Money Advice

Prescription (Scotland) Bill

Prescription (Scotland) Bill

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The Prescription (Scotland) Bill 2018 should be welcomed, but the Scottish Parliament needs to ensure all obligations to pay debts arising from personal contracts and statute should be covered by short term negative prescription, with few exceptions.

Scotland’s law of prescription governs when an obligation to pay a debt is extinguished and no longer owed. This includes debts owed for credit cards and personal loans, but also debts such as council tax arrears, benefit overpayments and outstanding tax debts owed to the crown.

At present the framework for this area of law is provided for by the Prescription and Limitations (Scotland) Act 1973 (1973 Act), which the Scottish government aims to amend and clarify with the Prescription (Scotland) Bill 2018 (2018 Bill), currently at stage one in the Scottish parliamentary process.

Prescription Framework

The current framework under the 1973 Act provides that if a debt is specified in paragraph one of Schedule One of the Act, it is covered by short term negative prescription, which means the obligation to pay the debt expires after five years, unless the person owed the debt takes certain steps to protect their claim (or the debtor makes a relevant acknowledgement of it). Paragraph Two of the Schedule, then specifies which obligations are not covered by the five-year rule, whilst Schedule Three lists obligations which are never extinguished.

Where an obligation is neither covered by short-term negative prescription, or exempt from being extinguished, it is covered by long-term prescription, which means the obligation can be recovered for up to 20 years, with, as the law currently stands, that period being restarted if a creditors makes a relevant claim for the debt within that twenty year period or the debtor makes a relevant acknowledgement of it.

It was the operation of this long-term prescription rule that meant that even in 2014 some Scots still owed poll tax debts, which dated back as far as 1989, and led to the passing of the Community Charge Debt (Scotland) Act 2015 to write off the remaining debts owed.

However, as was entirely predictable, attempts by the 2018 Bill to simplify the law in this area have already been derailed, with certain statutory creditors arguing their debts are different and in need of special treatment. So, in section three of the 2018 Act, a new provision that aims to include all statutory obligations to pay a debt into the five-year rules, unless provided for elsewhere, has now led to several provisions which provide otherwise elsewhere.

This includes debts owed for council tax, non-domestic rates, benefit overpayments (under UK legislation) and tax debts owed to the crown.

Few Exceptions

The Scottish Parliament should resist these attempts to protect the “special interests” of certain statutory creditors, with a view to preserving the overall principle that all debts, with few exceptions, that arise from personal contracts or statute should be covered by the five year rule and creditors, who wish to protect their claim, should be required to take certain steps to do so.

This could easily be achieved in relation to debts for council tax, non-domestic rates, and crown tax debts by extending sub-paragraph (a) of paragraph two of Schedule One of the 1973 Act to include debts legally constituted by decrees or documents of debt. This provision currently states the five-year rule does not cover obligations if they relate to an obligation to comply with a decree of court, an arbitration award or an order of a tribunal or authority exercising jurisdiction under any enactment. By extending it to include decrees and documents of debts, this would mean debts that are constituted by summary warrants, which all local authorities and HMRC have the power to issue for the above debts, and regularly do so, would be covered by long-term negative prescription. It would also mean in future, where new statutory obligations are created, and there is a wish to allow the statutory creditors to protect their claim easily, it would not be necessary to further amend the 1973 Act, but instead to allow for a means of recovery that allows the summary warrant procedure to be utilised.

In relation to benefit overpayments, however, that are owed to HMRC and the Department of Works and Pensions, the Scottish government should bring forward rules to provide that UK benefit overpayments, owed under the Social Security Administration Act 1992 and the Tax Credits Act 2002, are expressly included into the five-year rule. This would ensure all UK benefit debts are treated the same as Scottish benefit overpayments, which because of section 38 of the Social Security (Scotland) Bill 2017, will be covered by short-term negative prescription. It makes no sense that debts which are essentially the same in nature, should be covered by different prescription rules, simply because the source of the debt is UK legislation, rather than Scottish legislation.

Equally, however, if the purpose of section 38 the Social Security (Scotland) Bill 2017 is to provide a short recovery period for benefit overpayments, it may be necessary to further restrict sub-paragraph (a), of paragraph two of Schedule one of the 1973 Act. The reason being is that it makes clear that debts that are constituted by a tribunal or authority exercising jurisdiction under any enactment are not covered by the five-year rule: this could include both benefit UK and Scottish benefit overpayments. Also, it may wish to consider whether the running of short-term negative prescription for these types of debt can be interrupted by claimants making relevant acknowledgements of the debt, such as in making payments towards them. The reason being most benefit overpayments are recovered by direct deductions from existing awards of benefits, meaning every payment constitutes a relevant acknowledgement of the debt and the five-year prescription period begins running again. Most people will, therefore, clearly still be paying back benefit overpayments, long after the expiry of five years.

Bill to be Welcomed

However, the new Prescription (Scotland) Billis to be welcomed. For many years, because of the omissions in the 1973 Act, it was not even clear if HMRC tax debts could be extinguished.

Also, section 6 in the 2018 Bill makes it clear it will no longer be possible for long-term prescription to be interrupted by a creditor making a relevant claim or the debtor making a relevant acknowledgment, meaning a repeat of the problems that arose with poll tax should no longer arise, with debts still be being owed long after the expiry of twenty years.

Also, section 14 of the 2018 Bill also introduces into the 1973 Act a new burden of proof on creditors who are pursuing a debt through the courts, to show, where a question arises, whether that debt is prescribed or not. With the increasing use of litigation by debt purchasers to protect claims for distressed debts, this will hopefully help stamp out the practice of them obtaining decrees for extinguished obligations.

Long term Prescription – Is it too Long?

However, the question does need to be asked, with the similar law in other parts of the UK being governed by the Limitations Act 1980and the prescriptive periods being six and 12 years, is the long-term negative prescription period in Scotland too long? There appears little reason it should be possible for debtors in Scotland to be pursued for the same types of debts, owed to the same organisations, for almost double the duration of debtors elsewhere in the UK. Arguably, a shorter period of long-term negative prescription of 10 or 15 years should now be adopted.

Beware the Danger of the Return of Warrant Sales

Beware the Danger of the Return of Warrant Sales

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THERE have been calls of late for the Scottish Government to reintroduce warrant sale-style procedures; these seem now to have found a sympathetic ear.

The Accountant in Bankruptcy (AIB), a Scottish Government agency that advises ministers on matters relating to debt law, has said it is prepared to consider how the replacement procedure that was introduced, known as Exceptional Attachment Orders, can be simplified and streamlined to allow more easy use.

The process of poindings and warrant sales, which allowed sheriff officers to enter people’s homes and remove their household possessions for sale, was abolished by the Scottish Parliament in 2002, after becoming synonymous with the poll tax campaign. Tommy Sheridan, who would later be elected to the Scottish Parliament and introduced a private member’s bill which led to the abolition of the procedure, famously went to prison after disrupting the first attempt to hold one for the poll tax.

The AIB has also said it will consider whether the current procedure that was introduced, and requires a judge to authorise an order, could be removed. Sheriff officers could then threaten use of the procedure more easily against those who cannot pay their debts.

However, if the AIB position is adopted, this could well herald the return in Scotland to a Dickensian-style system of debt recovery laws which allows people to be threatened with humiliation and home intrusion, unless they can find the money to repay their debts, even if that means driving them into the hands of illegal and predatory money lenders. It was this legal abuse that led to poindings and warrant sales being abolished in the first place. In 1999, for example, the year Mr Sheridan’s bill was introduced, there were 16,585 poindings (although thousands more were threatened), but only 110 warrant sales executed. The reason being, warrant sales themselves were never an effective method of debt recovery, whereas the threat of humiliation and home intrusion was. Even people who genuinely couldn’t afford to repay their debts would be panicked into a response where they would do anything to raise the money.

Sheriff officers know this and it is why some are now claiming the new procedure is no longer effective and needs to be made easier for them to use as a threat (there has been no exceptional attachment orders executed in Scotland since 2012).

Responding to a consultation carried out by the AIB, sheriff officers Scott & Co stated, that in their experience the

“proceeds of auction in most cases are very low due to the poor value of second-hand goods and tendency towards hi-spec electrical items being subject to finance agreements.”

The question then needs to be asked, why does the AIB believe it would now be appropriate to increase the use of such procedures, even when sheriff officers acknowledge they are likely to fail? The only logical reason is the hope that by issuing such threats to the poorest in society, more people will then seek advice for their debt problems.

However, although some may well do so, many will struggle to find services or solutions that can assist them, with funding to local authority money advices services having been cut by 44 per cent in the last three years. More likely is many will become prisoners in their own home, fearful of every knock at the door, whilst suffering the stress and anxiety of believing their home will be invaded and their possessions seized with those of their family.

First published in The Herald on the 16th April 2018.

Scottish Debt Policy is Broken

Scottish Debt Policy is Broken

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Originally published in the Herald, as an Agenda piece, I make the argument that Scottish debt policy is broken, was explored.

Despite personal debt levels in the UK now having returned to pre-credit crunch levels, new figures released by the Improvement Service, reveal that free, local authority-funded debt advice services have now seen their funding cut by more than 44 per cent in the last three years. The latest figures paint a picture of services that are not only lacking capacity to deal with current demand, but should Scotland face another personal debt crisis, will not cope with future demand.

The tragedy of this is the modernisation and humanising of Scotland’s personal debt laws was one of the earliest and most notable achievements of the Scottish Parliament, from the abolition of poinding and warrant sales to the introduction of a new debt management scheme, known as the Debt Arrangement Scheme. Even Scotland’s bankruptcy laws were made more consumer friendly, making it easier for those with no other options to be permitted a fresh start, whilst free debt advice services were heavily invested in between 2003 and 2007.

By 2011, the progress that had been made meant it could reasonably have been stated Scotland had some of the most forward-thinking and progressive debt laws in Europe with well-funded advice agencies that could deal with the modern-day problems of over-indebtedness.

The benefits of this were all too evident in the aftermath of the credit crunch, when hundreds of thousands of Scots accessed both formal and informal debt solutions, and substantial levels of unmanageable consumer debt were addressed.

Then in 2012-13, the Scottish Accountancy in Bankruptcy (AIB), the agency which leads on debt policy for the Scottish Government, removed the wheels from these progressive policies that were driving such change. It concluded the law had become too debtor friendly and less than five years after the credit crunch, decided the law had to be re-tilted back in favour of banks and other financial institutions.

The effect was that within a year of the new rules being implemented in 2015, the numbers applying for bankruptcy fell by 44 per cent, whilst the numbers applying for the Debt Arrangement Scheme fell by 49 per cent.

It is now reasonable in my opinion to state the system is broken, incapacitated by funding cuts, but also by laws that have become the victim of “agency capture” by the AIB and are now developed to satisfy institutional needs of slotting everyone into formal solutions that can generate fees, rather than developing a system that benefits the whole of the community.

An example of this was evident last week, when the AIB declared the Debt Arrangement Scheme was a huge success, as it had recovered £200 million for creditors, whilst overlooking the fact more debt programmes had failed than had been successful.

Also, the Improvement Service produced another report that showed of the 49,000 people in 2016-17 who had sought advice from free, council-funded debt advice services, fewer than 21 per cent had their problems addressed through a formal solution, but more than 50 per cent had relied on their free sector advice agencies to negotiate solutions on their behalf.

It is now these free advice services that are facing cuts, with North Ayrshire Citizen Advice Service and Renfrewshire Law Centre only the latest to go in another round of cuts, closing their doors last week. More inevitably will follow.

Our debt laws may be world-recognised, but unless there are adequate resources and political will, they will not work.
The problem is they are no longer working and when Scotland faces another personal debt crisis, this will become all too obvious, but by then, it will be too late.

First published in The Herald, 4th April 2018

Debt Arrangement Scheme: Can it Be Fixed?

Debt Arrangement Scheme: Can it Be Fixed?

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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.

North Ayrshire CAB Closure Highlights Risk to Front Line Advice Services

North Ayrshire CAB Closure Highlights Risk to Front Line Advice Services

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The announcement that North Ayrshire Citizen Advice Service (NACAS) is closing its doors at the end of this month, after twenty years, brings into sharp focus the critical issue of funding that advice agencies in Scotland are now facing.

It also urgently underlines the need for a national discussion on how front-line advice services are funded.

This year already we have heard from Peter Wyman with his Review of the funding of free money advice services, which highlighted the fact that services are already 50% under capacity. The Scottish Government also, only two weeks ago, published a review into the funding of advice services. Both of which miss the urgency and scale of the threat that free advice services are facing after 8 years of austerity and cuts.

Funding Cuts

The closure of NACAS also demonstrates how acute the problems are. The closure is the result of funding cuts, after it was revealed North Ayrshire Council would have to cut £30 million to balance its books in 2018/19. The recent Scottish Government budget also offers nothing for council’s like North Ayrshire, as it only matches the funding available in 2017/18, but allows nothing for inflation.

Speaking about the cuts, Councillor Leader Joe Cullinane said:

“The Council has had to cut £73million from its budget over the last six years as a result of austerity and financial projections suggest we face a further funding shortfall of approximately £70m over the next three years.

“We are facing an increased demand for our services despite the fact that our funding is expected to reduce significantly.

“Unless this situation changes, there is no escaping the fact that the services that Councils across the country deliver are going to change.

Failing Local Authorities

This raises the question, what do we do when local authorities can no longer afford to deliver the statutory services which they are required to?

Under section 12 (1) of the Social Work (Scotland) Act 1968 (the 1968 Act), It is the duty of every local authority to promote social welfare by making available advice, guidance, and assistance on such a scale as may be appropriate for their area,

At present the only other local authority-funded money advice service in North Ayrshire is the council’s own service and their Better off Partnerahip.

The Council Service is currently only available to clients of the social work department, but since NACAS has stopped providing money advice, arguably it wil now need to begin providing services to all North Ayrshire residents.

If not, there will be no local authority funded money advice service that all residents in North Ayrshire can access. The Better off Partnership only being able to provide services to certain vulnerable client groups.

This is important, as an effect of the Bankruptcy and Debt Advice (Scotland) Act 2014 (BADAS), is it is no longer possible for someone to access statutory debt relief remedies without seeking the advice of an approved money adviser or licenced insolvency practitioner.

The effect of this is unless a financially strapped consumer has sufficient income for a licenced insolvency practitioner to take on their case, or there is a free advice agency able to assist them, they will not be able to access the remedies.

It’s may be an inconvenient truth, but there is no doubt if a local authority allowed this situation to arise, it would be in breach of it’s statutory duties, as the obligation contained in the 1968 Act doesn’t say only certain clients. It says it is the legal duty of every local authority to promote social welfare by making available advice, guidance, and assistance.

The Perfect Storm

The irony of this, is it comes at a time when Universal Credit (UC) is being rolled out, with as many as 75% of UC claimants now in rent arrears. It also comes as at a time when personal debt is reaching pre-credit crunch levels and incomes continue to stagnate, even though cost of living is increasing by 3% and interest rates begin an upward trajectory.

It is also coming at pivotal time as the Scottish Government’s Social Security (Scotland) Bill continues through Parliament, with the aim of creating a new social security agency. This agency it is hoped will employ 400 front line advisers, who will advise on the new Scottish social security benefits. However, who will advise on the rest or deal with the multitude of other issues NACAS dealt with, from money advice to housing to consumer issues?

It is also happening at the beginning of 2018/19, a year that was supposed to be crucial for advice services, with the Financial Claims and Guidance Bill passing through the UK Parliament, which will see the devolution of the funds raised by the Financial Conduct Authority’s debt advice levy on the consumer credit industry. The next financial year was supposed to be a year of reflection and consideration as to what is the best way forward, but many services may not survive in the meantime.

There is an alternative

Lots has been said about agencies using different channels to deliver advice, from face to face to telephone to digital. That is fine where it is possible, but its also the same ideology that has taken grip in the Department of Works and Pensions, with the removing of front line advisers and the closure of job centres. It is also the same ideology that has been adopted by the banks and is resulting in the closures of local branches. Both of which the Scottish Government has opposed and is actively trying to mitigate with its plans to recruit 400 new advisers.

It would be ironic now, if the Scottish Government were to stand back and watch frontline advice services close and suffer further cuts.

However, there is an alternative, at least for money advice services. In 2016/17 over £81 million was distributed to creditors through formal debt solutions in Scotland. That is £81 million after those private firms involved took their fees and the Scottish Government took £12 million in its fees. How much of this, however, was returned to the advice agencies that were significant providers of advice on these solutions and who assisted many of the clients to access the remedies?

The answer: none.

However, if even 5% of this sum was raised to help recover the costs of advice agencies in providing these solutions (both the Scottish Government and creditors being great believers in full-cost recovery), then £4 million could be raised for advice agencies across Scotland.

If £400,000 of this was set aside, debtor bankruptcy fees could be waived, so that the poorest of consumers could still access bankruptcy if they couldn’t afford it.

The remaining £3.6 million would represent a 30% increase in local authority funded money advice services, with the total expenditure last year being only £11.72 million (down 5% on the previous year). If the Scottish Government’s Accountant in Bankruptcy in Kilwinning can raise £12 million from cases to fund its services, why can a third of that amount not be raised from those cases to allow a 30% increase in funding for all of Scotland’s 32 local authority funded money advice services?

One of the biggest beneficiaries of these services are after all the creditors themselves, who it is estimated recovered between £400 million to £1 billion last year because of the work of free money advice services. If we were to extrapolate what those benefits mean for Scotland, based on population size, that means between £40 million to £100 million was recovered from Scotland (the £81 million on record that was recovered via formal debt solutions makes these estimates ring true). Against those figures, what is unreasonable about an additional £4 million being provided to support front line free money advice services? Particularly when a recent report on the Economic Impact of Debt Advice found that creditors actually benefit from the provision of free money advice.

As Sheila Wheeler, Director of Debt Advice at the Money Advice Service said of the report:

“This report clearly provides more evidence of what those of us working in the sector have known for a long time – investing in debt advice pays. Not only does debt advice contribute to health benefits – and in particular mental health benefits – for those receiving it, but it benefits employers through increased productivity. Crucially, it pays off for creditors too, reducing their costs by up to £237 million a year and increasing debt recovery of up to £360 million annually across the UK.

It is believed North Ayrshire Citizen Advice Service will close its doors on the 30th March. For more information, see here.

Money Advice Performance Report Published

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The Money Advice Outcomes project team in the Improvement Service have published their Money Advice Performance Management Framework (MAPMF) annual report for 2016/17.

All Scotland’s 32 local authorities submitted data returns regarding the funding of money advice service in 2016/17.

The key findings were:

  • Investment by local authorities totalled c.£11.72m, representing a reduction of 5% since 2015/16
  • 305 FTE paid staff members were employed by the services, which represents a 5 FTE decrease when compared to 2015/16
  • 31% of service users had a disposable household income of less than £6,000, and 50% less than £10,000 – the median household disposable income in the UK is £26,300
  • 53% of clients reported having a disability or long-term condition, whereas around 20% of the general Scottish population has a disability or long-term condition
  • The total debt owed by clients was c.£217m, an increase of around £2m in comparison to 2015/16
  • c.111,000 people contacted the services, and c.49,000 new clients received support – in both cases this represents a 5% increase since 2015/16
  • 19% of clients initially sought advice because of council tax arrears
  • Money advice services delivered or funded by local authorities secured £101m in client financial gain
  • For every £1 that was invested in money advice services, clients achieved financial gains of £4-9

The full report can be read here.

Money Advice Service Release Recommendations for Changes to UK Debt Solutions

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The UK Money Advice Service have released its recommendations for change for UK debt solutions (albeit only a couple of the recommendations will impact on Scottish debt solutions).

The recommendations are contained in a report that can be downloaded here and follows on from a comprehensive study that was carried out by the Money Advice Service into UK debt solutions.

In carrying out the research, the Money Advice Service and the University of Bristol engaged with the Money Advice Sector through expert workshops, interviews, group discussions and a consultation process, which approximately 60 individuals and organisations responded to.

A summary of the recommendations are:

  • A review into fees for debtor applications for bankruptcy in England, Wales and Northern Ireland;
  • The re-introductoon of fee remissions for low-income applicants;
  • Better online information about going bankrupt;
  • More prominent and easy to understand information and tools on the online bankruptcy application portal;
  • Further exploration of debt rehabilitation, including better recognition of debt repayment;
  • The introduction of a statutory debt management scheme for England, Wales and Northern Ireland;
  • Innovations in the equity release market for people who are asset rich, but cash poor;
  • The development of one online income and expenditure portal.
Too Late, Too Late for Debt Advice Services?

Too Late, Too Late for Debt Advice Services?

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With levels of personal debt reaching pre-credit crunch levels and money advice services facing further funding cuts, is it too late for transformative change in support for such agencies? I considered the issue in December’s Journal of the Law Society of Scotland.

Money advice services in Scotland are in bad shape, arguably the worst they have been in since 2003. Unlike the years that followed 2008, however, when the sector rose to the challenge of the credit crunch, it is now questionable whether it could cope with another financial crisis.

With years of funding cuts and legislative reform, provision for free money advice services in Scotland is now fragmented, and in some areas, of little consequence to many of those they are supposed to help.

This was illustrated recently by the BBC documentary, Country Council, which spotlighted the challenges faced by Scottish local authorities in delivering services. In Argyll & Bute, a vast area that covers Helensburgh, Dunoon, Lochgilphead and Oban, the local money adviser, Des Middleton, was featured as one of only two employed to cover that huge swathe of the country. Across Scotland, however, it is not just councils that are facing cuts: some citizens’ advice bureaux are also looking at up to 100% of their core funding being axed in 2018-19.

Supply and demand

This dire situation comes just two and half years after the introduction of the Bankruptcy and Debt Advice (Scotland) Act 2014 (BADAS Act), which placed significant demands on money advisers and the work they undertake for their clients in assisting them to access formal debt solutions. These demands have seen the number of debtors accessing the Debt Arrangement Scheme fall by 46%, the number accessing sequestration drop by 23% and the number granting trust deeds decline by a third. Meanwhile, across the border, by contrast, individual voluntary arrangements are at their highest level in three decades.

UK consumer debt also continues to rise and is now again at pre-credit crunch levels, topping £200 billion for the UK. With inflation at 3% and interest rates rising, all the evidence points to a sector that will face increased demand in the coming years.

Much of this has been confirmed by a recent review, carried out by the Money Advice Outcomes Project, funded by the Money Advice Service and Improvement Service, which found that local authorities need to implement wide-ranging, transformative changes to maintain money advice services going forward and mitigate the effect of cuts.

National agency?

What form these transformative changes will take is up for debate, but there are some obvious mistakes that can be avoided. An overreliance on remote telephone and internet services would be an error, although they have their place. There will always be a class of clients who require face-to-face interventions and whom such remote services cannot satisfy. Evidence of this can be found in the recent admission by Stepchange, the national debt charity, that it lacks the capacity to provide face-to-face interviews for clients who are struggling to complete financial education modules introduced by the BADAS Act.

Transformation, however, could be aided by the creation of a new executive agency, that could act nationally as Scotland’s Money Advice Service. Such a body could be the recipient of the financial levy for debt advice which is collected by the Financial Conduct Authority from lenders and will be devolved in 2019-20. It could also ensure funding is invested and distributed in a way that not only increases the provision of local services, but could undertake strategic investment in new technology, such as open banking, which could revolutionise the way money advice services are delivered by providing a valuable tool to advisers. Such an agency could also prescribe a single set of national standards for advice agencies in Scotland, cutting back on duplication.

Equitable fees

Another obvious improvement could be reforming the current fee structures for formal debt solutions in Scotland. At present the Debt Arrangement Scheme only recovers half the £1.2 million it costs to deliver the service, but in 2016-17 distributed £37 million to creditors. A minimal increase in fees could easily recover the rest.

However, a more radical, transformative change could be achieved with the introduction of a statutory fair-share scheme, based on the voluntary one currently operated by clearing banks, for organisations like Stepchange. This allows organisations to retain a percentage of the funds collected to fund their services. On a statutory basis, such a scheme could allow private sector fees to be abolished and the Debt Arrangement Scheme to be provided free to clients, by the public, voluntary and, importantly, also the private sector, increasing capacity, but with no increased risk of consumer harm.

Fees for formal debt solutions on a wider basis should also be reviewed. In March 2017, the Scottish Government withdrew draft bankruptcy fee regulations, after evidence was provided by Govan Law Centre and me that showed they would, among other things, result in fee increases of up to 188% for debtors who had their homes sold. No replacement fees have since been forthcoming, although the Accountant in Bankruptcy remains committed to the principle of full cost recovery. It would appear, however, that that principle only operates when the fees are being charged to those least able to afford them – the consumers. Yet statutory debt relief and debt management remedies returned £80 million to creditors in 2016-17.

A fee of less than 1% on those funds could easily remove any bankruptcy application fees for debtors, and ensure access to justice is based on need and not ability to pay. A lesser amount could easily fund services like Govan Law Centre’s pilot Personal Insolvency Law Unit which operated between July 2016 and March 2017 and provided independent advice to those in formal debt solutions: a need the unit showed to exist, but which remains unsatisfied.

Past experience

The last time the free money advice sector in Scotland experienced the type of transformative change it currently needs was in 2003. It followed the introduction of the Debt Arrangement and Attachment (Scotland) Act 2002. Ringfenced funding of £3 million per year was provided until 2005 and was then increased to £5 million per year until 2007. Fortuitously, when the credit crunch hit and the Bankruptcy and Diligence etc (Scotland) Act 2007 was introduced, Scotland’s money advice services were able to cope.

As someone who has worked in the sector for more than 16 years, I witnessed that transformative change and how, with the rising tide of debt, all boats were lifted. However, with the current budget cuts, the consequences of the BADAS Act still looming over us and personal debt at record levels, the waterlines for Scotland’s money advice services are still submerged. If the opportunity to introduce meaningful change does come, I fear it will already be too late, too late.

Scottish Government: Stop digging!

Scottish Government: Stop digging!

In launching its new campaign for the Debt Arrangement Scheme, it has to be wondered whether the Scottish Government has dug itself a hole, rather than helping debtors out of one.

The Campaign, which directs debtors to a new website called www.helpoutofthehole.org appears marketing madness, but will be supported by a six week TV campaign on STV, Channel 4 and Channel 5.

It directs people to the new website, which with its long URL address took me three or four attempts and a number of double checks before I got it correct: was it “help out the hole”, “get out the hole” or as Google suggested “help out of the hole of no hope”. It certainly felt like the latter.

Eventually a direct link from the Accountant in Bankruptcy’s website got me there.

Even trying a word search of Google was no help, unless of course I was looking for Australian miners stuck in a hole, someone called Rebecca who was unfortunately also in a hole or I was wanting to help find an instrument of vocaloid song, none of which I did.

The strategy behind this marketing campaign is hard to understand. It could be by directing debtors to a campaign specific site, the success of the campaign could be measured by the number of visitors to the site, but then surely a more memorable and relevant URL address could have been found. Equally, how effective is such a strategy if few find their way there.

If the strategy was to direct more Scots to a site where they could  get relevant and reliable debt advice, then why not make the call to action: google “Debt Arrangement Scheme” or “Das Scotland”, where most of those searching would have found after four or five sponsored ads, the Scottish Government’s www.dasscotland.gov.uk ranks organically number one.

Alternatively, if the idea was to direct debtors away from those types of keywords, which are heavily bid for by private debt management companies, then any benefit is likely to be fleeting.

If it becomes clear heavy amounts of traffic are being directed towards the hole, then pay per click campaigns will be re-diverted and those remaining variations of the URL, that weren’t bought up by the Scottish Government on the 5th of August, will soon be taken.

It’s inexplicable, to me anyway, why the Scottish Government didn’t just direct visitors to its already established DAS website, which is highly ranked on search engines for Debt Arrangement Scheme related keywords, if not first and benefits from the authority of a .gov.uk domain name.

I suspect the campaign has been set up to measure its success by directing debtors to a specific site. The problem is because that site is hard to find and doesn’t capitalise on the search engine history of the official site, one must wonder whether success is being forsaken to measure success.

Maybe the Scottish Government need to heed the advice often given to debtors and stop digging.

Do No Harm: Scotland’s New Financial Health Service

Do No Harm: Scotland’s New Financial Health Service

As the Scottish Government announces plans to launch their new Financial Health Service with the introduction of the Bankruptcy and Debt Advice (Scotland) Bill 2013, there is a real opportunity in Scotland to create a new system of debt management and relief.

The idea that should underpin such a service is that our legal system should contain provisions that allow for financially distressed debtors to be nursed back to health and no more than we would expect a doctor to amputate a broken leg, should we expect this new service to leave distressed consumers permanently disabled or disadvantaged.

On the face of it the Scottish Government appears to recognise this and in introducing the bill have identified three broad principles they want to underpin the new legislation, these are that:

• the people of Scotland should have access to fair and just processes of debt advice, debt management and debt relief; that
• those that can pay their debts, do pay their debts; and that
• the best returns for creditors are secured by balancing the rights of debtors with those of creditors and businesses.

At first glance, who could disagree?

However, the new bill does give rise for concern. The first problem is the Scottish Government views it as their response to not only the credit crunch, but the economic and social changes that Scotland has undergone over the last 28 years: from being a society where there was more social housing than in cold war Poland, to one where now over two thirds of homes are privately owned; and from a society where once credit was difficult to access, it is now widely available.

But the problem with this analysis is it is behind the times. We no longer live in a society where an abundance of credit causes problems, but one where the suffering caused by austerity and falling living standards makes it a harder for more and more consumers to maintain their financial commitments.

So the question needs to be asked, is the Scottish Government on the right page in their approach to bankruptcy and debt advice?
Well one of the major changes that will be introduced with the new bill will be the extension of the duration people in sequestration and protected trust deeds have to pay, from a three year minimum to four years. They will also introduce new provisions which will abolish the current low income, low asset route into bankruptcy and replace it with a more restrictive remedy known as a No Income, No Asset bankruptcy, only accessible to those with less than £10,000 of debt and who are in receipt of social security benefits.
Other measures that will be introduced will be a new Common Financial Tool that will aim to ensure people pay more to their debts than they currently do.

There will also be a significant transference in power from the courts to the Accountant in Bankruptcy (AIB), meaning in future more decisions will be executive decisions rather than judicial ones and not just in relation to non-controversial matters. This will include the right to award Bankruptcy Restriction Orders and make Debtor Contribution Orders and will reverse the current position where the Accountant in Bankruptcy has to apply to the courts for such powers. In future, if debtors disagree, they will have to incur the cost and trouble of appealing.

Other changes will include an end to automatic discharges for debtors in sequestration, introduced in 1985, ironically to deal with the numbers of debtors that were left lingering in bankruptcy for lengthy period of times without a discharge.

So is this a Financial Health Service that will nurse more debtors back to health? I don’t think so.

Personally I feel like there is an element of mis-representation taking place.

Why? Well I suspect the real purpose of the bill is to help the Scottish Government to realise its goal of making the Accountant in Bankruptcy’s office fully self-funding and I suspect it’s also because policy development has been left to the AIB’s office, which see it as an opportunity to implement self-serving reforms.

If I was to summarise the new Bankruptcy and Debt Advice (Scotland) Bill 2013, I would not call it a Financial Health Service. I would describe it as a drifting out of the tide of progressive debt reform in Scotland and a return to a system which debtors will view as being overly coercive and hostile.

The Scottish Government are correct, Scotland has changed, its economy has also changed – many times over since 1985 – but when other legal systems are looking to liberalise their bankruptcy laws, it appears bizarre Scotland is heading in a different direction.
I am reminded of the comments of Kenneth Galbraith in his book the Great Crash of 1929, that the best form of protection is memory, with the problem being once people forget they repeat their mistakes. I suspect we are displaying those signs just now and are in danger of forgetting many of the lessons that led to the Bankruptcy (Scotland) Act 1985.

Just don’t break your financial leg.