A Citizen's Advice Scotland Briefing.

This briefing provides an overview of the network's evidence of the impact of the managed migration from legacy payments to Universal Credit. It sets our recommendations for change. 

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AS responded and gave evidence to the Inquiry on Protected Trust Deeds.

We made the following recommendations.

• Much stronger regulation of the process of discharging people from a PTD, with the priority being on discharge where a PTD fails due to an unforeseen change of circumstances that makes the PTD no longer affordable. If the change of circumstances is permanent then we think discharge should be automatic, unless a creditor objects, in which case a fair and reasonable test could be applied to the objection (like happens with DAS). This could be achieved by a new process where agreement has to be sought from the AiB before “failing” a PTD and refusing discharge.
• The AiB working with the regulatory bodies that govern insolvency firms to have an outright ban on IPs accepting leads from unregulated lead generators or debt packaging firms.
• The AiB working with their equivalent in England (the Insolvency Service) to create an independent complaints body with powers to discharge or cancel a PTD that was not in the consumer’s best interests and that can make decisions on redress where necessary.

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CAS responded to the Accountant in Bankruptcy's review of the Bankruptcy and Debt Advice Scotland Act 2014.

We recommended:

• The time period for the moratorium being extended and increased in scope by including all the proposed breathing space protections, with increased availability to people with a mental health crisis.
• The Common Financial Statement (CFS) should remain as the Common Financial Tool (CFT) for assessing debt options for a temporary period. However CAS thinks that the methodology that lies behind it, and that of the Standard Financial Statement (SFS), are deficient in providing a sufficiently flexible tool for the increasingly fluid nature of peoples’ incomes and therefore they should only be seen as short-term interim solutions.
• Recognition that a change of Common Financial Tool methodology is both necessary and will take time to develop. An alternative requires more detailed discussion and should not be rushed. The principals of an alternative model are set out elsewhere in this response.
• The inefficient application of the CFT in the statutory processes needs to be addressed, because it is quite differently applied by creditors, advisers in non-statutory debt solutions and in the English equivalent processes.
• The Minimum Asset Process (MAP) minimum debt threshold should remain the same and there should be no maximum debt threshold.
• Child Maintenance should continue to be discharged but given primary preference in the distribution of any ingathered funds.
• The MAP fee should be subject to the same exemptions as apply to court fees.
• Child maintenance, bursaries and benefits income sources should be discounted from the debtor contribution order calculation.
• The debtor contribution payment period, acquirenda period and debtor discharge, should be aligned, and should all be concluded two years after the date of sequestration. This provides a consistent and simpler approach to the different periods which impact on the debtor and allows for a clean break bankruptcy discharge.

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In this report the Financial Health team explores the current state of play in council debt collection across council tax, rent and water debt and presents a charter for change. 

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This report looks at whether there is detriment in the PTD market.

We make the following recommendations which we think will address some of the detriment we see in the PTD (and IVA) market:

• For there to be a ban on the use of lead generators who introduce new business to insolvency practitioners for financial reward, especially if they are unregulated.
• For all potential consumers of PTDs to receive Financial Conduct Authority authorised debt advice on all of their relevant debt options, to ensure they can make an informed choice on whether a PTD is best for their circumstances. This would not necessarily need to come from the free advice sector. Insolvency firms can choose to be dual regulated.
• For there to be an independent insolvency complaints body like the Financial Ombudsman Service with powers to cancel a PTD that was not in the consumer’s best interests and that can also make decisions on redress where necessary.
• For there to be a stronger regulatory focus on how firms respond to unforeseen changes of circumstances that make a PTD no longer viable.

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Citizens Advice Scotland has responded to the consultation on proposed guidance for firms on the fair treatment of vulnerable consumers. We are pleased to see the continued commitment by the FCA to protecting vulnerable consumers.

This guidance is particularly timely with the current and future impact of COVID-19 which will result in both an increase in the number of vulnerable consumers and the increased vulnerability of some consumers.

We are pleased to see that the FCA has taken on previous feedback and made some changes to this guidance. 

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CAS key recommendations to ensure fairness in debt recovery include:

• A review of the Department for Work and Pensions (DWP) debt recovery process and subsequent introduction of a revised system for managing debt that better reflects people’s ability to pay without experiencing hardship based on a robust holistic affordability check procedure.
• Consideration of the write-off of historic Tax Credit debt and other historic benefit overpayment debt.
• Government bodies should have debt adjudicators/reviewers who are not embedded in the department concerned. They should have similar criteria to the Financial Ombudsman Service i.e. rulings are based on fairness and in this case also practicality of collection.

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Citizens Advice Scotland (CAS) gathers evidence from the more than 171,000 clients a year supported by our network. Many of the problems faced by our clients are rooted in or linked to their incomes not being enough to meet their needs and live a dignified life. For many people coming to see us they simply do not have enough money to make ends meet: YouGov in May of this year indicated 1 in 7 Scots is struggling on their present income even with the temporary financial support measures put in place as a result of the pandemic. In fact, 56% or half a million pieces of advice provided by our network every year can be attributed to income maximisation. 

During the pandemic CABs unlocked £147million for people through things like social security payments, employment entitlements and lower bills for utilities. A Minimum Income Guarantee would mean the Citizens Advice network could ensure people have even more security and opportunity.

This evidence base, from over 80 years as Scotland’s largest free, impartial and confidential advice network, gives CAS a unique understanding of the issues that IPPR proposes could be addressed by a Minimum Income Guarantee. In addition, our experience supporting clients over the course of the pandemic shows that even those who were coping before the crisis still found themselves vulnerable if their income dropped or costs went up even slightly.

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However, there are additional dimensions to the need for food banks that CAS would call for further consideration of. These include:

• The role of advice services in food bank referrals
• Availability of social security support for different types of people
• Debt as a driving factor in food bank use
• Fuel poverty as a driving factor in food bank use
• Housing costs as a driving factor for food bank use
• Potential barriers to a cash-first scheme

CAS suggests six areas where further action could be taken to reduce the need for food banks:

• Reducing the cost of living
• Increasing social security support and benefit take-up
• Encouraging fair work
• Improving debt solutions and debt recovery
• Making the Scottish Welfare Fund more accessible
• Integrating advice services into Cash-First Partnerships

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The report is compiled from a snapshot of Scottish CAB clients with complex or multiple debt issues; 2,987 of these clients had relevant data recorded. Complex debt refers to cases where there are multiple creditors or a single liability where the issue requires intricate legal or administrative work, for example responding to court action. The data was collected between April 2021 and March 2022 with the previous annual period used as a comparator.

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