Debt Arrangement Scheme: Can it Be Fixed?

Debt Arrangement Scheme: Can it Be Fixed?

New proposals by the Scottish Government to introduce changes to the Debt Arrangement Scheme (DAS) are to be welcomed (See Debt Arrangement Scheme: The Way Forward). However, the question is, do they go far enough to save the Scheme, which saw a 49% reduction in take up following the introduction of changes in 2014-15 and remained 46% down in 2015-16, on the number of cases approved in 2014-15?

Debt Laws Too Debtor Friendly

The decline, which partly followed the adoption of a number of legislative changes which were introduced between 2014 and 2015, were underpinned by a belief that debt laws had become too debtor friendly and saw the number of approved programmes fall from 4,161 in 2014-15 to 2,043 in 2015-16, before slightly increasing in 2016/17 to 2,233. It is anticipated the slump in take up of Debt Payment Programmes (DPPs) under the DAS will, however, continue in 2017/18, based on reports from the first three quarters suggesting figures for the full financial year may be as low as 2,443, still representing a 41% reduction on the number of cases approved in 2014/15.

The 2014-15 changes included provisions under the Debt Arrangement Scheme (Scotland) Amendment Regulations 2014, which required consumers entering the Scheme to include all debts in DPPs and culminated in 2015 with the Commencement of the Bankruptcy and Debt Advice (Scotland) Act 2014 and the introduction of a new Common Financial Tool (CFT), which required debtors to contribute all their disposable income to DPPs.

It is now these changes that the Scottish Government is proposing should be reversed to improve access to the Scheme, which represents an acknowledgement that their previous position that DAS was too flexible was wrong.

Funding Cuts to Money Advice

However, since 2014-15, the amount of money being invested by local authorities in free money advice services has now also fallen from £21 million per year to £11.72 million in 2016/17, representing a cut of 44% (not accounting for inflation) and has seen the number of money advisers being employed or funded by local authorities fall from 370 full time positions (or the equivalent) to only 305 in 2016/17.

The decline in the take up of the Debt Arrangement Scheme, however, cannot totally be attributed to funding cuts, as a report produced in 2017 showed that the decline was not just for consumers accessing the Scheme via the free sector, but also via the private sector (DAS: Is It Broken?).

It is highly likely though with more advice agencies now closing down in the next financial year and further funding cuts to free money advice services anticipated, that the current proposed changes by the Scottish Government are too little too late and will do little to revive the fortunes of the Scheme.

The Future

The question now also must be asked, not just what is the future for free money advice services in Scotland and the Debt Arrangement Scheme, but what is the future for other changes that were introduced in 2014-15? This includes the requirement that consumers wishing to enter formal debt solutions, including bankruptcy, first have to seek advice. The simple fact is such policies, which were presented as providing increased consumer protection in 2014-15, now have the effect of being obstacles as free front-line money advice services continue to experience funding cuts and clients struggle to access free front-line money advice services.

Renfrewshire Law Centre to Close

An announcement on the website of Renfrewshire Law Centre has announced the service will close its doors on the 30th March 2018.

Only the latest in a number of advice centres that are closing, with the implementation of the Scottish Government’s budget by local councils, Renfrewshire Law Centre, previously known as Paisley Law Centre, was established in 1997.

It is understood Renfrewshire Council put out their advice services contract for tender and split it into two parts, with the legal advice and representation part, being cut from £110k to £95k. The advice part, currently provided by Renfrewshire Citizen Advice Bureaux, was only increased by £4k.

Renfrewshire Law Centre primarily assisted residents of the Renfrewshire area with rent and mortgage arrears an acted for clients in eviction and repossession cases.

It is not clear who, if anyone, in Renfrewshire, will now provide these vital front-line services.

A statement on the Centre’s website read:

“Where an ongoing client matter is not near conclusion, the client may seek advice on options for referring the matter to another practitioner.”

“Where an ongoing client matter can be concluded before the end of March, we will endeavour to conclude it.”

“Where an ongoing client matter is near conclusion, but requires some ancillary work after the end of March, we will endeavour to arrange for its conclusion at no additional fee cost to the client.”

The full statement can be read here.

Homeowners Not Receiving Regulated Advice

It has been revealed homeowners in receipt of Support for Mortgage Interest (SMI), who are being contacted about accepting Government loans that will replace the SMI benefit scheme in April, are being referred to advice agencies that cannot give them advice.

The revelation comes after Margaret Greenwood (MP) submitted a written question to the UK Government:

To ask the Secretary of State for Work and Pensions, which organisations Serco signposts Support for Mortgage Interest claimants to for advice on deciding whether to take out a loan from her Department to replace the benefit they are currently receiving; and whether such organisations are able to offer financial advice on taking out a loan.

Kit Malthouse, Parliamentary Under-Secretary (Department for Work and Pensions) responded:

All existing recipients of Support for Mortgage Interest will be contacted and given information about the changes. The information leaflet and Frequently Asked Questions booklet point claimants to organisations who can offer impartial, free support. These include Money Advice Service, Shelter and Citizens Advice Bureau. These organisations do not offer regulated financial advice, however they can support claimants to understand the options available to them.

For more information on the new loan scheme, see here

Scottish Labour to Vote on Bankruptcy Fees

On Friday the 9th March, the Scottish Labour Party will vote on a motion calling for the Scottish Government to accept the recommendations of the Money Advice Service (MAS) and re-introduce fee remissions and fee waivers for bankruptcy in Scotland.

Fee waivers were previously possible in Scotland, through legal aid, prior to 2008, but since then even people surviving on £73.32 per week, have to find £200 to apply for bankruptcy.

MAS in its report Debt Solutions in the UK: Recommendations for Change, recommended both the UK and Scottish Government look at reintroducing fee remissions for those who cannot afford the fee.

The Accountant in Bankruptcy, the Scottish Insolvency Service, is currently consulting on their fees, but has ruled out fee remissions for bankruptcy.

Currently, the application fee for a Full Administration Bankruptcy in Scotland is £200; whereas a Minimum Asset Bankruptcy is £90.