Learning to Breathe: The English Way

Learning to Breathe: The English Way

Scottish money advice services should pay particular attention to the plans of the UK Treasury for statutory debt management and breathing space schemes for England, Wales, and Northern Ireland.

The schemes, which will not be extended to Scotland, as they fall within areas devolved to the Scottish Parliament, are already provided for by the Debt Arrangement Scheme (DAS) and the Statutory Moratorium process contained within the Bankruptcy (Scotland) Act 2016.

However, early Indications are, that the UK schemes are promising to surpass Scotland’s 14-year-old DAS Scheme in their forward thinking and their protection for financially distressed consumers and may provide a roadmap for improving the Scottish scheme, which in recent years has been struggling to remain relevant.

Length of Breathing Space and Freezing of Interest

The first proposal for the UK scheme, which is worth mentioning, has been called for by Stepchange, and is for the 6-week protection period, that currently applies to Scottish Moratoriums, to be extended to 52 weeks for UK debtors.

Also during that period, UK consumer champion, Martin Lewis, has called for consumers to be protected not just from enforcement action, but also from interest, fees, and charges being applied to their debts (MSE Call on Government to Give People in Debt Real Breathing Space).

If implemented, this would be an improvement on the current position in Scottish moratoriums, which do not freeze the interest and charges on debts (I argued for such a proposal in 2013, in response to the rise in payday lending, but the Scottish Government rejected it at the time, arguing the balance in favour of debtors had gone too far – see Civic Scotland Owes Scotland).

Recognising Debtor Repayments

Another area relates to a recommendation of the Money Advice Service in their recent report: UK Debt Solutions – recommendations for change, which has called for further exploration of debt ‘rehabilitation’, including better recognition of debt repayment.

It is a simple fact in Scotland, regardless of how much the Scottish Government promotes the Debt Arrangement Scheme over other solutions, bankruptcy can have a less damaging effect on someone’s credit rating than repaying their debts can. In bankruptcy, the debtor’s liability for their debts are ended when the debtor receives their discharge, normally after one year; whereas the person who takes ten years to repay their debts, must accept their accounts will show as being in arrears for that length of time (and their account payment history may appear for another six years after that).

Lack of Capacity

Finally, however, it may be that Scotland still has something to teach in relation to statutory debt repayment schemes, other than the mistakes we made.

It is quite clear that the UK will face the same problems that Scotland has, in that supply for free services is being outstripped by demand and the creation of a statutory scheme is likely to add to that demand.

In Scotland, it was not until after 2011 that the Debt Arrangement Scheme took off, when rules allowed greater opportunity for the private sector to participate. However, the practices of some parts of the private sector, particularly in relation to fees, are as much a cause for concern as they are elsewhere in the UK in relation to debt management plans.

It is partly for this reason, the Scottish Government have indicated they will consult on the introduction of a form of the Fair Share Scheme which is operated voluntarily by the UK clearing banks with organisations like Stepchange and Payplan.

The simple truth is, that although organisations like the Money Advice Trust appear to want to restrict provision of the service in the UK to free providers (Making the Treasury’s breathing space scheme as effective as possible), the capacity of the private sector will be required, although this does not mean services cannot still be provided on a free to consumer basis.

In conclusion

Scotland may have led the way in the UK with statutory debt repayment schemes and breathing space processes; however, that doesn’t mean we have a monopoly on knowledge. There are still things we can learn, as it is certainly true the Scottish schemes are not meeting expectations.

Payday Loans: The Scottish Parliament Must Act

Payday Loans: The Scottish Parliament Must Act

First published in Bella Caledonia

Pay day lending is a dangerous business. There are no doubts about it. It preys on the needs of the vulnerable that have been created by failure: the failure of our banking system; the failure of our consumer right laws; the failure of our benefit system; and most importantly our failure to protect the most vulnerable.

It less seduces it’s victims with the honeyed fragrance of easy money, than pedals quick fixes to them with all the subtlety and tact of drug dealers. It targets its victims by identifying their weaknesses. Can’t pay the rent: that’s okay we can help; can’t feed the children: here you go; electricity about to be cut: don’t worry.

The experience of many with pay day loans is one of helplessness and desperation. Helplessness as each month the loan rolls over and you know you are sinking deeper and deeper into a hole. Desperation as you realise the possibility of being able to replace the children’s shoes, clothes and uniforms is growing increasingly remote. The desperation that comes from the realisation that one day it may be your children who will be going to school with inappropriate shoes; jackets; lunches.

It causes depression; fear of answering the phone; avoidance of opening the door. Mail lies unopened. Strangers intrude on your doorstep and violate you and your family’s privacy seeking payment.

And Fergus Ewing, the Minister for Energy, Enterprise and Tourism calls this a “legal, fair and transparent”business.

I don’t blame the Scottish Government for the pay day loan industry. How could I? They don’t have legislative authority over consumer credit laws, they can’t cap the interest rates and they don’t have any control over the key economic levers they need to boost employment and growth in our economy.

I can be angry with them, however, for not going to war with them. I can be angry that they won’t do more to discourage the use of these loans, to promote alternatives such as credit unions and I can be angry that they won’t use the powers they have to send a message that they aren’t welcome here.

Fergus Ewing takes the view this would be “inappropriate”; but for reasons of public health it was not inappropriate to take action to discourage smoking; it was not inappropriate to use our existing powers to restrict the use of alcohol through minimum pricing and it wasn’t inappropriate for the Scottish Government to challenge the authority of the Supreme Court.

Pay day loans are a scourge on our society and have grown up and thrived in the cesspit of financial failure that we have been exposed to in the last few years.

But powers do exist which would allow the Scottish Government to act now.

Debt law is an area that has been devolved to the Scottish Parliament. It is possible for certain debts to be treated differently and for interest rates to be frozen or varied once someone is struggling to pay them. Already such a Scheme exists in the form of the Debt Arrangement Scheme, but although this allows pay day loans to be included and for all interest, fees and charges to be frozen, it takes too long to use and allows payday loan companies to benefit from dragging their feet.

It’s within the legislative authority of the Scottish Government to create a new scheme or amend the existing one to create a more streamlined approach with specific rules for pay day loans. The powers allowing for such a scheme exist in the Debt Arrangement and Attachment (Scotland) Act 2004 s7 and s7a.

This, however, requires political commitment: a commitment borne out of a belief that pay day loans are nothing but fair or transparent and the only thing that would be inappropriate is to do nothing. A commitment that is borne out of an understanding of how closely related these firms and their practices are to the issue of poverty; and a commitment that is driven by a belief that the powers of the Scottish Parliament exist if for no other reason, but to make the lives of Scots better and to protect the most vulnerable.



The BBC has recently reported that the number of people now taking out payday loans has quadrupled since 1996. Consumer Focus, the organisation which aims to champion consumer rights has suggested up to 1.2 million people are now taking out payday loans every year, worth up to £1.2billion.

Suggestions, however, from Consumer Focus that payday loans are a valid form of credit is ridiculous, considering most of the firms that offer these high interest loans, do so with a model which is based on “flipping” borrowers up to eight times. That is their business model is not based on people repaying the loans with exorbitant levels of interest quickly, but rather borrowing at the end of the loan agreement, to repay the loan and, therefore, borrow more.

Even the article by the BBC admits once the loans are not repaid, the debts can quickly escalate.

The  statement that these loans are better than taking out a loan from a loan shark is ridiculous. The irony in this and, what is little know, is often loan sharks can lend  at a lower level of APR (interest rate) to those being offered by doorstep lenders and payday loan companies.

Often when loan sharks are caught and convicted, they are convicted on the technical grounds that they don’t have a consumer credit licence. But for that omission, many of these lenders would arguably be lending on more competitive grounds than many “legitimate lenders”.

Obviously, with legal lenders there may not be the threat of violence, but not always. As someone who has worked with debtors for years, it is not unusual to hear of client’s facing cloaked threats of violence or harassment from lenders with consumer credit licences.

To argue that payday loans can be reformed to be acceptable is a ridiculous suggestion and completely misunderstands the exploitative nature of these lenders, which exploit the same vulnerabilities that other illegal lenders do.

There is only one solution and that is to make available short term affordable and accessible loans to those on low income and also extend the availability of the social fund to assist people with necessities.

What do you think? Are pay day loans a valid form of credit?