Prescription (Scotland) Bill

Prescription (Scotland) Bill

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

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

Debt Arrangement Scheme: Can it Be Fixed?

Debt Arrangement Scheme: Can it Be Fixed?

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

Debt Laws Too Debtor Friendly

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

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

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

Funding Cuts to Money Advice

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

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

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

The Future

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