DAS: the broader picture

At the time of Scottish devolution, debt collection was thrust into the public eye in a very emotive fashion. For a while, pictures and footage of sheriff officers trying – with the full authority of the law – to get into homes to remove items were played out in Scotland on a daily basis. Described as “Scotland’s shame”, poindings and warrant sales were seen by politicians as a sign that this was a backward, uncivilised country. As a result, one of the new parliament’s early actions was to bring about the Abolition of Poindings and Warrant Sales Act 2001.

The replacement Debt Arrangement and Attachment (Scotland) Act 2002 was supposed to bring in new processes to enable debt collection in a more user-friendly manner. The Act means that only items outwith the debtor’s dwellinghouse can be valued as assets; in exceptional and rare circumstances, access can be granted to a dwellinghouse to value and remove non-essential assets; and warrant sales have been replaced with public auctions.

However, concern was expressed in some quarters that this was a charter for people simply to choose not to pay their debts with no consequences, and as a result a balance was sought. The debt arrangement scheme (DAS), due to be launched this autumn, is critical to the legislation. DAS sets out in statute a means for people to pay off their debts whilst protecting them from further enforcement action by their creditors.

Flesh on the bones

The framework is simple. Debtors opting for DAS will have to repay all their debts, in full, by regular instalments. The debtor, who for the purposes of this Act is either a consumer or sole trader, must receive debt counselling before being registered and put on to a DAS programme. Monies will be paid to a “payment distributor” who then ensures that the creditors receive what is owed. Only a majority agreement from creditors is required to set up the DAS and the whole process is overseen by the Accountant in Bankruptcy who will also act as the DAS administrator.

The detail, on the other hand, is only just emerging. Guidance on the minimum and maximum levels of debt to qualify for a DAS programme has not yet been issued. However, new guidance has now emerged for use by approved money advisers. This recommends the use of a “fair and reasonable” test in terms of how a DAS is set up and the time limit for repayment. It seems that up to five years is seen as appropriate in most cases, seven to 10 years in some cases, with a repayment period of over 10 years as too long. At the moment, the Scottish Executive has indicated that the average voluntary repayment plan usually lasts for seven years.

The role of the payment distributors is another key area that needs clarification, and guidance here is expected in the next few weeks.

Can pay, won’t pay?

The greater issue, however, is the need to ensure an appropriate network of well trained, independent money advisers. A debtor has to show that he or she has taken counsel from a government-accredited money adviser before entering a DAS, and the Scottish Executive has put aside £3 million to support the money advice agencies and put in place the appropriate guidance.

The effect of these new measures, from diligence to DAS, has been to shift the balance of favour towards the debtor and away from the creditor. And whilst this is there to be admired on the one hand, the Scottish Executive’s new approach to debt resolution also has a major weakness, on the other.

It may work well for those in debt who recognise their financial difficulties and want to take action to resolve them. But it still does nothing to address the problem of those debtors who can pay but won’t, or those who refuse to recognise their financial problems. The real issue for debt recovery and enforcement will be how the new approach tackles those who do not want to address their financial problems.

Giving DAS some bite

Industry opinion regards the success of DAS as heavily dependent on the commitment of the Executive to its promotion. It is crucial that sufficient resources are devoted to the scheme so that effort can be focused on changing the perceptions of those debtors who either refuse to recognise their problems or have no inclination to do anything about them. That effort must be significant and sustained if it is to change the nature of Scotland’s debt culture.

As the balance has shifted away from the creditor, so the industry has shifted from debt enforcement to revenue management. This goes much wider than debt recovery. If the logic behind modern debt collection is people-focused, it is not just about developing attractive packages for those who are ready to admit they need help. If efforts to tackle rising debt are to be successful, the Scottish Executive must focus more clearly on why people get into debt; and how to go about breaking the debt cycle.

Jonathan Lewis is Managing Director of Stirling Park LLP, Messengers-at-Arms and Sheriff Officers, Glasgow