DISSF(17-18)02

Debt and Insolvency Services Stakeholder Forum Background Brief, 15 March 2018

Contents 1. Insolvency case statistics for Q3 2017-18 2

1.1 Statutory debt solutions in Scotland 3

1.2 Personal insolvencies by quarter 4

1.3 Bankruptcy awards 5

1.4 PTDs 6

1.5 Debt Arrangement Scheme 7

1.6 Amount repaid through DAS 8

2. Fair and reasonable test guidance published 8

3. Insolvency Service strengthens monitoring for large IVA providers 8

4. Insolvency Service revamps complaints process 9

5. New credit card rules introduced by the FCA 10

6. Dear Trustee letter on outlays in protected trust deeds published 11

7. Peter Wyman review of debt advice funding issued 11

8. Financial Guidance and Claims Bill to clear Commons this week 12

1. Insolvency case statistics for Q3 2017-18 Fewer Scots have been made bankrupt in comparison to a year ago, according to latest figures from Accountant in Bankruptcy (AiB). In the third quarter of 2017-18 – between October and December 2017 - there were 1,089 awards of bankruptcy, a drop of 4.2% from the 1,137 in the same period for 2016-17. Bankruptcies have now fallen for the last two quarters. Personal insolvencies in Scotland have more than halved since 2008-09, and the numbers fell in early 2015-16, the first months after the introduction of new legislation on 1 April 2015. There was evidence more people were seeking to take control of their finances and pay their debts in full without suffering the uncertainty and stress of insolvency. Approved debt payment programmes under the Scottish Government’s Debt Arrangement Scheme rose by 8.5% in the third quarter of 2017-18, up from 528 to 573. Driven by a rise in protected trust deeds, total personal insolvencies, which include awards of bankruptcy and protected trust deeds, rose slightly by 2.1% to 2,691.

1.1 Statutory debt solutions in Scotland

1.2 Personal insolvencies by quarter

1.3 Bankruptcy awards

Bankruptcies in 2017-18 Q3 decreased when compared with the same quarter in the previous year. There were 1,089 bankruptcies awarded in 2017-18 Q3, a 4.2% decrease when compared with 2016-17 Q3. Of the 1,089 awards of bankruptcy in 2017-18 Q3, 75% came from debtor applications. The remaining bankruptcies came from creditor petitions (25%) and one bankruptcy award came from a trust deed petition. Creditor petitions showed a small increase from 261 in 2016-17 Q3 to 269 in 2017-18 Q3. Creditor petitions are approved by courts with AiB only recording when a creditor petition has been awarded. The number of creditor petitions recorded, therefore, could be influenced by the late reporting of creditor petitions court orders. Quarterly creditor petitions figures are revised annually to account for late reporting or missing cases. Debtor applications

Debtor applications for bankruptcy decreased by 6.4% from 875 in 2016-17 Q3 to 819 in 2017-18 Q3. There are two types of debtor applications for bankruptcy: MAP or Full Administration. Full Administration bankruptcies decreased by 22% and MAP bankruptcies increased by 7.4%. The majority of bankruptcies awarded through debtor applications are MAP cases. The MAP bankruptcy replaced the Low Income Low Asset (LILA) bankruptcy in April 2015.

1.4 PTDs

There were 1,602 PTDs registered in 2017-18 Q3, a 6.9% increase on the same quarter in 2016-17. The number of PTDs have followed a similar trend to bankruptcies and have been increasing since 2014-15 Q4.

1.5 Debt Arrangement Scheme

In 2017-18 Q3, there were 573 approved DPP under DAS compared with the 528 approved in 2016-17 Q3 (see chart 5). Approved DAS DPPs increased year-on-year between 2006-07 and 2012-13 likely due to changes in legislation and improvements to the DAS Administrator’s IT system

1.6 Amount repaid through DAS

In 2017-18 Q3, £9.5 million was repaid from debtors under DAS, similar to the £9.6 million repaid in 2016-17 Q3. Through DAS, creditors receive a minimum of 90% of the debt owed to them from debtors (after DAS Administrator and payment distributor fees). After these fees have been deducted £8.8 million was paid to creditors in 2017-18 Q3.

The full Q3 report can be found here.

2. Fair and reasonable test guidance published The DAS team at AiB has produced guidance to give money advisers a better understanding of how the fair and reasonable test works. Debt payment programme applications are sent to every creditor and they are given the opportunity to accept or reject the proposal. If any creditor rejects the proposal, the DAS Administrator can still approve a programme if it's considered fair and reasonable. Another instance where a case will go for a fair and reasonable test is if there is only one debt in the programme, and the creditor has not responded. This guidance provides a general background on how the fair and reasonable test works and the different factors taken into consideration when determining whether a debt paayment programme should be approved.

3. Insolvency Service strengthens monitoring for large IVA providers The UK Insolvency Service has updated and strengthened its guidance for the five insolvency regulators (the regulated professional bodies or RPBs) on how they should monitor volume providers. The changes to the guidance, first introduced in 2007, take account of developments in the marketplace and the UKIS’s RPB monitoring visits and related outcomes. The refreshed guidance has been developed jointly by the Insolvency Service and a range of stakeholders, including key creditors groups and the RPBs themselves.

Key changes include:

a definition of a volume provider

explaining how the UKIS thinks RPBs should carry out their monitoring work both in terms of frequency and process

a focus on safeguarding client monies

sampling a wider range of cases

monitoring the fairness and cost of the use of other products and services

monitoring debt advice

a greater acknowledgment of the different business model adopted by large IVA providers

As part of the ongoing assessment of the effectiveness of the regulatory regime against the regulatory objectives introduced in October 2015, the Insolvency Service will review how the RPBs implement this guidance. The publication of strengthened guidance is part of a wider project to assess the effectiveness of RPB monitoring work, which will be the subject of further reports in the future.

4. Insolvency Service revamps complaints process The Insolvency Service has implemented changes to its complaints process following a comprehensive review carried out over the past year. The aim of the review was to identify how the UKIS can resolve complaints at the earliest opportunity, improve performance and the quality of responses, and make the complaints process work as well as it can for customers and staff by making it simpler and easier to access. Changes include:

the adoption of a clear and considered complaint approach with a simplified route of access centralised oversight of the complaints process a consistent approach with the level at which complaints are handled across the agency a revision of internal and external communications to simplify and increase awareness of complaints policies, standards and

targets agency-wide guidance and training to improve the quality of complaint handling with a view to making our processes more

efficient

the introduction of time limits for the submission and escalation of complaints

Initial feedback on the new process has been positive and the UKIS is using performance data to provide insight and direction for ways in which it can further improve the service the organisation offers.

5. New credit card rules introduced by the FCA The Financial Conduct Authority (FCA) has published its final policy statement on new rules for the credit card market. The FCA estimates the changes will save consumers between £310 million and £1.3 billion a year in lower interest charges. The new rules came into force on 1 March 2018, but firms have until 1 September 2018 to comply. The changes will provide more protection for credit card customers in persistent debt or at risk of financial difficulties. The changes are being introduced following a comprehensive study of the credit card market. The study analysed the accounts of 34 million credit card customers over a period of five years, and surveyed almost 40,000 consumers. Figures show that customers in persistent debt pay on average around £2.50 in interest and charges for every £1 that they repay of their borrowing. There are a total of 4 million accounts in persistent debt and firms have few incentives to help these customers because they are profitable. Under these new rules, firms will be required to take a series of escalating steps to help customers who are making low repayments over a long period, beginning when the customer has been in persistent debt over 18 months. After this time, firms need to contact customers prompting them to change their repayment and informing them their card may ultimately be suspended if they do not change their repayment pattern. Once a consumer has been in persistent debt for 36 months, their provider will have to offer them a way to repay their balance in a reasonable period. If they are unable to repay the firm must show the customer forbearance. This may include reducing, waiving or cancelling any interest, fees or charges. Firms who do not comply with the new rules could be subject to action by the FCA.

Credit card firms have also agreed to voluntary measures, which will give customers control over increases to their credit limit. Under the measures agreed by credit card firms customers can opt-out from receiving automatic credit limit increases. Customers in persistent debt for 12 months will not be offered credit limit increases, this should result in around 1.4 million accounts per year not receiving such offers.

6. Dear Trustee letter on outlays in protected trust deeds published Accountant in Bankruptcy (AiB) has issued a Dear Trustee letter dated 6 December 2017 which details concerns about certain costs which trustees have inappropriately claimed as outlays of their protected trust deeds. Trustees are informed of the actions AiB will take if these are identified. This letter also clarifies the Agency's position on who should be classed as an associate as detailed in the Dear Trustee letter dated 29 March 2017.

7. Peter Wyman review of debt advice funding issued Peter Wyman’s independent review of the funding of debt advice has been published. The report lists 20 recommendations for the sector, including major shifts in how advices is provided. The report recommends the free advice sector should commit to shifting 15% of face-to-face demand to telephone advice, and 20% of telephone demand to live web chat over the next two financial years, with a corresponding shift again over the following three financial years. A further recommendation is that the financial services levy for debt advice should be increased by £10 million per year for 2018/19 and 2019/20. The full list of recommendations is featured on P6-8 of the report.

8. Financial Guidance and Claims Bill to clear Commons this week The Financial Guidance and Claims Bill 2017-19 is set to be considered at the Report Stage and Third Reading in the House of Commons on Monday, 12 March. The Bill makes provision for the establishment of a new financial guidance body and for the provision of funding of debt advice in Scotland. The government has introduced a number of amendments to the Bill, including a ban on pension cold-calling and pension guidance provision. Work and Pensions Committee chair Frank Field MP has suggested the provisions in the Bill could be in effect by June 2018.