Debt Recovery Working Group
on the Agenda Manifesto for change
should be stressed, are not easy or soft options for people living in
poverty. But they are fairer. And they recognise that the
main reasons for debt are not fecklessness but poverty and low income.
Debt Recovery Working Group
access to advice
independent advice agencies to the forefront in tackling debt and
poverty in Scotland, and fund their capacity to make a difference,
triggers at various stages in the debt-recovery process
that would prompt debtors to seek early independent advice,
independent in-court advisors in every court in Scotland,
loan firms and creditors to inform debtors of their rights before
proceeding to diligence.
Ensure adequate income for all
an adequate level of minimum income in Scotland, measured against
income support for a family with two children by £11.42 a week,
the Social Fund and replace it with a new inclusive system of grants
instead of loans,
Promote credit unions effectively.
the consumer from exploitation
statutory controls on extortionate interest rates and irresponsible lending,
creditors to provide best advice before making a loan.
A fairer system of debt recovery
Poindings and Warrant Sales with a new system of Disclosure Orders
(and ensure Poindings and Warrant Sales before December 2002
are used only as a diligence of last resort),
a new Debt Arrangement Scheme - presided over by an independent
third-party adjudicator - to oversee debt repayment,
the first £63 in a debtors savings account from
arrestment by introducing the Bank Arrestment Scotland Bill,
summary warrant procedures.
Time to Pay orders to allow all individual debtors
sufficient time to clear their debts.
Background to demands
Provide access to advice
advice provides balance in the relationship between creditor and debtor.
One in five
people have arrears with household expenses. But the majority
dont seek any advice at all, even when the debt proceeds to
court. Research has revealed that:
out of ten people with problem debts had sought no help or advice,
even from family or friends;
one in every five had made contact with their creditor(s).
one in three had consulted a formal adviser, most often an
independent advice agency or bank manager;
But those who
did seek advice said it had made a significant difference - advisors
could often negotiate an agreement where they had failed, and that a
welcome barrier was placed between the creditor and themselves.
Representation at court was also welcomed.
research has shown that:
arrears of those who didnt seek advice rose by over 100%
compared to 25% for those who did;
counsellors can help clients avoid eviction or repossession of their homes;
detailed picture of a clients finances drawn up by debt
counsellors can also allow creditors to see the most cost-effective
means of recovering a debt;
receiving money advice did not appear to pay less than other
defaulters, nor did they create additional administration costs for creditors;
advice can significantly improve a clients financial social
and psychological wellbeing.
Ensure adequate income for all
suffers some of the worst poverty in the industrialised world.
The figures are shameful:
of Scots, 32% of children, and 29% of pensioners live below half
average household income (the Governments own measure of poverty).
1997, 674,000 Scots were living on income support.
poverty are strongly linked. Debt occurs from a sudden
disruption of income or through persistent low income, which force
people into arrears.
In 1980, 20%
of those on the lowest incomes used credit. By 1990 that had
risen to 69%.
Budget Unit estimated in 1995 that income support only met 32% of an
adequate to moderate family budget for a couple with two
children under 11, or 27% for a lone parent in the same circumstances.
support claimants have direct deductions for arrears - up to 25% of
benefits can be deducted for fuel, rent, water and mortgage interest
without the permission of the claimant. Average deductions are
£10.88 for gas, £10.78 for electricity, and £6.49
for water. Housing benefit, meanwhile, no longer covers the
full rent for many private tenants.
Protect the consumer from exploitation
in ten households in the UK have no access to mainstream credit
facilities, and in Scotland alone, 14% of households have no access
to a bank account. Lack of access to affordable credit, and
minimal protection from excessively high interest charges, ensures
those who can least afford it pay more for credit.
Citizens Advice Bureaux in Scotland dealt with 140,000 debt cases,
representing around £60m of debts. Almost one quarter of
Scottish households are not managing financially, and one third are
worrying about money quite often or almost all of the time.
Despite a clear need for greater
transparency and information, financial institutions are under no
legal obligation to offer best advice on loans, in line with the
marketing of other financial products such as pensions and
mortgages. Since the introduction of the Consumer Credit Act in
1974, only about 30 40 cases in relation to extortionate
credit have reached court, despite Citizens Advice Bureaux regularly
reporting clients facing interest rates of 300% and upwards.
those on low incomes at the mercy of financial institutions whose
only interest is to sell their own financial products, regardless of
the clients ability to pay. Ruthless and aggressive
marketing of loans and easy access to credit and debt consolidation
push clients into unaffordable and never-ending debt.
Last year, a Select Committee on Scottish Affairs report, Poverty
in Scotland, stated: We deprecate the practice of
banks, credit card companies and other financial institutions
offering unsolicited credit facilities to vulnerable people,
encouraging them to incur financial commitments which they cannot
sustain. We are also concerned about the way some interest-free
credit agreements are being operated.
It went on: The downward spiral [of additional deprivation,
anxiety and stress] is likely to continue if resort is made to
licensed credit brokers or unscrupulous loan sharks who charge
exorbitant interest rates&ldots; We consider that it may well now be
time for the UK Government to take a serious look at the activities
of licensed credit brokers.
In 1999, the
UK Consumer White Paper noted: Well informed consumers
help markets work effectively. Consumers who can assert their
needs clearly and make the best choices help business to become more
competitive and raise productivity. Consumers benefit from this
through lower prices, increased choice and more innovative products.
A fairer system of debt recovery
Axing the Social Fund
Fund, supposedly the welfare fund of last resort, is deeply
flawed. It is discretionary, cash-limited, offers mainly loans
repaid from future benefits, and refusal rates are high - only one in
five grant applications succeed.
applications for budgeting loans were turned down in 1999/2000, an
extraordinary increase on previous years (4,865 in 1997/98 and 11,102
in 1996/97). Over 60% of claims were for basic items such as
clothing, household goods, bedding, cookers and food.
Fund should be replaced with a new system of grants, including:
grant for furniture and household equipment when a family is
allocated a new house or movers home,
pregnancy grant paid to the mother to meet dietary requirements and
household safety grant paid every six months to help with replacing
electrical and gas equipment,
development grants paid when a child reaches the age of 1, 3 and 11
years old, and when they start or change schools.
should be paid in addition to benefits, be easy to administer, and
claimants should have right of appeal.
and Warrant Sales and Disclosure Orders
Parliament has decisively voted against the use of Poindings and
Warrant Sales. A progressive and humane solution to the problem
of debt recovery will never be found in a diligence against household goods.
Disclosure Order procedure would give a creditor the right to obtain
relevant information on a debtors circumstances and proceed
with an arrestment.
the only major obstacle to debt enforcement - the ignorance of the
creditor regarding the financial circumstances of the debtor. A
limited system of disclosure would allow creditors to use
bank and earnings arrestment more effectively. It would provide
a remedy against those who wont pay, while safeguarding those
who cant pay.
A Debt Arrangement Scheme
We must create a better system for dealing with debts and multiple
debts (recognising that most debts are of a multiple character),
rather than the existing adversarial Sheriff Court proceedings.
Arrangement Scheme for debts under £25,000 would relieve
pressure on the court system. Each Sheriff Court jurisdiction
would appoint a number of Debt Adjudicators (legally qualified or
with a background in social work or welfare rights).
Adjudicator would decide a time to pay order and
supervise repayment proposals to all creditors, rather than just the
one who has pursued a court action. Hearings would take place
at convenient times for working people.
and creditor would benefit. Repayments would take into account
the debtors individual needs. Creditors would receive
repayments in a more systematic way than at present, where those who
shout loudest get the largest share.
Alex Neils proposed Bank Arrestment Bill
arrest a debtors entire bank account, leaving people with not
even basic living income for them or their family.
bank arrestments take place in Scotland every year - over 90% carried
out by local authorities to recover council tax or community charge arrears.
currently the amount protected with regard to earnings
arrestments should be protected in savings accounts as
well. A new Sheriff Court procedure of arrestment
orders would quickly release exempt funds (particularly social
security benefits) from arrestment.
should also be fully informed of their rights as part of the
arrestment process - at present, no notice has to be given.
Abolish Summary Warrant procedures
Summary Warrants are a fast track legal procedure that public bodies
such as councils can use, typically to pursue council tax and
community charge arrears. Debtors currently have no time
to pay rights with respect to Summary Warrants.
75 per cent
of all poindings proceed by way of summary warrant, mostly for
council tax or community charge arrears against people on low or
Warrants should be abolished in the long term, and in the interim
time to pay orders allowed.
first meeting of the IDRWG took place in Edinburgh on 3 May 2000.