Debt Arrangement Scheme: is it broken?

Alan McIntosh

Alan McIntosh

Alan McIntosh, money advice trainer and consultant at Advice Scotlandsummarises his new report on the Scottish government’s faltering Debt Arrangement Scheme.

 

A new report (see here) produced by myself shows that the Scottish government’s flagship personal debt remedy, the Debt Arrangement Scheme, is in trouble, with the numbers accessing it having fallen by over 50 per cent in the last two years.

The report follows on from a recent high profile, public awareness campaign that was launched by the Scottish government to raise awareness of the scheme.

It reveals that the number of consumers accessing the scheme through private sector firms have fallen by 64 per cent; whilst those accessing it through free providers, like Citizen Advice Bureaux have fallen by 38 per cent.

It lays the blame for the decline, not on a lack of awareness, but on changes that were introduced by the Debt Arrangement Scheme (Scotland) Amendment Regulations 2014, which introduced a new way of calculating how much people have to pay each month towards their debts. It meant debtors entering the scheme had to pay as much as they would if they entered a personal insolvency remedy like bankruptcy or a protected trust deed.

In the introduction I state that when the Debt Arrangement Scheme was introduced in 2004, it “heralded a change in how Scots Law dealt with debt: no longer the land of poinding and warrant sales, but a country that took an enlightened and progressive view of how to help struggling consumers manage their debts, whilst still being able to maintain a reasonable standard of living.

“To now witness the numbers of consumers accessing it falling by 50% is disappointing. Particularly as all the evidence suggests with increasing levels of unmanageable debt, the need for it is as great as before.”

I add: “The reasons for the reduction are complex, but speaking simply when emphasis moved away from creating sustainable repayment plans and onto plans that would recover money quicker for creditors, the benefits of the Scheme were eroded for many consumers.”

What underpinned that policy change was a belief that consumers were getting their debt management too cheap. The truth is that despite the lip service often paid to understanding the reasons for debt and the causes of debt, there remains deeply engrained in the Scottish political psyche a deep suspicion that many debtors are not “can’t pays”, but “won’t pays”.

I call in the report for the Scottish government to make a number of changes to the Debt Arrangement Scheme:

  • First, to introduce a different financial tool for the Debt Arrangement Scheme that is different from that used in personal insolvency; and
  • Second, to end the current practice of tendering out the role of payment distributor and to allow other providers to enter the market, allowing for more competition and take up of the scheme.

This report has been written with the view that the Debt Arrangement Scheme remains an excellent solution for many consumers, but is currently at risk of withering and going into irreversible decline.  It is hoped that decline can be arrested and reversed, but argues some key changes will be necessary.

It was produced using data provided by the Accountant in Bankruptcy after a freedom of information request was submitted. That data can be accessed here.

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