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Financial Inclusion Commission Calls for DAS Expansion

16th March 2015

The Financial Inclusion Commission is an “independent body of experts and parliamentarians who came together to put financial inclusion back on the political agenda ahead of the 2015 General Election”.

Last week they produced their “Improving the Financial Health of the Nation” report. The report includes twenty two recommendations that they collectively believe would be beneficial in terms of creating further financial inclusivity around the country.

One of the key recommendations of the Financial Inclusion Commission is, “Adapt Scotland’s Debt Arrangement Scheme for the whole United Kingdom, with frozen interest, reduced arrangement fees, more breathing space, reduced time on the credit file and the offer of financial skills training”.

What’s the logic for this proposal? It’s stated that “existing debt solutions are not fit for purpose”.

The £700 bankruptcy fee in England and Wales is mentioned in the report as an example. This fee is of course excessive, and it creates a barrier that stops thousands of people from effectively tackling their debts. However, widening access to the Debt Arrangement Scheme is no answer to that problem. Bankruptcy is typically utilised by people that simply cannot repay their debts; DAS exists for those who could repay their debts with some extra time and protection.

The Debt Relief Order maximum debt threshold of £15,000 is also mentioned in the report. However, no reference is made to the fact that the UK government has already announced in January that the threshold will increase to £20,000 (and hence broaden access) later this year. Similarly to bankruptcy, there is also very little crossover between those debtors for whom a DRO would be suitable and those that will be suited to entering a debt repayment scheme of some type.

The Financial Inclusion Commission’s report goes on to state, “A DAS remains on a person’s credit file for six years after completion – the same as an Individual Voluntary Arrangement or Debt Relief Order”.

This statement is factually inaccurate. Any entry that goes onto a credit report stays there for six years. If you enter an IVA in March 2015 it will no longer appear on your credit report around March 2021. The six year period begins when the IVA starts, not when it ends. The same is true of Debt Relief Orders and other types of credit file entries.

An argument which is built around false comparisons and factual inaccuracies appears to lack credibility. No matter how genuinely laudable the intentions of the Financial Inclusion Commission are, it is unfortunate (and perhaps also a missed opportunity) that a better understanding of the subject wasn’t gained prior to the release of this report.

The irony is that it’s extremely easy to make a solid argument in favour of some of the elements of the Debt Arrangement Scheme being spread to other parts of the UK. The true comparison is between DAS (in Scotland) and informal debt management plans which are used in huge numbers throughout the rest of the UK.

DAS provides legal protection from creditors and guaranteed frozen interest (provided you stick to the agreement made with the creditors); two valuable and significant benefits that an informal debt management plan cannot currently promise to their users.

Movement in this direction could be created through the establishment of a new DAS-like debt solution in the rest of the UK, or it might also be achievable through regulatory intervention by the Financial Conduct Authority via debt management plan providers, lenders and associated debt collection agencies.        

In terms of creating financially inclusive debt solutions that are “fit for purpose”, a move in this direction would just be one piece of the jigsaw. A huge reduction in the bankruptcy fee outside of Scotland would be necessary also, but this change seems politically unlikely at the current time given that the public purse would have to pick up the cost.

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