PPI Claims in Trust Deeds: IP’s not likely to Re-open Cases

PPI Claims in Trust Deeds: IP’s not likely to Re-open Cases

The Director of Insolvency for the Institute of Chartered Accountants of Scotland (ICAS), has said he believes Insolvency Practitioners are unlikely to try and reopen closed Protected Trust Deeds to pursue claims for mis-sold PPI (payment protection insurance).

The opinion expressed in his blog comes in light of the decision of Lady Dorrian in the case of Doneen Ltd & Others v Mond.

The decision of the Inner House of the Court of Session held in that case that Insolvency Practitioners may not be able to re-open cases depending on the wording of the Trust Deed. The case revolved around the issue of whether the effect of a discharge of a trustee in a protected trust deed and a final distribution to creditors was the equivalent of a discharge in composition, which would have the effect of extinguishing not only the debtor’s liability for the debt, but the debt itself. The court found it may do so, depending on the actual wording of the protected trust deed.

It is important to note that this decision does not affect Scottish bankruptcies, where it is clear it is possible for trustee’s to re-open the case to ingather assets that would have vested with the Trustee in bankruptcy, had they been known about prior to the trustee obtaining their discharge.

It is likely the decision in Doneen Ltd & Others v Mond, will be appealed to the UK Supreme Court.

A seperate case, Donnelly v RBOS, remains on appeal to decide whether banks can set off PPI claims where the claimant had previously granted a Trust Deed and the Deed is now closed.


MSP urges Scottish Parliament to protect vulnerable debtors

MSP urges Scottish Parliament to protect vulnerable debtors

Glasgow MSP Bob Doris has urged the Scottish Parliament to consider taking more action to clamp down on rogue marketing companies who are mis-selling personal debt solutions to vulnerable Scots.

Echoing concerns I raised in an earlier article for the FIRM (Trust Deed Bubble to Burst), the MSP made the calls whilst speaking in the Scottish Parliament.

Discussing the Scottish Government’s new legislative programme, Bob Doris urged MSPs to look closely at the new Bankruptcy and Debt Advice (Scotland) Bill and emphasised the bill could be vital in improving debt solutions for the most vulnerable people.

The Glasgow MSP raised concerns, however, that some lead generation firms were offering Protected Trust Deeds irresponsibly, incentivised by lucrative fees and called for the Scottish Parliament to take further action to regulate them.

At present any firm involved in providing debt advice must have a category E and D Consumer Credit Licence, issued by the Office of Fair Trading (OFT); but there are concerns by many in the debt advice industry that the OFT is an ineffective regulator and many of those involved in providing advice are unqualified or unsuitable to do so.

The Glasgow MSP, therefore, called for the Scottish Government to consider creating an Approved Intermediary Scheme that would require anyone involved in advising on Scottish statutory debt remedies for financial gain to be approved by the Scottish Government.

This Scheme could be deliberately targeted at lead generation firms and would not authorise them in itself to provide access to those remedies, but would allow the Scottish Government to issue guidance to them, or sanction them where they believed it necessary.

By requiring only those who provide leads for financial gain to be registered, this would ensure those that provide advice as part of their profession would not be prevented from doing so, such as elected representatives, solicitors or other professionals.

There is a powerful case for requiring further regulation where firms provide leads for financial gain. The debt advice industry is already recognised as a high risk industry due to the vulnerability of the people involved and the fact debtors have a tendency to panic buy and be distressed sold solutions. If you incentivise those generating leads with lucrative fees, it’s not hard to understand why then the risk of mis-selling or bad advice increases immeasurably.

The Scottish Government do currently operate a similar scheme in that to actually provide access to the Debt Arrangement Scheme, it is necessary to be approved as a money adviser and hold a Consumer Credit Licence, or alternatively be a licenced insolvency practitioner.

The argument, therefore, is to extend this approval scheme to not only those providing access to formal remedies, but also to those providing advice on statutory remedies for financial gain.

The fact such a scheme already exists, however, could also be an argument against any additional regulation. Lead generators acting as intermediaries cannot themselves provide access to remedies, so arguably debtors are already protected in that regardless of who gives them initial advice they must go through an approved money adviser or licenced insolvency practitioner.

However, this ignores the fact the current system is failing. There is fierce competition for referrals and some firms are prepared to pay in excess of £2,000. Also as most advisers and MSPs can testify, too many debtors are ending up in inappropriate solutions.

The simple and brutal fact is lead generators have become too powerful within the Scottish formal debt remedy industry.

They are not as well regulated as those who provide access to debt solutions, they do not have the same administrative and regulatory costs and, therefore, can channel their funds into dominating the internet, TV and radio waves and dominate the flow of clients seeking debt relief and debt management remedies. This is forcing firms to pay more for referrals and in some cases as a result they can exert too much influence over what cases are signed.

Additional regulation would not destroy the market, nor would it prevent legitimate and responsible lead generators from continuing to operate.

However, it would increase the quality of advice and allow the Scottish Government to exercise more control over how their formal remedies are marketed.

More importantly it would ensure vulnerable debtors are protected.

I believe this is what Bob Doris wants and I totally support him in that aim.

Trust Deed Bubble to Burst

Trust Deed Bubble to Burst

No one should be in any doubt, the Scottish Government’s new proposals for Protected Trust Deed reform is about taking the heat out of the Protected Trust Deed market and ending the trafficking of debtors between lead generation and personal insolvency firms.

It’s no secret that with some firms now reportedly paying in excess of £2,000 for referrals, Scotland’s Trust Deed market has become an overinflated bubble with debtors being “mis-sold” products as new lead generation firms sprout up daily and chase down every possible lead for the lucrative fees that some firms are now dangerously paying.

The exorbitant fees have resulted in saturation level TV and radio campaigns that push and sell statutory remedies as products and don’t promote best advice. For some firms, the use of the products themselves in their company names, like Trust Deed, give away the game.

However, what many debtors are unaware of is in actual fact many of these firms are just lead generators whose entire business model is about trafficking debtors to insolvency firms for ridiculous referral fees. In addition to this, many debtors don’t realise that such levels of fees have created a high risk culture of mis-selling, with many being pushed into solutions that are not appropriate and are destined to fail when payments are not maintained and debts are handed back; but only after the lead generator has been paid and the debtor has made months of contributions towards a remedy that was never going to work.

The practice of paying fees has been allowed in Scotland since 2008, but only for work done. The logic being where someone else has gathered information about a debtor and passed it to an Insolvency Practitioner, then it is acceptable for that practitioner to pay that intermediary for the work they have done. This removes the need for the practitioner to do the work and prevents duplication, although they are still obliged to validate the information provided.

However, whereas such fees began at £2-300, they have exploded in recent years with some English firms now paying in excess of £2,000 per referral, allowing them to buy up significant portions of the Scottish Market.

However, the new Protected Trust Deed regulations which will be laid before the Scottish Parliament in early September and are expected to come into force by November are the clearest sign yet that the Scottish Government intends to curb the practice and clamp down on the mis-selling culture.

The new provisions that will be introduced will no longer allow trustees to recover referral fees as part of their outlays for a case and instead will require them to include them as debts into the case, where they will only receive a dividend on the fees and be treated like other creditors.

The way trustees charge their fees against cases will also change, meaning they will no longer be able to charge on a time and line basis and will have to propose a setup fee at the outset to creditors, with proposals thereafter only to take a percentage of the ingathered funds from the case. Effectively this will mean trustees will have to share the risk of the case failing with the creditors throughout the lifetime of the case and, logically ensure only those cases likely to succeed are taken on at the outset.

In addition to this new provisions will be brought forward extending the minimum time a trust deed lasts from 3 to 4 years, whereas the duration a debtor pays into a bankruptcy will, for the time being anyway, remain at 3 years. This means many debtors faced with the prospect of having to pay a trust deed for 4 years are more likely to opt for a bankruptcy where they will only pay for 3 years; or alternatively where they want to avoid that remedy and can repay their debts within a reasonable timeframe, a debt payment programme under the Debt Arrangement Scheme.

The only obvious conclusion that can be drawn from a consideration of these proposals, is that the Scottish Government are determined to take the air out the over inflated bubble that is the Scottish Trust Deed market.

And who can blame them?

The current state of the market is now at a dangerous level. The risks of mis-selling are high and many vulnerable debtors are now being targeted by firms, who to put it simply should not be advising anyone on anything and it would not be unfair to call them rogues.

The end result will probably be more sequestrations and a greater uptake of the Debt Arrangement Scheme by debtors. It will also probably mean that the high profile TV and radio campaigns will also come to an end as the commercials behind such campaigns will no longer be sustainable. We are also likely to see more insolvency firms, who are far better regulated by regulatory professional bodies, having to market themselves directly to consumers.

If this leads to better advice and less mis-selling, then that’s no bad thing.

I am looking forward to it and being able to breathe again.

Scotland’s Bankrupt Debt Strategy

Scotland’s Bankrupt Debt Strategy

It goes without saying that policy that underpins the decision to make legislative reforms, or not as the case may be and is based on premises that are not supported by evidence, produces bad laws or allows bad laws to remain in place.

We have already seen this in relation to the Bedroom Tax and calls to amend S16 of the Housing (Scotland) Act 2001. The Scottish Government’s position is that such reforms are not necessary because if local authorities adopt no eviction policies, then there will be no evictions. However, as tenants throughout the country begin receiving threatening eviction letters from Housing Associations (and councils), such reassurances deliver no comfort.

Equally as dubious is the Scottish Government’s stated intentions that in the coming year they will rebalance Scotland’s personal debt laws by introducing a series of legislative reforms that will make it fairer and more effective.

This may appear reasonable, but when the premises that such legislation is being built on is unfounded, such as the Scottish Government’s view that financially distressed debtors are not paying enough, it should come as no surprise to realise we may end up with debt laws that are unfit for purpose and cause untold hardship.

Evidence of this is transparent in the first of the Scottish Government’s measures to reform the law in this area. The Debt Arrangement Scheme (Amendment) (Scotland) Regulations 2013 should send a warning blast from the whistle of Scotland’s personal debt flagship. It’s not that it doesn’t introduce some welcome reforms, such as the ability for debtors to get adverse decisions reviewed and widens access for joint couple applications; but it also introduces provisions that will reduce the length of time many will be allowed as payment breaks and most worryingly, it doesn’t use the Parliament’s full powers to protect debtors from the rising problem of pay day loans by freezing interest at the earliest opportunity.

This is particularly concerning as arguably a more pressing issues is the number of Debt Payment Plans (DPP) that are being revoked. There is some evidence to suggest that if the Debt Arrangement Scheme was any other financial product, promoting it to debtors could be mis-selling. Recent statistics show that although the numbers applying last year increased by 39.6%, other figures show the number of cases being revoked are now averaging 12% annually, which with the average lifespan of a DPP being 7.2 years, suggests significant numbers will never be successfully completed (in actual fact the figures for the last quarter of 2012-13 showed 21% revocations).

There is no evidence based insights into why such levels of revocations are occurring; however, a strong likelihood must be that in these times of austerity, debtors are struggling to sustain long term repayment plans. Considering it is the Scottish Government’s intention to try and make the Debt Arrangement Scheme the default remedy for all debtors, unless they can satisfy some contrived test that personal insolvency is the better option, this must be a cause for concern. Debtor’s paying for years and getting no resolution to their problems is not a remedy.

It also comes as no comfort, in light of this, that the Scottish Government has also recently announced it intends to draw up new spending guidelines which all debtors will be required to use when calculating how much they can pay towards their debts. These figures they have previously announced will be more stringent than those currently used by advice agencies in the UK and which are accepted by the British Bankers Association and Financial Leasing Association.

It’s not as if there are no recent examples of bad policy making that the Scottish Government could learn from. Last year they made another presumption that wasn’t evidence based and which they didn’t consult on: that low income, low asset bankrupts could afford a 100% increase in the application fee from £100 to £200. Despite evidence to the contrary from Money Advice Scotland and Citizen Advice Scotland the changes were rushed through and the result was a 58% reduction in the number of poor debtors who were able to access the remedy.

It must be accepted the Scottish Government have made some concessions on their initial debt law proposals, but most of these have been to the money advice, creditor and insolvency industry. Those that have not been consulted yet have been the consumers who are financially distressed and who will be most affected by the reforms that are in the pipeline.

It can be in no-one’s best interest for tens and over the long term, hundreds of thousands of consumers to be left cash strapped and impoverished because of debt; particularly as the vast majority of those creditors they owe are in actual fact high street banks and lenders who have been bailed out by the public purse (and very often have sold on the debts for pennies to debt purchasers who speculate on profiting from diminished returns).

The truth is the proposition that is being advanced by the Scottish Government that debtors are not paying enough and can afford more, has no evidential basis. The arguments are based on the same Jeremy Kyle School of thought that underpins much of the UK Government’s benefit reforms. On the contrary, there is substantial evidence of poverty being a problem for many debtors and the only evidence of systemic failure that exists, is not in Scotland’s current debt laws or insolvency industry, but in the credit industry that left so many debtors with unaffordable levels of personal debt.

Over the next couple of months I hope to review in more detail the Scottish Government’s plans for legislative reform, highlighting the good, the bad and the ugly of what is being proposed. I also hope to show what is being developed is a personal debt strategy that in many ways risks being based on unfounded premises, antiquated prejudices and in some cases an outdated, Dickensian attitude towards debt in a modern, credit based economy.