Beware the Danger of the Return of Warrant Sales

Beware the Danger of the Return of Warrant Sales

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

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

North Ayrshire CAB Closure Highlights Risk to Front Line Advice Services

North Ayrshire CAB Closure Highlights Risk to Front Line Advice Services

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.