Bureaux, Local Authorities and Independent Advice Agencies receive, and who receives it.

It’s a bit like being asked to a discussion with another party, only for them to then break off the discussions prematurely and take their own preferred course of action, regardless of what you say.

It’s also a new low for the Accountant in Bankruptcy, an agency that has a reputation for not listening to its own consultations, in that it now isn’t even waiting for them to finish.

If anything is likely to damage already damaged relations with Stakeholders, this is it.

It is also outrageous that of the three service providers that exist in the Debt Arrangement Scheme: The DAS Administrator (The AIB), The Payment Distributor and the Money Advice Provider, the only one whose work has no value represented by a statutory fee is the money advice provider (bizarre as it’s a remedy provided by money advisers).

Without there being a statutory fee for Money Advice, ultimately it must be questioned, who the money adviser is working for: the client or the Payment Distributor? It is not surprising such nuances are lost on an organisation that fundamentally has a debt collectors mentality.

There is no question there was broad agreement across the sector on the big points in these Regulations, but the model that has been adopted by the Accountant in Bankruptcy has all the hallmarks of previous AIB legislative errors. 

It is poorly thought out, will likely lead to abuses in the markets (something the AIB as a regulator have shown themselves to be unwilling or unable to address in other markets) and will likely result in issues arising in futue about whether the AIB is returning enough funds to the free sector, or feathering their own nests (it’s a clear conflict of interest to allow a government agency to draft legislation which builds in big financial rewards for themselves).

What Next?

The problem is nothing much is next.

The Scottish Parliament will go into recess on the 30^th June. The Scottish Government’s consultation on the How Funds Should be refunded to the Free Sector will continue to the 20th August, (but don’t be surprised if there is a poor response to that in light of the fact the Accountant in Bankruptcy have already chosen to lay the Regulations).

When the Parliament returns the Economy, Energy and Fair Work Committee will have limited time to receive written submissions (because the AIB’s decision to lay the Regulations 2 weeks before the Parliamentary Recess), consider them and then decide whether they want to take oral evidence.

If they choose to, evidence sessions will need to be scheduled within  the limited time available after the 1st of September.

What should Happen?

What should happen is the Minister, Jamie Hepburn should advise his Civil Servants in the Accountant in Bankruptcy, he is withdrawing the Regulations until they return to the discussion table and complete the current consultation.

He should also instruct them that there needs to be a division of fees between the Payment Distributor and the Money Adviser and the free advice sector fee needs to be put on a statutory footing. 

Advice agencies also require a statutory right to be paid the fee by the payment distributor  in the legislation.

If he won’t do that, then we can only hope  the Economy, Energy and Fair Work Committee will send them back to the table.