Dividing up the Cake: The New Debt Arrangement Scheme

The Accountant in Bankruptcy (AIB) has published their response to their recent consultation on the Debt Arrangement Scheme (Building a Better Debt Arrangement Scheme) and have revealed what their recommendations to Minister, Jamie Hepburn will be.

Like with many AIB policies, there is something to be commended in some of them, (necessary to get partial Stakeholder support), but much to be concerned about also.

The question needs to be asked, will the new Debt Arrangement Scheme be in consumer’s interests, or will it inevitably lead to people paying more for longer and remaining trapped in debt.

The AIB’s recommendations to the Minister are:

  • The AIB will recommend that providing existing private sector money advisers can show they meet the qualifying criteria, they will be able to act as payment distributors (PD).
  • The Accountant in Bankruptcy will recommend that they be allowed to become a payment distributor.
  • Consumers will be able to appoint their own payment distributor, which will include the AIB.
  • Where no payment distributor is appointed, the AIB will be the default payment distributor and will also act as the PD where an existing PD ceases to or no longer can act.
  • The AIB will recommend that there will be a new statutory fee on creditors included into a Debt Payment Programme of 20% (the AIB, however, don’t specify how this will be broken up between themselves, payment distributors and continuing money advisers).
  • Debt Payment Programmes (DPP) under the Debt Arrangement Scheme will automatically be approved where those creditors objecting have less than 10% of the total debt.
  • Where a variation of an existing DPP proposes the DPP should be reduced in duration, it will automatically be approved.
  • The AIB will be able to propose a variation on behalf of consumers, but only where advice is not required.
  • Short-term payment breaks will be introduced into the Debt Arrangement Scheme that can be approved by the Money Adviser.
  • These will not amount to more than two breaks, each lasting no more than a month, in any rolling twelve month period.
  • These breaks can be consecutive.

Having read the recommendations, I am struck by a number of thoughts:

  • First, these recommendations, if accepted by the Minister, (which is highly likely) are likely to be a significant game changer across Scotland in how advice is delivered and by whom.
  • It’s likely, for example, 6 months after they are introduced, there will few consumers using free sector providers, other than maybe Stepchange, to enter the Debt Arrangement Scheme in Scotland.
  • This is likely to change the face of free sector money advice in Scotland and how it is funded and for many services will be pose an existential threat.
  • Agencies that continue will become poverty farms, with all the stigma associated with that and advisers will find their time consumed with Minimum Asset Bankruptcies, asking for write offs or helping poor people manage being poor.
  • The AIB, if they succeed in clamping down on consumers using protected trust deeds ( see Blue Sky Thinking Scotland’s Debt Law) , will still be okay, as the reduction in trust deed fees will be made up by
    new payment distribution revenue fees.
  • Although creditors will pay more in DAS, they will pay less in Protected Trust Deeds, but the most vulnerable consumers will pay more overall when they have problem debts.
  • The risk to consumers is being ignored, as by pushing more people into the Debt Arrangement Scheme and longer repayment plans, the high levels of failures are being ignored, which ultimately may mean the 20% fees will be borne by consumers, as creditors only pay these if the programme is successfully completed.

Like all AIB policies there are good elements in them, but against a context of the AIB’s interests being conflicted, much to be concerned about.

Consumer interests, as always, are low down on the agenda.

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