Citizens Advice Scotland has responded to a consultation on the use of Protected Trust Deeds (PTDs)
Although these can offer an effective solution and some debt relief in some circumstances, CAS is concerned that these are poorly understood and that some firms administering them are unfairly exploiting people in debt.
PTDs often represent a bad deal for creditors and a risky approach for debtors. The main beneficiaries are the trustees who administer them – who must be licensed insolvency practitioners – and lead generators, who collect substantial fees, even if the trust deeds fail.
The profitability of PTDs mean that significant sums are spent promoting them online and by phone. We are concerned that people in debt don’t receive independent advice first, and checks aren’t always made that they can afford the repayments for a full four years. Bureaux clients have reported experiencing pressurised selling techniques and not having the risks and consequences properly explained to them before granting one.
If a PTD fails, people in debt who have paid thousands of pounds in contributions over years can find themselves in a worse position than at the start. All that they have paid in can be swallowed up in paying fees and outlays, with no impact whatsoever on the debts they started with. This is a real risk, since one quarter of all PTDs fail – over 1,700 last year alone.
CAS has called for a wide-ranging review of all the formal options for people in debt, for regulation to be extended to lead generators, and for curbs to fees when PTDs fail. We also supported specific proposals within the consultation – including raising the minimum amount of debt people should have before being allowed to grant one.
If you have any comments or queries, please contact our Financial Health policy team.