Stepchange, the UK debt charity and provider of Debt Management Plans (DMP) has claimed to have launched a new debt solution for people who are struggling with their debts.
However, there are concerns the new plan is just a normal Debt Management Plan and offers Consumers nothing new.
On their website Stepchange states the new plan will last for 12 months and cannot guarantee:
- It will not damage people’s credit rating; and
- Will stop interest and charges from being applied to people’s debt.
In addition to that, it will not stop Sheriff Officers from taking action against consumers, such as serving Charge for Payments, and also executing Wage and Bank Account Arrestments.
Why may the CVPP not be suitable for many Scots?
For these reasons, the CVPP will be a sub-standard product for many Scots who are struggling with their debts.
Instead in Scotland a far more suitable option is likely to be the Scottish Government’s Debt Arrangement Scheme.
The Debt Arrangement Scheme is a formal debt solution, that allows people to repay what they can afford to their debts, but unlike the CVPP,
- Automatically, freezes all interest and charges
- Stops any existing Earning Arrestment
- Protects people from Sheriff Officers and being made bankrupt
- Allows them to make just one payment to a Payment Distributor, each month, who then pays all their debts for them
- It is also free to people, regardless of whether they apply through a local authority money advice service, a charity or a private sector provider.
- Also, like Stepchange’s CVPP it is flexible, so if people’s circumstances improve they can increase their payments to allow their debts to be repaid sooner.
What Stepchange say about the CVPP
Speaking about the new Plan in a Press Statement, Stepchange has said:
“We have developed the CVPP in consultation with HM Treasury and is supported by the Money and Pensions Service [MAPS] – which will be signposting potentially eligible consumers to it via its online Money Navigator assessment tool.
We have also consulted widely with the lending industry and other creditors while developing the new plan.”
How does the CVPP Work?
However, from reading the information Stepchange have provided, it is difficult to understand what “development” was required for the CVPP and what input HM Treasury or MAPS had, as it is in essence identical to a DMP.
- You include your debts into it;
- You make one payment per month;
- These are distributed to your creditors.
However, where the CVPP appears to differ is
- It is only supposed to last for 12 months (although it is not clear what happens at the end of those 12 months – Stepchange suggest you speak to your creditors); and
- Unlike DMPs Stepchange suggest you don’t need to go through the full Debt Advice Process to enter one.
Does the CVPP pose Problems?
Well, first of all, there is the problem of what you do at the end of the 12 months.
To be clear if you miss contractual payments, you will go into arrears with your agreement.
The Financial Conduct Authority has also been quite clear to Lenders, they must now report these missed payments to Credit Reference Agencies, where it is a firm’s practice to do so.
So, it will damage people’s Credit Rating.
Consumers will also receive a Notice of Arrears, which under the Consumer Credit Act 1974, must be served after they are in more than 2 months arrears. This is not optional for Lenders and must be sent every 6 months, whilst the Consumer remains in arrears.
Whether the Lender places the debt into Default will be for them to decide and Stepchange are silent on this.
In relation, to what happens at the end of the CVPP, is unclear, but it’s likely for most it will just become a Debt Management Plan, albeit the person may increase their payments if they can.
The reality is for many, after 12 months of making reduced payments, accounts will not just return to normal. People will not just be able to return to making normal payments, and using their card as before.
In my opinion, this should be clearer to people. Telling people they will just have to speak to their creditors is not enough. Arguably people are going to be left believing after the 12 months, everything just goes back to normal.
This is almost impossible and Stepchange should be clearer about the impact a CVPP will have on people and their credit rating and ability to obtain credit in future.
Avoiding Full Debt Advice
Equally concerning, is what the effects of the CVPP being an alternative to full money advice solutions will be for consumers.
It is not even clear it will have any benefits and a more traditional solution might be better.
Lets be clear a CVPP is a Debt Management Plan and for many, not only is this not always the best option, but can make their situation worse.
The problem here is it is also not clear if consumers entering CVPPs, will still go through the traditional Money Advice Process.
This seen as best practice in helping people with their debts.
The first step of which is to maximise someone’s income, and identify benefits and other sources of income they may be entitled to. This part of the process is important as it may help avoid someone entering a CVPP and damaging their credit rating.
Second, it is about exploring all the options with clients, including Individual Voluntary Arrangements and Bankruptcy in England, Wales and Northern Ireland; and in Scotland, the Debt Arrangement Scheme, Protected Trust Deeds and Sequestration.
If the full Money Advice Process is not being used, will these other options even be discussed?
Will people possibly be put into a CVPP, without exploring other options?
This may make people’s situation worse and may even see the amount people owe increase.
The problem is Stepchange is not clear what the benefits are of people not looking at all the options open to them just now, and have no clear exit strategy for people after 12 months, other than speak to your lender.
The problem is people may spend a year in a solution that is completely inappropriate for them and they shouldn’t haven’t entered into in the first place.
My concern is the CVPP is more marketing than substance.
It is in essence a Debt Management Plan, but is being spun as something else which has added benefits, of which I see none for the Consumer that is not offered by a DMP.
It would be interesting to know what the Financial Conduct Authority’s view on this is, as they are the regulatory body that authorises organisations to provide debt advice.
Interestingly and, maybe notably, they are not named as one of bodies Stepchange developed this product with.