New debt laws won’t help those with Wage Arrestments

New debt laws won’t help those with Wage Arrestments

An online Survey of people with earning arrestments in Scotland, believed to be the first of its type, has been carried out by Advice Scotland, and shows that many people in Scotland are experiencing extreme hardship as a result of funds being taken off their wages to pay debts.

The Survey which I have been running for the last few months, has had 46 responses from people in Scotland and paints a picture of families struggling with mental health problems, trying to find the money to pay for essentials and being trapped in a cycle of debt that they cannot escape from.

Can’t pay current council tax due to this. They are taking over £400 per month off my wages. I work part time as does my husband. I have a diagnosis of fibromyalgia and this is why I reduced to 30 hours. This may force me to go back to full time and ultimately effect my physical health

Survey Respondent

In some cases it shows people having to leave jobs, in an attempt to escape wage arrestments.

Releasing this Survey at this time is important, as currently in the Scottish Parliament, there is a new Bankruptcy and Diligence Bill being considered at Stage One by the Economy and Fair Work Committee.

Unfortunately, the Bill does not contain any measures that would alleviate the worst effects of Wage Arrestments and although it does contain a measure that would freeze action by Creditors when people are experiencing a Mental Health Crisis, my research has shown, the new Mental Health Moratorium is unlikely to help more than 50 people a year in Scotland, if it follows the model used in the Mental Health Breathing Space Scheme that already exists in England and Wales.

My view is if the Scottish Government want to do more to tackle the problem of debt and mental health, it has to do more to remove the undue hardship that many experience with wage arrestments and this cannot be done solely by Local Authorities, as some debt charities have called for, but only by the Scottish Parliament changing the law so creditors can be more flexible when people are experiencing problems.

I called for this in April 2022, when I gave evidence to the Scottish Parliament’s Social Justice and Security Committee as part of their Low Income and Debts enquiry.

This power, allowing creditors to be more flexible with people in debt, when they have a wage arrestment, currently does not exist in relation to Scottish Earning Arrestments, but is a power the Department of Works and Pensions (DWP) have when they execute Direct Earning Attachments for overpaid benefits.

I am calling for the Scottish Government to bring forward this measure in this new Bill, as it will allow more flexibility and compassion to be shown by Creditors and will help prevent mental health problems developing.

I am also calling for the Scottish Government to increase the Protected Minimum Amount in an Earning Arrestment from £655.83 each month to £1,000, to bring it into line with the Protected Minimum Balance in Bank Account Arrestments and the minimum amount people get to keep when they are made bankrupt.

“I am now stuck in the vicious circle of being unable to pay current year’s council taxes due to wage arrestment to pay off previous years”

Survey Respondent

What are Wage Arrestments?

There are 7 different types of wage arrestments in Scotland that can be used by creditors and insolvency practitioners to seize people’s wages, sometimes for council tax arrears, overpaid benefit or missed child maintenance arrears, and this often leads to multiple arrestments being carried out on people’s earnings at the same time.

The most common type that people reported as having in the Survey, was Scottish Earning Arrestments, with those accounting for 82% of all the arrestments people reported.

Scottish Earning Arrestments are by far the most common type of arrestment of earnings used in Scotland and in the 2022-23 Scottish Diligence Statistics, it was report 52,785 were executed by Scottish Creditors.  Of these 99% were executed by Scottish Local Authorities for Council Tax Debts.

It was also reported in March 2023 by the Scottish Government Minister, Tom Arthur (MSP) in a letter to the Scottish Parliament’s Economy and Fair Work Committee, that in 2021-22 Scottish Local Authorities reported recovering £27.5 M using over 35,000 arrestments.

Unduly Harsh

The Survey responses showed a trail of misery for many of those who responded to it, with 95% of those who responded saying they were left unable to pay for essentials, whilst 82% complained they had fallen into arrears and been left unable to pay other debts as a result of their wage arrestment.

This is particularly worrying, as traditionally in Scots Law its been well established that this area of law, legally known as diligence, although harsh, should never be unduly harsh.

However, the survey shows that wage arrestments for many are now unduly harsh, leaving families struggling to pay for essentials and becoming trapped in a vicious cycle of debt.

“£115 a week is a lot that’s a food shop or something else and I’m off work with fractured ribs at the minute. I just worry what’s going to happen.”

“Household direct debits unpaid due to arrestment being made without myself knowing”

Survey Respondent

Fifty percent (50%) said the arrestment was leaving them struggling, whilst nearly a third said it was harsh and 11% stated that the arrestment was having an unduly harsh effect on their household

Debt and Mental Health

The Survey also shows that 51% of those who responded also stated they had mental health problems, whilst some of the responses also noted that the respondents mental health had suffered as a result of the wage arrestment.

“I am finding it really hard to keep my head above water it is affecting my metal health. The amount the courts are taking off my wages leaves me struggling to pay my current debt as I am the only person bringing income in to my house”

“My mental health has deteriorated and made it even harder for me to work which is then having negative impact on my physical health”

“This arrestment has worsened my mental health as I feel every time I get a pay rise I’m no better off. I don’t mind having to pay, but it is the amount that is the problem. I’m 50 years old and I feel I will be paying this until I retire”

Impact on Employment

Worryingly, the Survey has also shown that wage arrestments can often have an impact on people’s employment, with 39% stating they had considered leaving their jobs after a wage arrestment was executed on their wages.

“Added to stress, unhappy household and I am seriously considering quitting my job as I do only work part time”

Survey Respondent

“I have just been informed of a second wage arrestment, this will mean I am getting circa £400 / £500 taken from my monthly wage. I am considering changing employment due to this.”

Survey Respondent

Making Arrestments Fairer

Of those Survey 95% felt their situation could be helped if the arrestment could be made more affordable, but as noted above, even when a wage arrestment is unduly harsh in Scotland, Creditors do not have the power to vary the amount people have to pay, unlike the DWP, who can use UK legislation to vary the amount that is taken by a Direct Earning Attachments.

Eighty-six percent (86%) also said they supported the Protected Minimum Amount in wage arrestments being increased to £1,000 by the Scottish Parliament, to bring the level of protections into line with those for bank account arrestments.

The full survey responses can be found here in Excel Format (Survey-Respnses.xlsx) or PDF format (Wage-Arrestments-in-Scotland.PDF)

Moveable Transactions (Scotland) Bill 2022

Moveable Transactions (Scotland) Bill 2022

As the Scottish Government look to introduce Virtual Pawnbroking and warrant sales for Scottish Consumers who have their debts secured by a Statutory Pledge, read our submission to the Delegated Powers and Regulatory Reform Committee of the Scottish Parliament.

Read more about the Moveable Transactions (Scotland) Bill 2022 here (Statutory Pledge: A New Debt Security for Scotland)..

1 Do you agree that

the law covered by the Moveable Transactions Bill (raising finance on moveable property like cars, machinery or intellectual property) should be reformed?

Register of Assignations

In relation to the Register of Assignations, I welcome this, as debt purchasing is now a significant industry for consumer debt in Scotland and improved regulation of it is required.
Many clients lose track of who their creditors are as their debts are sold, and this makes it significantly harder for them to manage and address their debts.
The practice of assigning and re-assigning debts also cause significant problems for advice agencies in Scotland who are trying to assist people with problem debt, even once they have entered into a formal debt solution such as the Debt Arrangement Scheme.
A Register of Assignation could help improve this situation, if it was a requirement in Scotland that any debt that has been assigned or re-assigned, after a certain date, must be registered in the Register before it can be constituted through the courts or recovered using the law of diligence. I also believe that it should not be at the discretion of the Assignor to decide whether a consumer should be notified that their debt has been assigned or is being re-assigned.

Statutory Pledges

In relation to the creation of Statutory Pledges, I have serious concerns over the creation of this new security, particularly in relation to consumer debts and where the property is secured over the personal property of consumers.
There is no requirement for a new security to be created for consumers. The arguments that are used in relation to businesses cannot be extended to consumers.
At present consumer credit lenders are usually happy to provide consumers with unsecured fixed sum loans to purchase items such as TVs and settees
and where they want greater security over the moveable property they are able to use regulated agreements such as hire-purchase and conditional sale.
The danger is if we create a Statutory Pledge Security that can be used for consumers, that will significantly change the way lenders lend in Scotland, to the detriment of consumers.
I, therefore, strongly believe Statutory Pledges should not be permitted to secure consumer debts over personal property.

3 Do you have any concerns about the proposed dual system for assignation of claims (for example, to repayment of a debt). This means it will be possible to assign claims either by intimation to the debtor (as at present) or by registration in the new Register of Assignations? This will provide flexibility, but will mean that the new Register will not be comprehensive

I do not believe the Registration of an Assignation should be possible in relation to a consumer debt, unless the Assignor is able to evidence they have notified the Consumer. To do anything less, could mean consumers losing track of who their creditors are and this could significantly impact on their ability to manage their finances.
Currently in the Financial Conduct Authority’s Consumer Credit Sourcebook, Chapter 6.5, there is a requirement on those who have regulated debts assigned to them to have to notify the consumer, if there is an assignation of rights. Equally EU Directive 2008/48/EC in Art 17 imposes a similar duty on Assignees.
As the Moveable Transactions (Scotland) Bill places the duty on the Assignor, rather than the Assignee, to register a debt in the Register of Assignations, I
believe that duty must fall on the Assignor before registration can occur.

4 Do you have any concerns about the interaction between the new security over moveable property – which will be created by registration in the Register of Statutory Pledges – and traditional pledge, which involves delivering moveable property to the creditor? Are there any circumstances in which businesses or individuals might wish to continue to use existing methods of raising finance over moveable property?

I believe in relation to Consumers, Statutory Pledges should not be permitted for consumer debts and over the personal property of consumers.
I don’t believe that the case has been made to show that there is a need for a new security to be created to allow consumers to raise personal finance and the arguments for businesses cannot just be extended to consumers, without serious risk of consumer harm.
I predict that the argument will be that some consumers will have priceless art collections, Steinway pianos or Stadivari violins that they will want to use to raise personal finance, but the reality of this new security is not about this. Its about personal car finance and poor people being offered unaffordable
loans, by lenders such as firms like Loans at Homes, Wonga, Amigo Loans and Provident/Satsuma, who have all now either entered insolvency, or have had to apply to the courts for Schemes of Arrangement, that allow them to reduce the level of compensation paid to consumers, because of their poor
practice of mis-selling unaffordable loans.
In a cost of living crisis the creation of consumer Statutory Pledges will only invite other high cost lenders to abuse the process, and secure loans over the personal property of consumers to their detriment.

5 The Bill contains detailed provisions on how the registers will be set up and searched. Do you have any suggestions for improving the approach set out in the Bill?

I believe those who are involved in advising and assisting consumers with their debts, should have free access to both the Register of Assignations and also the Register of Statutory Pledges.
This will assist them to help identify their clients debts and also whether a debt has been secured and over what. It will also help them find solutions to
their client’s problem debts.
I believe it will also assist them in administering debt solutions (whether formal or informal) in that it will help help them verify who creditors are when a debt is assigned during the operation of the solution.
I don’t believe the cost of this free access should be paid for by the public purse, but should be paid for by the Creditors that are assigning debts, otherwise the cost will be an additional burden borne by other creditors and publicly funded advice agencies.

6 The proposals in the Bill would apply to consumers as well as businesses. Do you think there are enough protections in place for consumers?

I don’t believe the Bill creates or can create enough protections for Consumers if Statutory Pledges are used to secure consumer debt over personal property.
The reason for this is many of the types of the debts that they will be used to secure will arise from regulated consumer credit agreements which this Bill cannot change, and are reserved matters .
However, a potential unforeseen consequence of this Bill is it is likely to change the way consumer borrow money in Scotland and not for the better.
We are likely to see an increase in the use of fixed sum loans, secured by a Statutory Pledges for items normally kept in the home, which will make it easier for creditors to repossess the items and circumvent the protections that were introduced for household items by the Debt Arrangement and Attachment (Scotland) Act 2002 and in relation to Exceptional Attachment Orders (which replaced Poinding and Warrant Sales).
Equally for car finance (and other items) we could see a reduction in the use of Hire Purchase and Conditional Sale agreements, which will significantly reduce the rights of consumers, in that fixed sum loan agreements secured by Statutory Pledges, will not contain the same protections for consumers
than regulated agreements contain, such as the right to Voluntary Termination.
I believe there could also be a growth in the use of such securities for consumers in relation to non-regulated consumer credit debts and could include private residential landlords the opportunity to use them to secure rent against not only tenants but the property of tenant’s family and friends.
I also believe we could see an increase in their use by debt collectors, where the debt being recovered does not relate to the purchase price of the item, but other unrelated debts, with collectors insisting on securities over items like cars before agreeing to repayment plans. This would effectively allow them to circumvent the protections introduce by the Debt Arrangement Scheme (Scotland) Act 2002 and also the Home Owner and Debtor Protection (Scotland) Act 2010 in relation to cars.

7 Do you have any other comments on the Bill or this area of policy?

Extreme caution should be exercised by this Committee over this Bill. I don’t believe the Explanatory Notes and Policy documents do enough to highlight the potential consequences of it in relation to consumers and personal borrowing in Scotland.
I am prepare to provide additional oral evidence to this Committee on why this Bill requires significant reform in relation the Register of Assignations and also in relation to why Statutory Pledges should not be allowed for consumer debts (regulated and unregulated).
The Bill is fatally flawed in that it does not take a balanced or proportionate approach to both consumer and business finance and effectively conflates
both, which is clearly wrong.

Statutory Pledges: A New Debt Security for Scotland

Statutory Pledges: A New Debt Security for Scotland

The Scottish Government on the 25th May 2022 laid before the Scottish Parliament the Moveable Transaction (Scotland) Bill 2022.

The Bill essentially aims to do two things:

  • Reform the law relating to the assignation of obligations and particularly debts (selling of debts) and create a new Register of Assignations; and
  • Create a new form of security that lenders can create over the moveable property of both businesses and individuals who owe money, without them having to relinquish possession of the property accompanied by a new Register of Statutory Pledges to record them.

However, although the Bill sounds technical and innocuous, the potential for it to have far reaching effects and significantly impact on consumer lending in Scotland cannot not be overstated. Nor should the risk of serious consumer harm flowing from the Bill be underestimated.

In this article, only Statutory Pledge Securities for consumers will be looked at; and why the creation of these for Consumer debts and Consumer property is a grave mistake by the Scottish Government.

What is the Risk Statutory Pledge Securities Present?

In the current economic climate, Scotland cannot afford to sleepwalk into passing the Moveable Transactions (Scotland) Bill. The dangers it poses for consumer borrowing in Scotland is significant and real.

It is likely it will result in an erosion of consumer rights that have been built up over the last 40 years, through the introduction of both Scottish and UK legislation.

What are Statutory Pledge Securities?

Statutory Pledge Securities will allow creditors to secure their debts over the moveable property of both businesses and consumers. 

Up until now this has only been possible if the borrower delivered the item the debt is secured over to the lender. Traditionally, this is what pawn brokers do, using a form of security called pledge. For those who offer this type of security, the disadvantage is you must surrender possession of your property if you wish to use the item as a security and it is only returned when you pay off the debt.

However, what the Scottish Government is proposing is a new type of Pledge Security, known as a Statutory Pledge Security, which allows you to keep possession of the item the debt is secured over and allows you to keep using it. However, if you can’t pay the debt, the creditor can come and take it away. If you don’t agree to let them, then they can obtain a court order to come and repossess the item.

What’s wrong with that?

Many people may think that is quite reasonable; however, the problem it creates is once introduced, this new security is likely to change the way lenders choose to lend money to people.

So, for example, at present if you go and purchase a sofa or TV and take credit out on the item to buy it, lenders will usually offer you an unsecured fixed sum loan agreement. This basically means a loan that you pay back, but ownership of the item becomes yours. This means if you experience financial difficulties and cannot repay the loan, the Lender has no greater right over the item borrowed than anyone else you owe money to. They must take you to court, get a court order and then serve on you a Charge for Payment, which is a legal demand for payment giving you 14 days to pay the debt. If you still don’t pay, they then must explore if a wage or bank account arrestment is feasible and if not they have to return to court to apply for what is called an Exceptional Attachment Order. This allows Sheriff Officers to come into your home to see if there is anything they can take. However, because of a law called the Debt Arrangement and Attachment (Scotland) Act 2002 was passed, many items in you home cannot be taken: this includes sofas and TVs.

What Statutory Pledge Securities allow lenders to do, however, is to secure their debt over the item you buy. This means when you experience financial difficulties, Lenders can ask for your permission to come and take away the item or can apply to the court to come and get it.

Essentially, the new Security will roll back many of the protections that were introduced 20 years ago to protect items that people have in their home, where they buy it using credit and the lender uses the new Security.

Can the Lender not just do that anyway with a Hire Purchase Agreement?

It is true that a lender can possibly do what is described above using a Hire Purchase Agreement, however, very few consumer lenders currently use Hire Purchase Agreements when it relates to items that people buy for their home.

Also, when Hire Purchase agreements are used it means you don’t own the item until you pay it off. These agreements are provided for in the Consumer Credit Act 1974 and afford borrowers far greater protections than Statutory Pledge Securities do. So, for example, where you have paid more than half the full amount borrowed, you can hand the items back using a process known as voluntary termination. This often means lenders don’t like it when people hand stuff back, as they can lose money and usually they would rather concentrate on getting you paying again.

The problem is when more than half has been paid off, the value of the goods is usually less than the amount owed, so the lenders suffer a loss.

When a lender provides you with a fixed sum loan agreement secured by a Statutory Pledge Security, you cannot do this. The best you could do is sell the item yourself or allow the lender to sell it and you will have to make up the difference in price between what is owed and what the item sells for.

There is, therefore, a danger that Lenders will view giving fixed sum loans and securing them with a Statutory Pledge Security as being less risky.

This means if the Scottish Government introduces Statutory Pledge Securities, more lenders may change from offering unsecured fixed sum loans to buy items to offering secured fixed sum loans.

What about Cars? Will it affect them?

The real danger it is expected will be in the way cars purchases are financed. At present in Scotland, it is believed over 90% of all new and second-hand cars are purchased using credit in the form or Hire Purchase and Conditional Sale Agreements and variations of these types of agreements, called PCP Plans.

Some are also purchased using unsecured fixed sum loan agreements.

The main difference between these types of agreements is with Hire Purchase and Conditional Sale agreements, you don’t own the car until it is paid off, but you do get to have possession of it and use it. With unsecured fixed sum loan agreements, like with Sofas and TVs you do get to own the car and you just have to pay off the money off that you borrowed.

Why Statutory Pledge Securities may change the way lenders lend money to people to buy cars is with unsecured fixed sum securities, if you don’t or can’t pay the debt, the lender doesn’t have any right to take the car off you over any other lender you owe money to. They must take you to court, get a court order and serve on you a Charge for Payment allowing you 14 days to repay the debt. If you don’t they can then instruct a Sheriff Officer to Attach the car. However, because of rules introduced in 2002 and 2010 in Scotland, where your car is worth less than £3,000 and you have a reasonable requirement for it, it is exempt from Attachment.

With Statutory Pledge Securities these protections will not apply, and Sheriff Officers can come and take away your car and sell it, regardless of its value.

Also, as with sofas and TVs, when the Lender allows you to buy the car using Hire Purchase and Conditional Sale Agreements, if you have paid more than half the amount owed under the Agreement, you may be able to hand the car back and owe nothing more, often meaning the Lender loses out.

Statutory Pledge Securities will change this, as you cannot simply hand the car back and walk away after you have paid more than half the amount owed, and if the lender sells it and it’s not enough to pay what is owed, then you must make up the difference.

So why will Statutory Pledge Securities change the way Lenders Lend?

The reason why the creation of these new securities for consumer borrowing and property threatens to change the way Lenders lend, is because they offer them more rights and powers, than unsecured fixed sum loan, Hire Purchase and Conditional Sale Agreements do. They also significantly reduce the rights of borrowers, placing them in a far worse position and more likely to have the item they bought repossessed and still be left in debt.

This may be more likely to be the case in Scotland, than anywhere else in the UK, as over the last 20 years, the Scottish Parliament has introduced multiple protections for consumers in debt that don’t exist elsewhere in the UK. Lenders may, therefore, in the Scottish Landscape believe using secured fixed sum loans are better for their interests, and many of the advances Scotland has made over the last 20 years, may be eroded overnight with the passing of the Moveable Transactions (Scotland) Bill.

So why has the Scottish Government proposed these new Securities?

Well ironically, for a government that believes in Independence, they are trying to bring Scots Law into line with English law, ignoring hundreds of years of common law protection for Scottish borrowers and not realising the impact these new securities could have on the protections that have been introduced by the Scottish Parliament over the last 20 years.

They are also likely listening to Scottish Government lawyers, who made the same mistake in 2007 with the Bankruptcy and Diligence Etc. (Scotland) Act 2007. They looked at the law in Scotland to see where they thought the gaps were and tried to fill them with what they thought was a solution. So, for, example, they thought there was a gap in how unsecured creditors like credit card companies and unsecured loan companies could recover their debts from people that owned their own home. So, they invented a thing called a Land Attachment, which allowed those unsecured creditors to secure their debts over people’s homes and sell them.

Fortunately, when the law was passed it was never commenced, as it was realised this could lead to people losing their homes, not because they didn’t pay their mortgage, but for not paying a credit card. Also, in 2007 there was the credit crunch, so it was believed due to the economic crisis, it was the wrong thing to do, even though England had a similar law known as Charging Orders. Scotland went its own way.

With Statutory Pledge Securities, the same thing has occurred again. As there is no way to secure a debt over a moveable item like a car, sofa or TV (without surrendering possession) like there is in the rest of the UK, the Scottish Government lawyers think there is a gap that needs filled, again despite the economic crisis, where people will struggle to pay their heating and other cost of living expenditure.

However, what they fail to see and comprehend is the far-reaching effects such a security could create in Scotland and how it could change the way lenders lend and the serious consumer detriment that will arise from it.

Over the coming months expect arguments that these securities are necessary as there are consumers with priceless art collections, Steinway pianos or Stadivari violins, who want to use them to raise finance, whilst retaining possession of their much loved possessions.

The argument will be these new securities are liberators and will allow consumers to access new sources of credit, at low costs, using their valuable possessions as collateral; but what these arguments will ignore, is regardless of the benefits these changes will bring for a few mythical, privileged borrowers, these new securities are about rolling back consumer protections and rebalancing the rights of consumers and lenders strongly in favour of creditors.

Statutory Pledge Securities are not about oil paintings and valuable jewellery being offered up as securities, they are about rebalancing the consumer car finance market in favour of car finance firms and offering unaffordable loans to poor people and making them offer up their possessions as security, so when they can’t pay, lenders can threaten to take them away.

Proposal for a Cost of Living (Debt) (Scotland) Bill

Proposal for a Cost of Living (Debt) (Scotland) Bill

As the Cost of Living Crisis deepens across Scotland, we look at what the Scottish Government and Parliament could do to help improve the law in Scotland in relation to debt for cosumers.

  • Our proposals contain suggestions on:
  • The Debt Arrangement Scheme
  • Time to Pays
  • Illegal Debt Recovery Activity
  • Statutory Moratoriums
  • Calculation of Debtor Contributions in Personal Insolvency
  • Bankruptcy
  • Earning Arrestments
  • Bank Account Arrestments
  • Summary Diligence
  • Council Tax Liability
  • School Meal Debt
  • Private Parking Notices
Social Justice Committee says Devolved Powers should be used to combat Cost of Living Crisis

Social Justice Committee says Devolved Powers should be used to combat Cost of Living Crisis

The Scottish Social Justice and Security Committee have timeously published their final report into the problem of Low Income and Debt in Scotland (Robbing Peter to pay Paul: Low
income and the debt trap).

The Committee, which launched its enquiry in November 2021, and has been taking evidence from stakeholders and other interested parties over the last 8 months, has now published it’s recommendations.

These include:

  • A call for the Scottish Government to use all of Scotland’s devolved powers to help tackle the cost of living crisis, particularly for disabled adults and children
  • For the UK Government to accelerate its plans to bring forward secondary legislation to control the emergence of Buy Now Pay Later credit as a growing area of debt.
  • For the UK Government to reflect on how Universal Credit is exacerbating the finances of those on low income and contributing to a rise in debt.
  • For the Scottish Government to undertake a full review of the Scottish Welfare Fund and ensure it is adequately funded.
  • For new national guidance to be developed to cover the collection of publicly owned debt and for clear guidance and processes to be created for disputing liability for public owned debt, including council tax.
  • A tightening up of pre-action requirements for evictions in the private and registered social landlord sectors, with greater emphasis on promoting money advice.
  • For COSLA to work with local authorities to develop a national policy in relation to the collection of school meal debts, that has regards to human rights and removes stigma.
  • For the Scottish Government to work with Local Authorities to agree 3-year funding plans for Money Advice, that does not detract from the need for core funding of services.
  • For increased funding to be made available for money advice services.
  • For the Scottish Government and Local Government to ensure that everyone has access to face to face, online and telephone advice.
  • For there to be increased access to free Wi-Fi and computers through libraries.
  • For more training to be provided to health care professionals to raise awareness of debt issues and the importance of advice.
  • For the Scottish Government to bring forward a mental health moratorium for people struggling with debt and to ensure that people will not be charged by mental health professionals for completing a Debt and Mental Health Evidence form. This would bring Scotland into line with the rest of the UK.
  • For bankruptcy fees to be removed for anyone who is found to have no disposable income.
  • For the minimum debt threshold for Bankruptcies to be removed and for the time a party must wait before they can use the Minimum Asset Procedure again to be reduced to five years from ten years.
  • For the Protected Minimum Balance for Bank Account Arrestments to be increased to £1,000 from £566.51 (this measure has already been implemented and will now commence from November 2022).
  • For Creditors to be allowed the flexibility to reduce, with the agreement of employees, the level that Earning Arrestments are taken from wages.

The full report can be downloaded here.

Can the Scottish Parliament stop UK Wage Arrestments?

Can the Scottish Parliament stop UK Wage Arrestments?

As we enter a cost-of-living crisis and more and more families begin to struggle with paying for day-to-day essentials, there is one thing the Scottish Parliament could and should do and that is stop the use of Direct Earning Arrestments (DEA) from being used to recover DWP debts in Scotland. DEAs are a brutal form of debt recovery that was introduced in 2012 by the UK Government as part of its programme of welfare reform.

They are also unique as since the creation of the Scottish Parliament, debt recovery has been a devolved area of law.

Direct Earning Arrestments (DEA), however, are UK wide debt recovery tool (but don’t apply in Northern Ireland and the Channel Isles) and are specifically used by the DWP to recover debts owed to them from wages (local authorities can also use them to recover housing benefit overpayments). At their worst they can take up to 40% of someone’s net wages each month.

How do they work in Scotland?

In a Scotland, they can be even more harsh, as although they can arrest up to 40% of someone’s wages, such levels of arrestment are only likely in the most extreme cases, where fraud is involved. However, in Scotland they can also be executed in addition to a Scottish Earning Arrestment that can be used to recover other debts, such as council tax. This means even when a lower level of arrestment is used for a DEA (not 40%), when a Scottish Earning Arrestment is in place, people get hit with a double whammy.

Why this is unusual, is because under Scot Law, when more than one creditor wants to arrest someone’s wages, Scots Law provides a solution known as a Conjoined Earning Arrestment. This means two or more creditors can share the amount arrested, but the person in debt does not pay more, as Earning Arrestments are designed to ensure they are not unduly harsh in how they operate.

Direct Earning Arrestments, however, by being allowed to operate in addition to an Earning Arrestments, can cause real hardship and are a UK cuckoo in the nest of Scotland’s home-grown debt recovery tools available to creditors.

What is the logic of Direct Earning Arrestments?

The logic behind Direct Earning Arrestments in a Scottish context is the Department of Works and Pension don’t need to use Scotland’s traditional law of Diligence to recover debts and can get a larger amount than they may receive if they use Scotland’s more progressive Earning Arrestment.  They can also get a higher priority over other creditors who may be owed more but must use an Earning Arrestment.  

The justification for this is not readily apparent either. Its true benefit overpayments are public funds, so you could argue, those types of debts should be given priority over other debts; but there are lots of public debts, such as tax debts owed to HMRC, or arrears owed for council tax. However, those debts still must be recovered using Scots Law. Some may say it’s because benefit overpayments arise from benefit fraud, but this is not true. Most arise from people not understanding the UK’s complex benefit system or having to apply for advances on their Universal Credit, or because the DWP make official errors and miscalculations. Most benefit overpayments do not arise from fraud and most people who have them, are those on the lowest incomes, so its ironic they are the ones subject to the most brutal forms of debt recovery.

How were the UK Government able to make these Law?

How the UK Government were able to legislate in 2012 to introduce Direct Earning Arrestments into Scotland is questionable. As already noted, since the inception of the Scottish Parliament, debt recovery law has been devolved to the Scottish Parliament.

The way devolution operates is under the Scotland Act 1998 (which has now been amended by the Scotland Act 2016) the general principle is an area of law is not devolved to the Scottish Parliament if it is specified as being reserved to the UK Parliament under Schedule 5 of the 1998 Act. If it is reserved, the Scottish Parliament cannot legislate in that area.

Under Head F of Schedule 5 of the Scotland Act 1998, however, Social Security Law is reserved (although because of the Scotland Act 2016, many areas of Social Security Law are now also devolved to the Scottish Parliament).

So, are Direct Earning Arrestments made under an area of law that is reserved exclusively to the UK Parliament? Well back in 2012, Social Security was fully reserved to the UK Parliament and what Section F1 of Schedule 5 stated was reserved was:

Schemes supported from central or local funds which provide assistance for social security purposes to or in respect of individuals by way of benefits.

Requiring persons to—

(a) establish and administer schemes providing assistance for social security purposes to or in respect of individuals, or

(b) make payments to or in respect of such schemes,

and to keep records and supply information in connection with such schemes.

The circumstances in which a person is liable to maintain himself or another for the purposes of the enactments relating to social security and the Child Support Acts 1991 and 1995.

The subject-matter of the Vaccine Damage Payment Scheme.

Importantly none of which relates to the recovery of debts, even DWP debts. However, under Head F there are further provision which illustrate the type of powers that are reserved in relation to Social Security Law, which includes:

“…recovery of benefits for accident, injury or disease from persons paying damages; deductions from benefits for the purpose of meeting an individual’s debts…”

Interestingly, however, the illustrations only refer to the recovery of debts from benefits, not earnings.  Now it could be argued this list is only illustrative and not exhaustive, so it could be argued it does include the power to recover benefits from earnings. However, it could also be argued, it’s a deliberate omission.  At this point, when the Scotland Act was made in 1998, it was well established that recovery of debts in Scotland were done using Scots Law of Diligence and had been done that way for centuries. In fact, even after devolution, DWP debts were recovered from earnings exclusively using the Law of Diligence up until Direct Earning Arrestments were introduced in 2012.

That would be a more plausible reason why the illustration only refers to deductions from benefits rather than earnings, as it was always anticipated that debt recovery from earnings in Scotland would be carried out using the law of Diligence. So, one view could be the introduction of DEAs by the UK Government was a bit of a power grab.

In terms of DWP debts being recovered from benefits being a reserved matter, this makes sense, as strictly speaking benefit deductions are not really debt recovery in a traditional sense. They are more the right by the DWP to offset debts owed to them against money it is due to pay someone. As DWP benefits are a reserved matter and the DWP are a UK agency, it makes sense the power to make deductions from benefits should also be reserved. Deductions from earnings, however, are less likely to be an obvious area to be reserved to the UK, as Scotland already had a system of laws that govern recovery of debts from earnings and other assets that a debtor may have.

Describing Direct Earning Arrestments as cuckoos in the nest of Scotland’s debt recovery laws is apt, as they effectively crash a wrecking ball into that framework and allow the DWP to carry out its own arrestments, regardless of any other claims by other creditors, even public sector ones.

Can the Scottish Parliament legislate in relation to Direct Earning Arrestments?

The Scottish Parliament can legislate to amend or repeal a law that is passed by the UK Parliament.

The Scottish Parliament can amend or repeal UK laws, providing it is not an area of law that is reserved; nor can it make changes that would affect the law of any other legal system or country. So, it could not amend or repeal Direct Earning Arrestments in a way that would affect their application in England or Wales (they don’t apply in Northern Ireland or the Channel Islands).

So, are Direct Earnings Arrestment an area of law that is reserved? They were introduced by legislation of the UK Government. If it is not an area of law that was reserved, then the UK Government should not have extended them to Scotland, but the UK Parliament is a sovereign parliament, so effectively it can legislate in any area it wants, regardless of what the Scotland Act says.

However, The Welfare Reform Act 2012 did not amend or restrict the powers of the Scottish Parliament, so even if the UK Parliament did legislate in a devolved area, this does not mean the Scottish Parliament cannot legislate to amend the law in relation to the application of DEAs in Scotland.

Another argument that supports the view that how DWP benefits are recovered in Scotland is not a reserved area (except in relation to when it’s done by making deductions from benefits) is the Scottish Parliament can currently legislate in relation to how DWP benefit overpayments are recovered just now. Under the law of bankruptcy, for example the Scottish Parliament can decide what types of debts are included in bankruptcy and what are not; it can decide what types of debts are written off in bankruptcy. It can also create different classes of debts, which include benefit overpayments and decide how they rank against each other and how they get paid.

The simple fact is under Scots Law, the rules that govern how debts are recovered were always governed by the Law of Diligence (with one notable exception), so it seems unlikely when the Scotland Act was drafted in 1998 it was ever intended that the UK Government would reserve the right to create a new system of debt recovery laws that previously had never existed. I would, therefore, take the view the Scottish Parliament can competently legislate in relation to Direct Earning Arrestments and how they operate in Scotland.

I would also take the view that it would be perfectly competent for the Scottish Parliament to amend S149 (3) of the Welfare Reform Act 2012 which states: “Sections 128 and 129 extend to England and Wales only”. If the Scottish Parliament were to include S106 into that Clause (which relates to Direct Earning Arrestments), it would effectively repeal their use in Scotland, without having any impact or effect on any of the other UK legal Systems.

Rising Living Costs: could the Debt Arrangement Scheme help?

Rising Living Costs: could the Debt Arrangement Scheme help?

As Scotland emerges from Covid, hopes we would be entering a better future appear to be getting dashed quite quickly.

The truth is we are now facing another crisis, in the form of the rising living costs, which over the next year is likely to see gas and electricity prices soar, accompanied by food and fuel prices.

At present inflation is averaging around 5%, but in all likelihood, it could rise to 7%: a level not seen in decades.

However, for most families the real level of inflation is likely to be more, as the truth is lower- and middle-income families tend to spend a higher proportion of their income on those items that are seeing the highest levels of inflation, such as gas, electricity, and petrol.

Also, as more and more businesses begin to return to the workplace, ending working at home, this will place increased travelling costs on many families and, therefore, additional pressure on budgets.

What can be done if your household finances are under pressure?

The problem for many households is that as the cost-of-living increases, it’s not easy to budget. Many of our household essentials are fixed. Mortgage, rent, council tax etc. Some expenditure we might be able to reduce by switching suppliers, such as insurances and broadband providers, but most of these savings will be marginal in what are already highly competitive markets.

However, if people are struggling with their household budgets against a backdrop of rising costs, then they should look at all their household expenditure to see where savings can be made.

So, if our fuel bills are increasing, even if we can’t make savings in relation to them, we should look at where else we can make savings.

But making Savings isn’t as easy as many suggest

The problem is inflation is affecting many of our essential expenditure, so reducing costs is not easy. How do you cut your expenditure on food, when prices are rising and you are already receiving less for your money? The same applies for other items and with the domestic energy markets effectively dysfunctional, with over 30 companies believed to have collapsed in the last year, switching providers will not bring the benefits it once did.

The truth is for many, once they have looked at their budget, the only place they will be able to make savings will be in relation to debt payments, such as credit cards and loans. These costs, however, are also often fixed, and require a minimum payment each month.

Could the Scottish Debt Arrangement Scheme work?

It may be, however,  for some Scottish consumers, the Debt Arrangement Scheme may provide some form of solution. Not only because it may allow people to make reduced payments to their debts, whilst also freezing interest and charges, but because unlike other formal debt solutions in Scotland, there is no requirement under the law that when you make a proposal under the Scheme, that you have to offer your creditors all your disposable income.

This little known feature of the Debt Arrangement Scheme may become a game changer in the coming period, when many are looking for help with their debts. 

It means, that even if you are in debt and need a solution for repaying those debts, you can set up a plan that still has a cushion built into it that will allow you to make a proposal to your creditors that doesn’t mean you have to give them all your disposable income each month.

The benefit of this, is that cushion may still allow you to absorb any further cost of living increases over the coming months and years, without having to miss any payments to your  Scheme.

What is the Debt Arrangement Scheme?

The Scottish Debt Arrangement Scheme is a Scottish Government Scheme, that is not a type of insolvency and allows you to repay your debts over a reasonable period.

It does not need to affect your car, even if you have it on finance, or your home, providing you make your payments as normal. 

It also protects you from Sheriff Officers and all you pay each month, is one payment, which is distributed to all your creditors by a Payment Distributor.

The Debt Arrangement Scheme is also free, so every penny you pay, goes to reducing your debts. If you want to see if the Debt Arrangement Scheme is suitable for you, use our tool below, or speak to us on Messenger. 

Scottish Debt Solution League Tables

Scottish Debt Solution League Tables

Information from the Scottish Government, covering the period from the 20th December 2020 and the 30th of September 2021, shows which organisations provided debt solutions to people struggling with problem debt over that period.

The Scottish Debt Arrangement Scheme

The Scottish Debt Arrangement Scheme is a formal debt repayment plan that allows people to repay their debts. Under the Scheme, those struggling with problem debt can propose to repay their debts to their creditors, using just one payment per month, through a Payment Distributor. Importantly, the Scheme is free to those in debts, although creditors who have their debts included in a Scheme have to pay 22% towards the cost of setting up and administering the Scheme.

The Scottish Government only report organisations that have done more than 25 DPPs. The rest are included in other.

Money Advice Organisation Number of Approved DPPs.
Carrington Dean Group2,035
Harper McDermott592
J3 Debt Solutions241
Interpath Advisory88
Wilson Andrews67
Begbie Traynors61
Citizen Advice Fife37
Wylie & Bisset30

Local Authorities and Citizen Advice Bureaux

Local Authority and Citizen Advice Bureaux, not for profit, local advice organisations also provide Debt Payment Programmes. In the list above (organisations that have done more than 25) only one of these types of organisations appeared, and that was Citizen Advice Rights Fife. Of those “Other” Organisations, 165 DPPs were carried out by Local Authorities and Citizen Advice Bureaux.

Organisation TypeNumber of DPPS Approved
Local Authorities69
Citizen Advice Bureaux96

Bankruptcy: Certificate of Sequestration

For people in Scotland to apply for their own Bankruptcy (also known as Sequestration), they first need to have a Certificate of Sequestration signed.  Between the 1st December 2020 and the 30th September 2021, the following organisations signed Certificates of Sequestration. 

There are two processes that can be used when someone is going Bankrupt in Scotland, one is Full Administration Bankruptcy and the other is using the Minimum Asset Procedure. The figures for Certificates of Sequestration are broken down into the two procedures used.

Money Advice OrganisationNumber of Certificate of Sequestrations (MAP)
Citizen Advice Rights Fife115
Christian Against Poverty44
South Lanarkshire Council – Money Matters39
West Lothian Council37
Inverness, Badenoch and Strathspey CAB30
Aberdeen Council28
North Lanarkshire Council27
Moray Council27
Haddington CAB25
Scottish Government only report organisations doing more than 25 Certificates of Sequestration
Money Advice OrganisationNumber of Certificate of Sequestrations (FAB)
Wylie and Bisset36
The Scottish Government only report Organisations that have done more than 25 COS

Protected Trust Deeds

Protected Trust Deeds are a type of personal insolvency in Scotland and must be administered by private insolvency practitioners.

Trustee OrganisationNumber of Protected Trust Deeds
Carrington Dean1,549
Harper McDermot1,349
J3 Debt Solutions473
Wilson Andrews249
Interpath Advisory197
Wylie and Bisset146
YEG Insolvency (formally AGT Insolvency)95
Begbie Traynors36
Hanover Insolvency34
Parker Phillips Insolvency26