Dawn Stobart, director of external affairs at Christians Against Poverty, has been keeping an eager eye out for any further talks about a statutory breathing space scheme.
A statutory debt repayment scheme already exists in Scotland in the form of the Debt Arrangement Scheme (DAS), administered by the Accountant in Bankruptcy (AiB) for the Scottish Government. As a DAS-approved money adviser, we are familiar with the dignity and stability DAS provides for many. There is no doubt that Scotland is pioneering with the statutory protections they offer, demonstrating the need for a breathing space scheme to come to England and Wales. However, the design of a statutory repayment scheme is hard to get right.
Following manifesto commitments, there has been some indication that a statutory breathing space scheme would mirror what is currently being done in Scotland. This is a cause for concern because, although DAS is leading the way in its statutory protections, it also contains some pitfalls. CAP has made some recommendations to the AiB to support their intentions of building more flexibility into DAS, and set out specific areas that need to be addressed to ensure DAS is in the shape we need it to be.
CAP has identified six key areas where DAS could be improved, both in its accessibility and sustainability.
Firstly, we suggest that the requirement to include all debts in a Debt Payment Programme (DPP) should be removed. It is not always in a debtor’s best interest to include these debts in the plan, especially regarding rent arrears or debts to friends and family.
Secondly, we recommend that DAS accepts reasonably up-to-date balances already held by money advisers. There is a heavy burden placed on money advisers to confirm all debts and balances, which can even cause delay in the submission of the DAS application.
"DAS is a fantastic tool but needs reforms to make its process simpler, more accessible and more straightforward"
The six-week intimation period should be extended to six months. It often takes longer than six weeks to see an adviser, gather financial documents, acquire balances and wait up to 21 days for a creditor to respond to a DAS application. Once the six weeks is up, clients become vulnerable to enforcement action, which can risk disengagement from debt advice.
When Duncan and Yvonne contacted CAP, their interest-only mortgage term had just expired and they had no savings or an endowment policy to cover the balance. It took 16 weeks for the couple to switch to a repayment mortgage and put together a DAS application, then a further four weeks for the DAS to be approved.
Those entering DAS risk an exacerbated financial situation should lack of stability mean their DPP fails. This is because at present, if a DPP fails, interest and charges are added retrospectively. In Debt Management Plans interest and charges are not added retrospectively in most cases. Therefore, if a DPP fails this asymmetry causes further anxiety and distress to clients.
Client experience upon reassignment of debts is another area with space for improvement. Debtors are expected to deal with all correspondence themselves, and have the responsibility to inform the money adviser if debts are reassigned. This is a heavy requirement for people, especially those who are experiencing acute financial distress. As a result debt collection activity can resume, despite a statutory agreement to repay already in place.
Lastly, there needs to be greater awareness built around DAS. Not all creditors are aware of DAS, partly due to the low volume of DAS cases a creditor may see. We recommend that the AiB increases its engagement with creditors for better communication and to secure creditor buy-in.
DAS is a fantastic tool but needs reforms to make its process simpler, more accessible and more straightforward. We want to collaborate to make sure it sets the right pace for any potential statutory debt repayment scheme in England and Wales. With these changes DAS would become more accessible to its users and would better cater for the people it has been designed to help.