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ENFORCEMENT OF CIVIL OBLIGATIONS IN SCOTLAND: ANALYSIS OF CONSULTATION RESPONSES
Q4D.7 Should there be a restriction on obtaining new credit or incurring new liabilities above a specific amount and, if so, should a maximum amount be set?
4.72 There is clear support for restrictions on obtaining new credit or incurring new liabilities, and that a maximum amount should be set, but only a few respondents suggest an exact figure. Where an amount is suggested it is around 200 - 250 at any one time.
4.73 Across many respondents, in organisations representing both debtor and creditor interests, there is a view that, given that a DAS may last for three to five years, it is unrealistic not to expect that a debtor will of necessity incur further liabilities e.g. for a new washing machine or cooker, for a funeral, or for emergency household repairs etc. As one respondent states "the present scheme does not provide for on-going personal financial management for the debtor over the life of the DAS. It simple takes a snapshot of the debtor's circumstances at a point in time and builds a repayment plan based on that information."
4.74 Different organisations offer a range of solutions for dealing with the changing circumstances of the debtor, over and above a straightforward approach of determining a set maximum amount at the beginning of the DAS.
4.75 Citizens Advice Scotland suggests instigating some form of savings scheme for the debtor during the course of the DAS so that they do not have to incur credit. They give details in their submission as to how this might operate.
4.76 In addition to the possibility of a savings scheme, advice agencies are anxious that some allowance for obtaining credit or for taking on further liabilities is available to avoid debtors borrowing from illegal money lenders. A number of respondents propose that the DAS might be varied, at the instigation of the debtor, to allow for an agreed credit arrangement to be entered in the DAS after the DAS has been set up. It is also suggested that a creditor should be able to instigate a variation of the DAS during the life of the DAS in order to have his debt included.
4.77 Several organisations wish to see creditors take responsibility for checking the DAS register prior to lending so that they avoid lending to debtors already in receipt of a DAS, but there is a counter view that it is not always realistic for all creditors to know about or be able to access a register before providing a service or goods for a debtor, and therefore creditors should not be penalised if they inadvertently lend to an individual with a DAS.
4.78 The point is made here and repeated in response to a later question (Q4D.26 on future, contingent, subsequent and omitted debts), that the onus should be on the debtor with an existing DAS to disclose this to new creditors or face the penalty of having the DAS revoked. On the other hand, some respondents interpret the DAS proposals as meaning that the recovery of any new credit will be unenforceable and so fail to see that any prudent lender would give further credit. (This interpretation is addressed at Q4D.26)
4.79 With regard to involuntary creditors, for example local authorities and recurring council tax or rent payments, there is a proposal that funds to cover such items should be protected in the DAS so that debt is not allowed to be built up.
4.80 In summary, most respondents argue for an element of flexibility during the life of the DAS to enable a debtor to deal responsibly with any unforeseen need for borrowing.
Q4D.8 Should existing arrangements operating for voluntary repayment programmes be incorporated insofar as possible?
4.81 Overall respondents working on behalf of both debtors and creditors value voluntary arrangements which are seen, in the main, to work well. Whilst there was general support for incorporating existing arrangements for voluntary repayment programmes insofar as possible, a number of respondents also wished to allow for the retention of voluntary repayment programmes in instances where it might not be appropriate or possible for their incorporation.
4.82 There were some questions relating to how incorporation might happen in practice, and different interpretations of what was meant by "incorporation". One suggestion was that debtors or creditors could, if necessary, apply for an existing voluntary arrangement to be incorporated into any DAS being set up.
4.83 One respondent made the point that it was likely that a debtor would only apply for a DAS if a voluntary arrangement had failed and therefore there would be nothing to incorporate. Another respondent was of the view that voluntary arrangements often fail because the payments agreed to by the debtor are unrealistically high and that therefore a DAS would offer the chance for the debtor to abandon the voluntary arrangement and enter into a DAS with a more realistic repayment schedule.
4.84 The small number of organisations opposed to incorporating voluntary repayment programmes did not wish to see a mandatory requirement for incorporation, or believed that voluntary arrangements would, or should, fall if a DAS is initiated.
4.85 The scenarios expressed by those against this proposition, whilst relevant, would not be likely to affect the practical implementation of the proposition. In considering any individual DAS it is likely an assessment of the benefits of any particular course will determine the option taken.
Q4D.9 Should applicants have access to free money advice services for negotiation and preparation of a DAS application?
4.86 The great majority of respondents considered that it was necessary that money advice should be freely available to applicants as otherwise those who need help the most would be denied access to that advice. Of the two organisations which objected to applicants having access to free money advice services, one queried why the public purse should bear the costs and the other believed that advice should be available at low cost.
4.87 All other organisations considered that this was essential but there were reservations concerning the level of resources available to money advice agencies to provide free advice, and quality standards in the provision of advice. A significant number of respondents stressed the need for advice to be easily accessible when the debtor needed it.
4.88 One enforcement agency (George Walker & Co) suggested that the Sheriff Officer could assist the debtor in the completion of the DAS application form whilst at the same time relaying the facts back to a professional advisor to ascertain if the debtor was receiving the maximum benefits that the family were entitled to.
Q4D.10 Should money advisers and payment distribution providers be accredited in order to maintain high levels of service provision?
4.89 Following from the previous question, the overwhelming majority of respondents offer in principle support for accreditation of money advisers and payment distribution providers. Concerns arise as to how such accreditation might be developed, and who might be entitled to be "money advisors". Some respondents also question whether individuals should be accredited or organisations. In the main, the view is that money advisers should be accredited individually, but that payment distribution companies or agencies, which are in effect "clearing houses", should be subject to general regulation and monitoring to ensure that they are undertaking their duties as agreed.
4.90 The Institute of Chartered Accountants of Scotland and R3's Scottish Technical Committee are of the view that Insolvency Practitioners have the relevant expertise and experience to be included in the category of 'Money Advisors'. CAS is apprehensive about individual accreditation of staff as money advisers, and wish to see a system of "passporting" existing standards which their staff have e.g. for consumer advice, into a money advice accreditation scheme. The accreditation of money advisers is an issue which is currently being addressed in a number of other forums and the Scottish Sheriff Court Users Group believe the appropriate forum for deciding on a framework for regulation of advice agencies and accreditation of staff is as part of the ongoing debate on the formulation of community legal services.
Q4D.11 Should the Scottish Civil Enforcement Commission be responsible for administrative approval of DAS applications?
4.91 There was a qualified "yes" to this question from most respondents, with recognition that an independent body was necessary to gain the confidence of all parties. Qualifications revolved around the Commission having the appropriate level of understanding and expertise in issues of multiple debt, repayment practice, codes of practice for debt management and so on, and around the Commission's capacity to provide sufficient resources to cope with the volume of applications and in particular ensuring that there is no initial backlog of applications in the early days of the DAS. It was considered that not having to go to court would encourage participation in the scheme although it was also thought necessary for the courts to be the final arbiter.
4.92 There was also a view that if all advisers were accredited then opting for administrative approval introduced unnecessary cost and delay.
Q.4D.12 (a) Should DAS applications be approved administratively where agreed and in accordance with specified standards?
(b) Should DAS applications be approved administratively where agreed in principle subject to resolution of proposed payment terms?
4.93 The weight of responses to both questions was favourable, with a significant number of respondents agreeing that both (a) and (b) should be possible. It was raised whether approval was necessary on the grounds of delay and expense.
Q4D.13 Should disputed cases be considered by the Sheriff Court?
4.94 Most respondents felt that disputed cases should be considered by the Sheriff Court although there was a general view that court resources may well be inadequate and that it would be important to ensure excessive time delays are not encountered.
4.95 There was a suggestion that debt adjudicators court be appointed by the Sheriff Court to expedite proceedings and a repeated suggestion of a DAS tribunal to resolve disputes. This is favoured by a number of debtor support organisations who regard tribunals as more informal, more specialist, and more independent than a Sheriff Court.
Q4D.14 Should a register of subsisting approved plans under the DAS be maintained?
4.96 There was almost complete support for this suggestion, centred around assisting creditors to lend responsibly. There was an assumption that this information will be available on-line and will be public. Advice sector agencies queried who would have access to the register and were apprehensive about it being available to the public since this might act as a disincentive to debtors to participate.
4.97 Enforcement agencies underlined the importance of keeping the register up to date, and the difficulty in carrying out this task. Respondents across various sectors felt that access to the register should be at no cost to themselves.
Q4D.15(a) Should all debts rank rateably?
4.98 There is significant support for the view that all debts should rank rateably, with the principal exception of debt owed to involuntary creditors. Local authorities and some legal sector respondents take a strong view that debt owed to involuntary creditors should be given a higher ranking.
4.99 There is also a view in some quarters that irresponsible creditors should be given a lower ranking, and a view that debts already being paid through a voluntary arrangement, which become part of a DAS, should have preference.
4.100 One money advice organisation proposes that in the case of secured debt, the interest accrued on the debt is addressed at the end of the DAS by means of an extension.
Q4D.15b Should the types of debts specified be included?
4.101 Most respondents wished to see all debts specified included in a DAS, but advice agencies wished to see interest frozen to give the debtor an opportunity of eventually clearing their debt. Advice agencies and local authorities proposed Council tax arrears and housing debt - whether Council debt or mortgage arrears - should also be included.
Q4D.16 Should an application to enter the scheme be accompanied by a mandate authorising the employer to make deductions from earnings?
4.102 There was substantial in principle support for this proposal with some caveats concerning the debtor's right as an employee to privacy and confidentiality, and the suggestion from some quarters that the mandate should be an option for the debtor, and that there should be prior agreement of the debtor to a mandate for use by the employer.
4.103 Other respondents took a stronger line and suggested that a mandate authorising deductions by an employer was an important part of ensuring the success of a DAS.
4.104 There were some practical points raised relating to the situation where individuals are self-employed, or enforcing a mandate when an individual changes employer. There were also some concerns about the administrative burden on employers in complying with these mandates.
4.105 Some respondents suggested additional and alternative mandates e.g. for a partner where relevant, for an occupational pension, or for a bank account.
4.106 A standing order or direct debit payable by the employee to the payment distributor was suggested as an alternative to a mandate.
Q4D.17 Should enforcement be stopped once a DAS application has been granted?
4.107 There was overwhelmingly positive response to this question, with a small number of organisations preferring diligence to be stopped at the point of application rather than at the point of granting the application.
4.108 It was also proposed that existing Earnings Arrestments or Conjoined Arrestments should continue in operation.
4.109 There is a suggestion that taxation should be included as an essential outgoing for the purpose of calculating surplus debt.
4.110 Credit organisations wish to see the stopping of diligence subject to the creditors' costs being paid.
4.111 Comment was made that many debts will continue to accrue outside the DAS over the life of the DAS, e.g. unsatisfied recurring creditors, and that somehow this situation needs to be addressed.
Q4D.18 Should prescription be suspended during the currency of a DAS?
4.112 The comparatively small number of respondents who replied to this question were all in favour, regarding the suspension of prescription as necessary to protect the interests of creditors.
Q4D.19 Should the other rights and remedies specified be preserved?
4.113 The majority of respondents supported preserving other rights and remedies for the creditors in the event of the failure of the DAS. One advice agency was content with preserving the other rights and remedies if the rights and remedies were not put in play during the DAS to enforce debts due or related to the DAS. This would be seen as allowing "enforcement by the back door".
Q4D.20 Should the rules specified for governing competence and priority in relation to sequestration apply?
4.114 This proposal was generally considered acceptable although it was suggested that the priority of local taxes needed to be looked at.
Q4D.21 What level of creditor support should normally give rise to approval of a DAS application?
4.115 There is no clear consensus on this question. Respondents offer varying suggestions from a straight majority of creditors being in agreement, to figures which combine a majority percentage of creditors (varying from 51% up to 66%) with a majority of the value of the debt (varying from 66% up to 75%), or simply a majority of the value of the debt - from 51% up to 80%.
4.116
4.117 A number of respondents argue that the system should be as for Trust Deeds but there are a range of views as to what is currently allowed for in Trust Deeds.
Q4D.22 What upper monetary limit of total debt should be set?
4.118 There is no clear consensus as to the level of an upper monetary limit, or indeed whether there should be an upper limit.
4.119 There was a view that since requirement to pay a debt within a specified time period is a prerequisite for participation in a DAS the relevant factor is the ratio of disposable income to overall indebtedness. Some respondents who did not wish to see an upper limit argued that limits would discriminate against certain groups of debtors, particularly those on low incomes. Another comment was that the market will determine what level is appropriate and this could vary considerably from case to case.
4.120 Where respondents had cited a limit, this was around 25,000 but figures varied from 5,000 to 100,000.
Q4D.23 What lower monetary limit, if any, should be set?
4.121 Similar arguments were put for no lower limit as for no upper limit, in this case that individuals can have minimal levels of debt but still be unable to meet their liabilities due to low income.
4.122 Where a figure was suggested, it was around 1,000, based on covering the costs likely to be encountered in administering the scheme where, it was argued it could conceivably cost more to process each payment than the value of the individual payment itself. Others suggested that anything less than 5 per week would be too low.
4.123 Some respondents also suggested that the minimum should be equivalent to the sum allowed to be deducted from those on maximum income support i.e. 2.70 per week
Q4D.24 (a) Should access to the scheme be extended to debtors with very little disposable income?
(b) If so, how could this work?
4.124 Most responses on the question of participation of debtors with low incomes in a DAS were founded on whether there was a reasonable prospect of them being able to substantively pay off their debt within a prescribed period.
4.125 There was some argument that if the scheme could not accommodate such debtors, the poorest in society would still face diligence. The fact that participating in a DAS stops diligence is seen as extremely valuable for the poorest debtors.
4.126 The argument in relation to debtors paying so little that they would not cover the administration cost of the scheme was repeated by some respondents.
4.127 Suggestions for enabling debtors on low income to participate in the scheme included making provision for those who have a low available income to make payments, e.g. through a payment card at local outlets, and enabling payments to be collected through the debtor's main income stream, but distributed quarterly or half yearly to minimise administration and distribution costs.
Q4D.24c What role could credit unions play?
4.128 Most respondents did not see a significant role for credit unions in this area. It was suggested that could be used for disbursement of debts and that some Credit Unions already provide this service as part of a holistic approach to over-indebtedness.
4.129 Credit unions are seen as having a role to play in terms of giving low cost loans to savers which are manageable and will deal with emergency situations which may arise. However, one respondent pointed out that there could be difficulties if the credit union is one of the creditors.
Q4D.25 What outgoings should be regarded as essentials for the purpose of determining surplus income?
4.130 There is a proposal from the advice sector, the financial and business sector and some of the legal sector, that the guidelines and budget heads developed by the British Bankers Association and the Money Advice Trust (BBA/MAT) regarding essential outgoings are useful for the purpose of determining surplus income. These outgoings are:
- Mortgage/Rent
- Secured loans
- Fuel
- Contributions to pensions
- Contributions to Child Support/Maintenance
- Council Tax
- TV Rental/Licence
- Fines
- Food/housekeeping
- House Insurance
- Travel/Car insurance/MOT (especially if someone lives in a rural area)
- Telephone (especially if living alone or disabled)
- Child care/Home help for disabled
- Prescriptions
- Clothing
- School meals (where not in receipt of free school meals)
4.131 There is a general view that a flexible approach should be taken and that each budget must be carefully and realistically developed with the client to allow for a reasonable lifestyle while repaying debts, and taking into account the particular circumstances of the client. These should be subject to regular review.
Q4D.26 Should the proposed arrangements for future, contingent, subsequent, and omitted debts apply?
4.132 There is general agreement with the proposed arrangements, those in support arguing that debtors with multiple debt can be genuinely unaware of the range of their creditors at the time of agreeing a DAS. Local authorities wish to ensure that involuntary creditors such as themselves should be allowed to add subsequent debts if their bills are not paid.
4.133 A number of respondents were not in unqualified agreement with the proposal. The Institute of Chartered Accounts of Scotland and R3's Scottish Technical Committee differentiated between omitted claims and contingent claims. They suggests in the case of omitted claims that the creditor be allowed to apply to vary the scheme or bring it to an end. Where new credit is taken without disclosure of the pre-existing DAS the new creditor should have the right to bring the DAS to an end and sequestrate.
4.134 Legal sector respondents requested an element of flexibility in the DAS because not all small creditors will have the opportunity to check the register before providing services, particularly emergency services, for a debtor. These respondents argue that it would be unfair for a tradesman to have to wait for three to five years to be able to pursue a debtor already involved in a DAS, who was unwilling to honour their debt. It is considered an excessive response in this situation for the DAS to be revoked for subsequent debts when circumstances like this can arise and variation might be the answer.
Q4D.27 Should there be provision for requiring the debtor to realise specific assets and pay the proceed into the scheme?
4.135 There is in principle support for this proposal from most respondents. It was pointed out that without this provision a debtor could convert cash into assets which would be protected from his or her creditors. A number of respondents request an element of flexibility and discretion be used by the Sheriff, for example in instances where those about to enter retirement may be forced to realise all the assets they had saved for retirement, or in instances where an asset is likely to realise a relatively low monetary amount on sale by auction but is of high sentimental value. Concern was also expressed about whether this would require a debtor to dispose of his or her home.
Q4D.28 Should a variation of the scheme be permitted if a debtor's circumstances change?
4.136 There is almost universal agreement to a variation of the scheme if the debtor's circumstances change.
4.137 A number of respondents are of the view that the scheme should be possible of being varied either at the instigation of the debtor, if his circumstances changed for the worse or by a creditor if the creditors become aware that the debtor's circumstances have changed for the better.
Q4D.29 Should diligence be stopped by a single step procedure?
4.138 Organisations from across all sectors of respondents line up on different sides of this argument. Those organisations in favour of a single step procedure regard the simplicity and clarity of the procedure as beneficial. Some creditor organisations also see the single step procedure as preventing debtors from acting to delay diligence.
4.139 Those opposing a single step procedure recognise that it is less cumbersome but are apprehensive that a) some creditors may attempt to circumvent the DAS by rushing to diligence once the application is made but before it is concluded, or conversely, that initially too many applications may be lodged at one time and a backlog could develop in approving a DAS application. The weight of views from these respondents is in favour of stopping of diligence on an interim basis as soon as an application is made, with a freezing of diligence once the DAS is confirmed. This would be subject to a strict timetable to avoid the debtor delaying unnecessarily.
Q4D.30 Should discharge of a DAS be permitted on less than full payment?
4.140 There seem to be two interpretations of "less than full payment". The first is that the DAS should allow for composition of debts and when debtors enter into a DAS they negotiate with their creditors that they will not in fact repay the total amount owed e.g. interest will be frozen. Taking this into account, it is then understood that the full amount agreed between debtor and creditors will be paid over the period of the DAS. On this interpretation, which is subscribed to by a number of organisations, particularly from the advice sector, the DAS should be able to be discharged on less than full payment. The argument for this is that even with freezing of interest many creditors are likely to receive more by way of debt repayment than they would otherwise.
4.141
4.142 A number of legal sector and enforcement organisations would support discharge on less than full payment with the agreement of either a significant majority of creditors - two thirds - or all creditors.
4.143 A number of local authorities, seem to interpret "less than full payment" as meaning that the DAS be discharged without the initial sum agreed for the DAS being paid in full. For example, one local authority respondent states, "Full payment should be required before a DAS is discharged. Changes in circumstances might justify an amendment to the regular payments but should not justify part of the sum being effectively written off." ( East Renfrewshire Council), and another states "a DAS where it is known by debtors that full payment does not have to be made is open to abuse". (Angus Council)
4.144 Whichever interpretation is being used, there is adamant opposition to discharge of a DAS on less than full payment from those who are creditors or who represent creditors interests.
Q4D.31 Should penalty for a breach of the terms of the DAS, including false declaration or default in payment, be revocation?
4.145 Most respondents to this question take the view that where it is shown to be false declaration, the DAS can be revoked with one proposing that in such circumstances if the false declaration was to hide assets, the assets should be seized and sold. A financial penalty would be inappropriate and unenforceable.
4.146 A number of respondents recognise that there may be instances where the debtors have been genuinely unaware of their own level of indebtedness and as such there should be discretion in dealing with these individuals, with the Commission deciding did the debtor innocently misrepresent their circumstances or intend to mis-represent.
4.147 Some advice organisations argue that revocation should not be automatic for default of payment, but that the debtor might be offered the opportunity of applying to vary the DAS so that payments could be met.
4.148 Enforcement agencies suggested that failure by the debtor to declare a material improvement in circumstances should also be a criteria for revocation of a DAS.
Q4D.32 What extent of default should constitute breach of the DAS?
4.149 There is consensus that two missed payments and a third payment due without satisfactory explanation should be the extent of default allowed. However some respondents suggested that provision be made for the debtor's payment history to be taken into account so that consistently erratic payments could constitute default.
Q4D.33 What reports or notices should be produced by payment distribution operators for applicants or their advisers?
4.150 There are a variety of detailed suggestions in response to this question which set out what might be contained in a statement from a payment distributor.
4.151 Overall, respondents view payment distribution operators as having an important role in informing advisers and clients where payments have been received or missed, and what the balance of the outstanding debt might be. There is general agreement that this information should be forwarded on a regular basis.
4.152 Some respondents suggest more information by way of "regular statements showing: the payments made, effect on balances, statement of fees applied, and annual reports to advisers showing how well or otherwise their clients are maintaining their arrangements and comparative reports across agencies." (The Advice Shop). This suggestion is supported by the Institute of Chartered Accountants of Scotland and R3's Scottish Technical Committee.
4.153 Money advice organisations do not regard it as appropriate for them to have a monitoring role with regard to their clients' compliance with debt payments. They consider this as possibly undermining their relationship with their clients.
Q4D.34 What information should be recorded in a public DAS register?
4.154 Respondents are broadly of the view that as much detail as possible should be contained in a register i.e. details of applications and approved DAS schemes, the debtor's full name, address, National Insurance number; possibly date of birth in order to aid identification, maiden names or alternative names used; the total amount of the debt included in the DAS; the term plus details of the payments; a list of the creditors and amounts owed; any variations to the DAS; revocation details; reference numbers; names of money advisors.
4.155 Given all the above, a number of respondents query what might be meant by a "public register" and who would be able to access it.
4.156 Although respondents raised the question of confidentiality, there were no suggestions for reconciling the provision of all relevant details concerning the DAS being put into a public register with the maintenance of an individual's right to privacy.
Q4D.35 Should applications be advertised and in what form?
4.157 The weight of response is that applications should be advertised in the Edinburgh Gazette and possible also Stubbs Gazette. There is a minority view that there should be a specifically designated website for creditors to access advertisements. Of those who were opposed to advertising, a small number were of the view that advertising would be too expensive and an invasion of privacy.
Q4D.36 How should the DAS be funded?
4.158 Suggestions for funding a DAS vary depending on the sector in which the respondent is located. Advice organisations, the Committee of Scottish Clearing Bankers and Scottish Sheriff Court Users Group wish to see creditors or the credit industry paying for at least part of the DAS, with funding support also from central government.
4.159 Many organisations are content with the current system whereby under existing voluntary systems, creditors bear the administration costs which are deducted from the sums paid over to them. Some of these also suggested that as creditors are paying for the disbursement, the state pay for the Commission.
4.160 A significant number of respondents, in particular local authorities, but also enforcement agencies and financial organisations, wish to see the DAS fully funded by the Scottish Executive.
4.161 There is a general opposition to direct payment from debtors and from individual creditors, although there is a minority view that debtors should pay a minimal fee.
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