Debt Arrangement Scheme
The next item of business is a debate on motion S4M-05586, in the name of Fergus Ewing, on the debt arrangement scheme. I invite members who wish to speak in the debate to press their request-to-speak buttons now, or as soon as possible, and I call on Fergus Ewing to speak to and move the motion.
15:45
I am delighted to have secured this debate on debt, which is a subject that touches many people across Scotland. The number of members here highlights the importance of the debate and the shared concern across all parties.
I am sure that all members will join me in welcoming the publication in today’s Daily Record—a copy of which I happen to have with me—of a 16-page practical supplement to help families to take control of their debts. I have read the supplement, which sets out excellent advice, and I commend it to all members and everyone who has an interest in the topic. I congratulate the Daily Record on the supplement’s publication; it will be of great help. A helpline has been set up to offer people a free financial health check from an independent approved money adviser. That step will help people to take responsibility for their finances and will encourage good money management. I say, “Well done,” to the Daily Record.
The Daily Record’s supplement is helpful in highlighting to the people of Scotland that turning to high-interest payday lenders is seldom the answer. The number of people who take out payday loans is increasing, sadly, all the time. A report that Consumer Focus commissioned indicates that no less than 1.2 million adults in the United Kingdom took out an estimated 4.1 million payday loans in 2009, to the value of £1.2 billion. The report goes on to suggest that those figures could continue to rise steeply, potentially by 40 to 45 per cent, or up to half a million additional UK payday borrowers.
Members across the chamber will have heard many of the sad tales that borrowers have to tell about how they have found themselves trapped in a cycle of debt that they are unable to pay back. When their payday loan is rolled over—or “flipped”—that means, in effect, that a new loan is taken out and that even more interest is charged. In one example I heard, a loan of £400 cost £800 to repay after six months. That is not unrepresentative.
Interest rates and control over payday lending rest, of course, with the UK Government. As a Parliament, we lack the power that we would like to possess to curb high interest rates; we do not have the power to do what the Labour amendment exhorts us to do, although we would like to have it. However, lack of power over those things will not stop this Government taking action where we do have powers. We will ensure that in relation to enforcement of debt, which is a devolved matter, individuals are not placed in an adverse position in our statutory debt management scheme, which is the debt arrangement scheme, or DAS. I will say more shortly about our plans for changes to DAS, which we hope to introduce before the summer recess and which will be aimed at supporting people who are affected by continued interest charges, including high-interest lending.
The changes that we will make will help to alleviate the burden on individuals in Scotland, but that is only part of the answer. The full solution can be found only if the UK Government is willing to take action to address the extortionate interest rates that are applied by payday lenders. Although I welcome the modest steps that have been taken at UK level—principally, the introduction of codes of practice—they simply do not go far enough.
I think that the debate will be generally consensual. The Labour Party certainly wants the UK Government to take action, but I do not think that there is anything in our amendment that calls on the UK Government to take action. The amendment is limited to actions that the Scottish Government can and should take.
I will revert to the point in my closing speech, because I am interested in hearing what Labour has to say and I want a consensual debate, as I think this will be. However, let us be in no doubt: we want the powers in this Parliament, but we do not have them at the moment. That is a fact. If we did have them, we would do far more than we are currently doing and would go further than the action that I will announce today.
Let us consider what other countries are doing. In Finland, the Government has introduced a bill to cap charges and costs resulting from payday loans at 50 percentage points above the European Central Bank reference rate. The approach ensures a cap of 51 per cent for 2013. In France, there is a tightly specified ceiling on interest rates, which I am advised is set at 33 per cent above the average Banque de France quarterly rate. Such changes have been made in order to improve the ability of consumers in those countries to assess the total cost of their loans and to prevent predatory lending to households that are in financial difficulty. Those are laudable aims that the Scottish Government supports.
The UK Government, however, has declined to take similar steps, which leaves us again with the sense that the UK is not acting in the best interests of the people of Scotland. If the approach is good enough for France and Finland, why is it not good enough for Scotland or, indeed, for the whole UK? The Scottish Government does not want people who are in debt to be unable to access fair remedies, whichever side of the border they are on. In an independent Scotland, we would have an opportunity to learn lessons from other countries and to choose our own solutions.
In 2014, the UK Government will transfer regulation of consumer credit from the Office of Fair Trading to the new financial conduct authority. I hope that the FCA will understand, as the Scottish Government understands, that some payday lenders are extending credit to borrowers who have no means of paying back what they owe, and that it will therefore take firm action to regulate the sector. I want to work with the UK Government on such matters, which is why we will support the Conservative amendment, which perfectly reasonably calls on us to do so.
The Scottish Government will not wait to do what we can do with the powers that we have. Later this year we will introduce our bankruptcy reform bill, which will deliver on our proposals for a financial national health service and ensure that Scotland leads the way in the development of modern insolvency practice that responds effectively to the rights and needs of debtors and creditors.
The hardships that relate to payday loans require us to act faster. People who might be legitimately seeking to improve their financial wellbeing by taking out payday loans sometimes find that instead of curing the problem they have made it much worse. Individuals whose payday loans have been flipped and rolled over can be charged interest that accrues at punitive annual percentage rates of up to 4,000 per cent.
In a proposed change that is not directed only at payday loans, the Scottish Government will, in the spring, make changes to DAS in order to freeze interest and charges earlier in the process; they will be frozen from the date when a debtor’s application is submitted to creditors. In practice, that could protect the debtor from as much as two or three months of additional interest charges. That might not sound like much, but we are talking about two or three months during which the debtor would be worried sick about the mounting interest charges; I remind members of the £400 debt that rose to £800 over six months. I hope that all parties will support the measure, which will have to go through the parliamentary process. We expect that if it receives support from other parties, and subject to the scrutiny of Parliament, the measure could come into force before the summer recess.
I thoroughly welcome what Fergus Ewing is doing, which will provide significant help to the 3,000-odd people who are on debt arrangement schemes.
Does the minister realise that in order to get on a DAS, a person must have access to a DAS-approved money adviser? There are only 90 DAS-approved advisers in Scotland, of whom there are none in Angus, Orkney, Renfrewshire, the Scottish Borders, Shetland or West Lothian. Will the Government seek to redress the problem?
Kezia Dugdale has made a very important point. The issue is constantly under review because we need to ensure that there is access to appropriate advice throughout Scotland. I will come back to the member, after the debate, on that. We acknowledge its seriousness. Although we have improved access, there is always more that we need to do.
Other changes to the scheme include a review process for decisions by the DAS administrator and the introduction of composition where the debt payment programme has been paid over 12 years or more and 70 per cent of the debts have been paid. We will also make changes to the rules on payment holidays to make them more flexible. If a person loses their job and cannot pay what they have agreed to repay, there needs to be flexibility. That is the principle.
DAS is a uniquely Scottish product. Its use has risen from 128 DAS cases in 2005-06 to 3,319 in 2011-12. This year—2012-13—there have been 3,900 cases, and there are still two months to go. The DAS is popular, its use is rising and it is useful. I hope that the changes that I have set out today will secure cross-party support and, more important, will provide further help for the people in our country who most need it and who are suffering from the misery—and sometimes despair—of being in serious debt.
I move,
That the Parliament notes the benefits of the Debt Arrangement Scheme in taking control of debts that are becoming unmanageable; recognises the despair and misery that financial difficulties bring to many people in Scotland; shares concerns expressed by Citizens Advice Scotland and others that individuals are becoming trapped in a cycle of debt as a result of high-interest lending, and supports the Scottish Government’s planned reforms to the Debt Arrangement Scheme to freeze interest and charges from an earlier date, fixing the amount of debt owed to creditors thereby preventing the continued imposition of punitive interest charges.
15:56
The Daily Record has served us well this week by revealing the deeply troubling extent of Scotland’s debt problem. As part of an investigation, alongside Citizens Advice Scotland, it uncovered that we are
“drowning in ... debt”
to such an extent that
“nearly 400 Scots a day are seeking help”
to deal with their debt worries.
The people quoted by the Daily Record had contacted a citizens advice bureau, and many said that they had gone without food or fuel because of the severity of their debts. This is the Scotland in which we live—a Scotland of debt spiralling out of control and of the working poor choosing between paying off what they owe and putting food on the table.
Last week, we had a useful and constructive debate on the cost of living and on payday loans. There was almost universal acknowledgement of the shameful practices that are being used to exploit people who are in debt and have run out of other options. In that debate, the minister and other members rightly highlighted the cycle of debt in which individuals become trapped when they are unable to pay back the loans that they have accrued, often taking out one loan to pay off another.
The scale of the debt problem in Scotland is staggering. There were 3,855 personal insolvencies in the third quarter of 2012. During the same period, just over 1,000 new applications were approved for the debt arrangement scheme—an increase of 21.5 per cent on the same quarter in the previous year. I can just about recall the debate in 2002 in which my colleague Richard Simpson and the then Deputy First Minister Jim Wallace introduced to Parliament the bill that created the debt arrangement scheme—I hate to remind the minister, but the Scottish National Party abstained on the vote. However, then, as now, it was recognised that debt management, rather than a simple focus on enforcement, is the important factor in dealing with debt.
As a minister notes in his foreword to the DAS review, the scheme is now entering its ninth year as the only statutory debt management tool in the UK. As with any scheme, it is right that it is being reviewed. We support many of the Government’s proposals. The extension of the scheme to couples was a welcome step forward, as were the proposals to increase the length of the payment holiday. Today’s proposal of a moratorium on interest payments—in other words, the freezing of interest and debt from the moment someone applies for a debt arrangement scheme, and not just from when it is approved—is similarly welcome. We hope that that will prevent the DAS from inadvertently driving some people into the arms of payday lenders. Given that the suggestion initially came from Mike Dailly of Govan Law Centre last year and was whole-heartedly endorsed at the time by my colleague Kezia Dugdale, I am delighted that the minister was listening and has taken the idea forward.
Other proposals came out of last year’s DAS review but there will not be a huge amount of detail available until we have sight of the Government’s proposed bankruptcy bill. I understand that the Government may take forward other issues, such as a single Scotland-specific common financial tool, and that it may propose increasing the minimum debt level to £3,000 for most individuals. We look forward to seeing the detail in due course.
In his opening speech, the minister talked about what he cannot do, but as my colleague Kezia Dugdale noted last week, there is certainly much more that the Government can do here and now. I hope that the Government will support our amendment, which sets out a number of measures that could curb high-interest short-term lending. One such measure would be the use of the Government’s social advertising spend, which was almost £1 million last year, to highlight the options that are open to people who are teetering on the edge of the debt cliff. Only £23,000 of that spend was used to highlight debt issues in 2011-12. In the meantime, Wonga, which is undoubtedly one of the most cynical and predatory of the payday loan companies, has grown its advertising budget from approximately £22,000 in 2009 to £16 million in 2011.
I would welcome clarification of where the minister stands on the suggestion about social advertising spend. He showed us a copy of the Daily Record in which the Government has advertised. However, in replies to my colleague Kezia Dugdale, he seems to suggest that there are barriers to action in that area.
A guarantee loan fund for credit unions would offer them the security and sustainability to expand into new communities. They would be able to carry out far more outreach work to ensure that people are as aware of the availability of credit unions as they are of payday loan companies. I recognise that we would have to find a way to finance such a loan fund, but we could start with the Government simply underwriting a relatively small amount, allowing credit unions to serve a section of the population that is not just underserved but vulnerable to exploitation. Alternatively, if the assistance or guarantee took the form of a loan, which could be repaid, that would be another good and affordable starting point. I am sure that I do not have to point out that a measure that stops people falling into greater debt and prevents bankruptcy, homelessness or family break-up is very much in keeping with the preventative spend agenda of the Christie commission and others. Such a measure would stop people having to take out debt arrangement schemes in the first place, because they would not have fallen into debt.
We need to do more to point people in the direction of financial advice. On that note, I am still a little baffled as to why it took the Government more than a year to pass on the debt advice money that was made available across the rest of the UK to citizens advice bureaux but which was not made available in Scotland until recently.
There are other practical steps that we could take, some of which were outlined in the parliamentary debate last week—in fact, some of them were outlined by SNP back benchers. For example, we could prevent payday loan shops from even opening up, as some local authorities are doing; we could use local trading standards teams to clamp down on the mis-selling of payday loans; we could stop payday loan companies advertising loans on publicly controlled computers or websites; and we could emulate the action taken against the sale of tobacco and cigarettes and begin to treat the sale of high street high-interest loans in a similar manner.
I think that we broadly want to pursue the same objective, so the member’s approach is positive.
I am delighted that the taxpayer paid zero for the excellent work today of the Daily Record, because we are working in partnership with it. That is a good form of advertising from the Scottish taxpayer’s point of view.
However, I ask Mr Macintosh to clarify just one thing. My information is that the proposal that he has set out of a guarantee loan fund was not made at any point during the budget process. Can he say what his proposal is, how much money he argues the Scottish Government should set aside for it and from which budget it would come, since as far as I am aware we did not hear about the proposal during any part of the budget process that was completed yesterday?
I am not sure that the minister’s question reveals a very consensual way of working.
This is not a specific budget ask. We are suggesting that we would be willing to sit down with the minister and representatives of money advice bureaux across the country, Citizens Advice Scotland, Govan Law Centre and others—particularly the credit unions—to work out how we could fund the scheme that we have proposed. We would work with the minister in a consensual manner. I made two suggestions about how our proposal could be funded: one related to underwriting and the other related to the provision of a loan. The point that I am trying to make is that both methods are extremely affordable. We would give the minister our support if he was willing to explore that area.
Having said earlier that I was pleased to hear that the minister had followed Govan Law Centre’s advice in making today’s announcement, he could follow its advice again. The centre has made further suggestions, as part of a fast-track debt arrangement scheme that would further clip the wings of the payday loan companies—for example, treating interest and capital separately would be worth exploring.
At present, for the purposes of establishing a debt payment plan, those with payday loan debt have all the penalty clauses and the rollover interest payments accumulated into one, unlike credit union debt, for example, which is restricted to the original capital and a relatively small interest charge. There are still access problems, which my colleague Kezia Dugdale alluded to, and I welcome the minister’s comment that he will take action to follow those up.
We will support the Government’s motion. I hope that the minister will support our amendment and our practical and affordable measures to alleviate the scourge of short-term high-interest lending.
I move amendment S4M-05586.1, to insert at end:
“; believes that more can be done by both the Scottish Government and local authorities to curb high interest short-term lending including warning against the dangers of high interest lending through social advertising spend and money advice networks; accepts that there is a demand for credit but a lack of affordable solutions, and believes that credit unions should be supported with a guarantee loan fund to offer affordable and accessible alternatives.”
16:05
It is my pleasure to speak in support of the motion in Fergus Ewing’s name and to move the amendment to it in my name.
The availability of credit in society has been changing over many years, and domestic use of credit is far more common than it once was. As the availability of credit moved down the market, more and more people became used to the idea of borrowing to invest in their home or for things to put in it. As a result, the amount of domestic borrowing has regularly increased. However, the situation has got much worse in recent years because of the financial crisis, which has left more people in Scotland having to come to terms with dealing with debt. It is a serious problem that has left many households having to make tough decisions to keep up with repayments.
The debt arrangement scheme can be a great tool to help individuals who are struggling with debt to acknowledge the money that they owe and to allow them time to pay it off. It is undoubtedly a great scheme that has already helped many people to deal with their debt problems. The Scottish Government’s proposals to reform the debt arrangement scheme to allow the freezing of interest charges and the existing amount of debt from an earlier date are also extremely valuable.
I turn to the problems that are associated with payday loans. It is extraordinary that commercial loan companies lend money at astronomical rates that themselves are a major contributing factor to non-repayment and the consequent circumstances that the debt arrangement scheme was introduced to deal with. It would be valuable if we could find ways to limit the interest rates, but there are alternative approaches that should run in parallel. We should take the opportunity to ensure that the mainstream financial institutions can provide loans of a similar character but at more appropriate interest rates. I am ill-informed about but taken by the idea that credit unions should have an increased role. Perhaps surprisingly, I find myself supporting the Labour Party’s points about empowering credit unions in the long term so that they can have a greater role.
My amendment is designed to deal with a particular problem that came to the attention of someone in my office who was doing some research in advance of the debate. There appears to be a problem with cross-border recognition of the debt arrangement scheme. Many creditors are based south of the border and do not know how the scheme operates or even that it is available, which can result in issues for debtors and money advisers. Since the Accountant in Bankruptcy took over the administration of the debt arrangement scheme last year, that problem has reduced, but apparently it still exists. Therefore, it is important that Scotland’s two Governments work together to ensure wider knowledge of the scheme so that we do not have problems with understanding.
Another problem that has come to light, which again runs close to something that the Labour Party has talked about, relates to the role of the voluntary organisations that are, in effect, working to administer the debt arrangement scheme free of charge.
One such example is the CABx. One adviser from whom I sought information told me that the number of cases that she has had to deal with has nearly doubled, and the £167,000 that the Scottish Government provides for second-tier training in that sector does not cover the work that goes on in places such as CABx. Although I am very reluctant to demand huge additional expenditure from the Government, I think that in this case a relatively small amount of money could go a very long way.
I would be delighted if, as a result of the debate and the widely held and supported positive views that have been expressed, the Government simply put in place a process to ensure that the debt arrangement scheme became an ever more effective way of dealing with an ever more dangerous problem.
I move amendment S4M-05586.2, to insert at end:
“, and calls on the Scottish Government to work with the UK Government to increase awareness of the Scottish Debt Arrangement Scheme with creditors based in the rest of the UK.”
We now move to the open debate. I call Mike MacKenzie and ask members for speeches of four minutes.
16:10
I regret that I was unable to take part in last week’s debate on payday loans, but I listened to it with interest and found myself agreeing almost completely with Kezia Dugdale. My only point of disagreement is that Ms Dugdale and her colleagues on the Labour benches seem content to allow the UK coalition to keep hammering the Scottish people at every turn while apparently suggesting that the only solution lies with the Scottish Government. The proposition that the Scottish Government, with its limited resources, can ameliorate all the harm that is being done by the Tories and the Liberal Democrats is simply not credible; it is a bit like asking the Scottish Government to chase escaped horses while the UK Government stubbornly refuses to lock up the stable.
The obvious solution is for the UK Government to continue to pay attention to Mr Ewing’s call for it to cap interest rates on payday and similar loans. Given the background of what most commentators are now calling the great recession and in the face of the exorbitant loans that the UK Government refuses to regulate, it is hardly surprising that over the past few years and until just recently the number of personal bankruptcies has been increasing. The latest figures apparently show that we might have turned a corner in that respect, with, as I understand it, the number of bankruptcies last year falling by about 30 per cent, but we need to treat such figures with caution, especially as financial difficulties are bound to increase as the UK Government’s welfare reforms come down the track.
Against such a difficult background, the Scottish Government has to be congratulated on its efforts to continue to refine the debt arrangement scheme, which offers a very constructive alternative to personal bankruptcy by making it possible for a debtor to repay the money owed over a reasonable timescale. Indeed, the increase in debt payment plan approvals under the scheme might be part of the reason for the reduction in personal bankruptcies. It is an infinitely preferable solution for both debtors and creditors, who will at least have their original debts repaid. I am delighted that successive reviews of the DAS have shown that it can be improved in ways that strike a balance between the needs of debtors and those of creditors. Given the time that it can take to approve debt payment plans, it is only right for interest and other charges to be frozen at the start of the application process rather than at the end.
However, I have to say that the person who really needs counselling from a money adviser is George Osborne. The problem with very rich people such as Mr Osborne is that they never have to think about money and, because they never have to think about it, they never come to understand it. A debt payment plan for the UK is urgently required and any money adviser would advise Mr Osborne that the debt should be paid over a suitable period. Attempting to repay debts too quickly will not work—and every day we are presented with new evidence that Mr Osborne’s plan is not working.
16:14
Under current regulations, the debt arrangement scheme allows money that is owed to payday lenders to be included in a debt payment programme along with priority debts such as mortgage or rent arrears and energy bills. That is a good idea in principle, as it allows the person to pay off the debt in line with their disposable income, and the fact that any creditors must abide by the legislation offers the debtor some protection.
Short-term payday loans can, independent of any other debts, cripple a person’s finances. In many cases, people take out another loan to pay off the interest on the first, and then they find it necessary to enter the debt arrangement scheme. However, that highlights a key issue with the DAS. As the cabinet secretary said, the setting-up process can take months. It involves finding an approved money adviser, agreeing pay-backs, the approval of a debt payment programme and its entering on to the DAS register, all of which take time. While that is happening, the interest on the payday loan is accruing, which puts the person deeper in debt.
Currently, the average time to pay off debts under the DAS is eight years and five months. During that time, the person’s credit rating is destroyed. In other words, they are blacklisted. It is therefore vital for the debts to be paid off as quickly as possible so that the debtor can return to financial normality. I therefore welcome the minister’s announcement today on the freezing of interest at the point when the person applies for a debt payment programme.
Irresponsible lending has a contaminating effect not only on the lives of debtors but on the viability of the DAS and on those creditors who take their responsibilities seriously, yet up to now the Scottish Government has consistently refused to take action on payday loans, arguing that the way in which to tackle the problem is through the consumer credit legislation. Although greater regulation is needed, the Scottish Government has the power to act, if it wants to, on the particular issue of payday loans as part of the DAS. It could do more to warn people of the dangers of high-interest lending such as payday loans through its social advertising fund and money advice networks. It should not be left to the Daily Record to warn people, although I welcome its leaflet today. The Government could also provide more support to credit unions so that they can offer affordable and accessible alternatives such as loan guarantee funds.
The Govan Law Centre has proposed that a separate, fast-track DAS be set up exclusively for payday loans in order to prevent the devaluation of what is a sensible scheme and a vital lifeline to those who are trapped in a debilitating cycle of debt. Such a scheme would be a viable option allowing people to pay off payday loans within two years, rather than their taking eight years to pay off what is supposed to be a short-term loan solution. High-interest and rollover charges could be suspended and then written off following a successful repayment of the debt. In that way, payday loans could be effectively tackled within the context of the DAS. I urge the minister at least to consider that proposal.
The Scottish Government has the powers to advise people against using payday loans and to support credit unions as a reliable alternative. It should use those powers now. I also urge the minister to consider the Govan Law Centre proposal.
16:18
I welcome this debate. We have all had constituents approach us with concerns about the indebtedness in which they have found themselves, and that can be a difficult subject to deal with. The early part of any year is a difficult time for families, so it is no surprise that last week we had a debate about the cost of living and today we are debating the debt arrangement scheme.
While it is true that the early part of any year is a difficult time, the current situation is exacerbating matters. We know that the economic downturn is putting increased pressure on household budgets, and that is being further exacerbated by the welfare reform agenda that is emanating from Westminster, which, it is likely, will increase the pressure on families and increase the likelihood that families will turn to the payday loan companies that have been referred to throughout today’s debate and in last week’s debate. We all know that going to such companies can lead to problems. That might be why this debate is largely consensual, and I will try to stick to that approach, although a few things have been said that I disagree with.
It is clear that the debt arrangement scheme is working well. In 2005-06, 149 debt payment programmes were approved. By 2011-12, the number had risen to 3,319 and, so far in this financial year, there have been 3,655. That indicates a level of success, because those families could have faced real problems if there had been no debt arrangement scheme. It is right to build on that success, and I welcome the changes that the minister has announced today. They will definitely enhance the situation.
I acknowledge the Government’s intention to introduce a bankruptcy bill, which, I understand, will have the debt arrangement scheme at its heart. It is clear that the debt arrangement scheme is an important tool in helping people on the ground.
There have been references—including in the Labour amendment—to the fact that the Scottish Government has powers over these matters. To an extent, that is right. We have heard Labour members say, as they did last week, that the Scottish Government could use its advertising budget to help in this regard. It was interesting to hear Margaret McDougall talking about the Daily Record’s supplement. I agree that it is great that it has published it, and I note that it provides evidence that the Scottish Government has already done what it is being urged to do because, on the back page, there is an advertisement by the Scottish Government and, on the inside front page, there is a message from Fergus Ewing. If that is not the Scottish Government using its resources in the manner that has been requested, I do not know what is. However, we should recognise that the Scottish Government’s powers to take action on payday loans are somewhat limited, although Fergus Ewing has written to the UK Government to call for action.
Kenneth Macintosh suggested that we could close down payday loan outlets. Superficially, that is an attractive thing to do, but it would be better to regulate the industry. At the end of the day, people are still going to be in financial trouble and, if they cannot go to payday loan outlets, where are they going to go? I know that some people will respond that they could go to credit unions, and the Scottish Government has supported the credit union sector. Between 2008 and 2010, some £12 million was invested, so I think that it would be wrong if anyone who is watching this debate came away with the impression that the Scottish Government is not doing what it can with the powers that it has. I wish that the Government had more powers to act further.
16:23
It is surely a sign of the times that, last week, we discussed payday loans and, this week, we are discussing the debt arrangement scheme. Some £76.2 million-worth of debt must be paid back under the debt arrangement scheme, and the number of debt payment programmes that are approved has risen from 149 in 2005-06 to 3,319 in 2011-12.
I believe that this is an important programme and that there should be a consensual approach to it, so it is regrettable that Alex Johnstone is sitting there all alone—like the Lone Ranger with no Tonto, or Hardy with no Laurel—with no other members of the parties that are in the UK coalition Government to hear how we in this chamber feel about this subject.
If any set of circumstances crystallises the arguments for greater Scottish Government control over, among many other things, the guidelines, rules and laws governing business and personal debtor and creditor interrelationships, this is it.
Again in a spirit of consensus, I ask the Opposition parties when they will accept that, with regard to economics in particular, the circumstances, competency and culture of Westminster rule are wholly incompatible with our shared Scottish values, beliefs and abilities.
Moving away from individual circumstances, which, in many ways, are much more serious, I have had the fortune, or misfortune, to run several businesses and, as a company troubleshooter, was many times confronted by debts as large as six-figure sums—debt mountains that grew larger daily because of punitive interest charges and an intransigent creditor, usually a major bank. As I said, that is much more serious when it comes to individuals.
I welcome the motion. We have to overcome the recurring disasters of individuals meeting their debts and paying their creditors by incurring further, hidden debt, obtaining the funding to secure that debt through unscrupulous, non-regulated payday lenders and creditors.
DAS, which was introduced in 2004, is a strong debt management scheme to help assuage debt. Since 2011, it has still been providing a vehicle to protect both person and home from creditor threat, but that can be achieved only if there is no continued or incremental interest and no fee charges that continue to make the debt grow, even in the face of regular payments to an approved payment distributor.
I welcome the motion’s intention to bring in the date at which interest and fee charges will be frozen—from approval to application, I hope—and to study in detail the intended mechanism, so that we may disseminate the benefits to those we seek to represent. That action implies more rigour and, perhaps, due diligence in considering the performance of creditors or potential creditors, with a slowing down of the cycle of cash flow.
Increasing, punitive debt can disrupt that cycle through bankruptcy—the threat of which is now, happily, through the improved scheme less likely. Although creditors are still entitled to take action to enforce payment under voluntary debt payment programmes, the debt arrangement scheme provides real additional security. Individual debtors are responsible, I believe, for their own indebtedness, just as creditors are responsible for their diligence, risk assessment and credit provision. However, in these straitened times, when there is unintended debt liability, the Government has a responsibility to provide mechanisms to protect both debtor and bona fide creditors. I believe that the improved scheme will do that, and I am pleased to support it.
16:27
I am pleased to take part in the debate and to support the Labour Party’s amendment in the name of Ken Macintosh. The debt arrangement scheme has been an important statutory tool over the past nine years, and we recognise that fact. However, the economic situation has changed since the creation of the scheme, and not just banks but other high street lenders are now on the scene—high street stores, building societies and the like—which present many opportunities for many people to acquire debt.
When people need money urgently, even a 1,000 per cent interest rate does not put them off if they do not know other places to go to. Minority communities, in particular, suffer greater hardship. I am referring to communities who are not very good at English, incomers to Scotland, refugees and the vulnerable in society among us.
Data from citizens advice bureaux state that 400 people a day are coming to them for debt advice. That gives us some idea of the number of Scots who are currently worried about debt. The misery created when people go bankrupt or when families suffer hardship is untenable. People who find themselves in that trap always find that there are fewer places to go to for assistance and, without better financial literacy, things could get much worse.
With the introduction of universal credit, I fear that many vulnerable people will choose to pay off high-interest debts rather than their rent and that, in itself, that will have huge implications, which could include family evictions, homelessness and all sorts of difficulties for our society as we know it. We need to recognise that a lot of people out there have difficulties in managing resource and that, without statutory assistance, they will face even greater difficulties. Hence, introducing proper legislative safeguards is important.
I believe that raising awareness of affordable alternatives such as credit unions is a matter of urgency, on which we must take action. In the past, many people perhaps felt that credit unions were for small debts that might be incurred by families in housing associations or by the vulnerable in society. I can assure members that credit unions provide a vital support line for many families in Scotland today. Given the user-friendly attitude of the credit unions, they need to be commended for the work that they do. They do fantastic work, which many families benefit from. Therefore, I believe that credit unions need to be supported even more now than they have been in the past.
In conclusion, debt is a serious issue, so I am glad to take part in today’s debate on the motion and our amendment regarding what is a really worthwhile scheme. It is very important that we support our communities, and the debt arrangement scheme is one of the best things that we can do. We must move forward and ensure that we have everything in place to support our vulnerable communities.
16:31
I speak as someone who has been a proud member of the Kilmarnock credit union for a number of years now.
Although those looking in from outside might be not exactly enthralled by today’s debate, it is very important to highlight the problems of the many thousands of Scots who are caught up in the spiral of debt. Debt can end careers, destroy families and ruin one’s health. We should not underestimate the importance of trying to help people to take responsibility for managing what some may regard as an inevitable consequence of the times that we live in.
There can be no doubt that some companies are lying in wait to strike when people are at their most vulnerable and need immediate access to cash. As the minister said in his opening remarks, in 2009 more than 1 million people in the UK took out a combined total of about 4 million payday loans to the tune of more than £1 billion. It is estimated from those figures that, in that year in Scotland, some 100,000 Scots borrowed more than £100 million through such schemes.
People turn to payday loan schemes because they appear more attractive than traditional borrowing routes, such as the banks. Sometimes, that may well be the case, but the business model for payday loans assumes that a percentage of people who take out a loan will go on to extend the loan, roll it over and thus compound their debt problems many times over. That is the point at which people need help from the Government—the UK Government in this case—to provide the necessary regulation to stop the exploitation of debt from becoming a booming industry that delivers further misery to already vulnerable people.
Although some progress has been made by the current UK Government, such as by introducing new codes of practice for the industry and transferring regulation from the OFT to the new financial conduct authority, the UK Government seems unwilling to take some of the steps that other countries have taken to impose caps on charges and costs. That opportunity was also missed by the previous Labour Administration at UK level. As the minister informed us, countries such as France and Finland have introduced measures that either cap charges or apply interest-rate ceilings. I understand that payday loan schemes are outlawed altogether in some states in America.
Under the Scottish Government’s existing powers, we can act in matters relating to the enforcement of debt. Through the debt arrangement scheme that was implemented in 2004, as Mr Macintosh explained, and updated again by this Government in 2011, we can provide some degree of protection for consumers, so that they can be helped to manage their debts better without the fear that their debts will run out of control and result in debt spiralling, court action and worse.
Some of the changes that were introduced in 2011 included widening the money advice gateway to give us—notwithstanding Kezia Dugdale’s comments—more approved organisations managing the schemes; allowing applications from couples with joint liabilities; and the possibility of debt payment holidays of up to six months. Those changes have all helped a great deal, which appears to be borne out by the number of debt payment plans that are in place.
Under the scheme, there were more than 3,300 plans in place in 2011-12 compared with about 1,400 or so immediately prior to the reviews. This year’s proposals to improve the debt arrangement scheme via the Scottish Government’s bankruptcy reform bill should bring even more comfort to people who will no doubt continue to access loan schemes.
The intention, as other members have stated, is to freeze interest and charges from the date of application to the creditors, rather than from the date of approval of the payment plans. That will further help hard-pressed consumers who are struggling to repay debts.
Those measures offer considerable hope to many thousands of Scots who face debt problems. However, we all know that, to address consumer debt and punitive interest charges, we need the UK Government to take effective action similar to that taken by others to bring an end to the misery caused by spiralling debt.
I have no doubt that, in the event of a yes vote, our ministers will act to introduce such powers to our independent Parliament that will convene in 2016. In the meantime, I am delighted to support the Scottish Government’s motion.
16:36
This is a serious subject, and it is not a debate in which there is really any place for levity, but I am reminded of an old joke that was used, in my day, to attack bankers, although it could be applied to any lender: there is a tendency among bankers to wish to lend money only to people who do not need it. As a result, the people who do need it find it hard to borrow money.
Like many members, I have a mortgage and a car loan. I pay the lenders back regularly as required and, because of that, I am a safe bet. Every day I get letters through the door in which companies want to lend me more money—money that I do not want. The money is so cheap that I should find a job for it.
Cheap money is available, but the problem is that the other side of the joke—it is not funny, I know—is that those who need money are the ones who cannot find it or who find themselves paying through the nose to get it. The truth is that those who need money and cannot afford it are the ones who are being exploited. That is a sad situation, which undermines the long-term viability of our economy. That is why, even though members hold many different economic and political attitudes about how the country should be run, there is an intense dislike of this exploitation. The desire to bring that to an end unites us all and will unite us in supporting the motion at 5 o’clock.
A number of issues have been raised in the debate that I should address at this stage because, in most cases, I agree with what other members have had to say.
Advertising was raised. It is important that more people know about what is available to them under the terms of the debt arrangement scheme, and what is likely to become more available as time goes on. It is sad that there are people who could exploit the arrangements available, but simply do not know that they exist.
That takes me to the point that has been raised by one or two others—the minister dwelled on it terribly in his opening speech—about the Daily Record’s contribution in publishing a handbook on debt advice. Margaret McDougall said that that should not be left to the Daily Record, but I am inclined to disagree with her. Sometimes I disagree with what is written in the Daily Record—in fact, I often disagree with what is written in the Daily Record—but it is wonderful that, as a campaigning newspaper with a tremendous record of working in the community with which it identifies, it has published that handbook. That is a sound example of what newspapers should be doing to ensure that their readers have the information that they require. I join the minister and others in the chamber in commending what it has done.
In the longer term, it will be necessary for the Government to support work on this by doing a little more than taking out a couple of adverts in a handbook. Consequently, it is vital that the Government consider how the information can be spread far and wide—even beyond the areas that the Daily Record can reach.
We have all come together in the debate and I look forward to voting for the motion at decision time. However, we must adopt key principles that go along with that desire. We need to find ways to cut demand for high-interest lending. We need to promote the availability of alternatives to it, but we also need to evolve the debt arrangement scheme to ensure that it fits need. That is what we are beginning to do today.
I look forward to supporting the motion, commend my amendment and look forward to the legislation that is to be introduced.
16:41
I first wrote to Fergus Ewing on 8 May about high-interest, short-term lending asking him to introduce, or at least consider, wealth warnings on payday loans. I said that we advertise health warnings all the time—do not eat fatty foods, do not drink too much and take regular exercise—and asked why, therefore, we could not do that with wealth warnings to warn against the dangers of payday loans and to promote alternatives. He wrote back to me on 29 May and said:
“It would not be appropriate for the Scottish Government to undertake an advertising campaign to advise the public of the issues in the high-interest short-term loan market.”
Not liking to be told no, I wrote again to the minister in June and received a reply on 1 August. In that letter, he again refused to consider my idea of wealth warnings on payday loans. This time, he said:
“With regard to using the Government’s advertising budget to provide ‘wealth warnings’, I must reiterate the comments I made in my letter to you dated 29 May 2012, that it is not appropriate for the Scottish Government to discourage people from obtaining credit which is offered to them in a legal, fair and transparent way.”
When I saw today’s Daily Record pull-out, I thought that it was fantastic. It is exactly the type of thing that we need. Then I looked at the front cover and saw the Scottish Government logo and the logo for the Accountant in Bankruptcy. The first thing that it says on the front cover is:
“Avoid the ‘pay day lenders’ with more sensible solutions”.
On the inside page, there is an introduction from the minister himself:
“Borrowing from so-called ‘pay day lenders’ may be an attractive option in some cases but the reality for many is that the high interest rates prevent repayment within the term of the loan.”
He then goes on to say:
“In this booklet, you will find information”
about the
“Debt Arrangement Scheme and access to more affordable credit through Credit Unions.”
That is fantastic. It is exactly what I wanted him to do.
I ask Jamie Hepburn to have sympathy with the Opposition when we despair a little at the state of politics. I have spent months having the minister discredit my ideas only to see the Government adopt them in today’s Daily Record. It is difficult to see that and not lose faith in politics generally.
I point out that my sympathy for the Opposition is limitless.
Jamie Hepburn is too kind.
The question is what the Government will do today. It might find itself in the position of having to vote against Labour’s amendment. In doing so, it will vote against exactly the type of social advertising that it has done in today’s Daily Record. It will also vote against money for credit unions, which, in yesterday’s budget debate, John Swinney promised Margo MacDonald he would provide.
If the Government is going to do that, I ask the minister most sincerely to work with Labour on the issue. I ask him to get us around the table. Let us share our ideas on how to address the problem. We really are trying to do it in the best of faith.
The minister organised a round-table with various money advice groups on 17 January 2012 and promised them another one on payday loans. I waited months and months for that event to take place. When it came to September and it had not happened, I organised my own round-table on payday loans. I invited various money advice organisations from throughout Scotland, Government agencies, charities, the Scottish Trades Union Congress, the Church of Scotland, Govan Law Centre, the Co-operative Party and the Law Society of Scotland—everybody was there.
At that meeting, Mike Dailly of the Govan Law Centre presented what we called a fast-track debt arrangement scheme. That was a scheme that recognised that it can take two and a half or three months to get a debt payment programme set up. For people who have payday loan debt, that is very difficult, because obviously the interest is accruing all the time. The proposal was a fast-track debt arrangement scheme.
Will the member give way?
I am sorry, but I really do not have a lot of time today.
Imagine my surprise when the Government took that idea and produced what it has announced today: the introduction of a freeze much earlier in the debt arrangement scheme to remove the anomaly of interest still being charged in the two and a half or three months from the minute someone applies for a debt payment programme and the programme being set up. I congratulate the Government on doing that, but I ask it to recognise that we have been floating that idea for several months.
In a vain attempt to put another idea to the minister in the hope that he will rubbish it for a couple of months and then agree to it, I ask him to consider the fact that part of what the debt arrangement scheme is doing might in fact increase the amount of money that is paid to payday loan companies. I will try to explain that to the minister.
If someone takes out a £100 loan from a credit union and they are charged 26 per cent interest APR for three months, they will pay back £108. If they take out a £100 loan from Wonga for three months at an interest rate of 4,200 per cent, they will pay back £1,050—and that is before the levies, the fees and the administration charges are added. When someone enters a debt payment programme under the debt arrangement scheme, all the interest fees, all the debt and all the extra charges are lumped in with the capital sum that has been lent, which is what is sought back from the debt payment programme. Payday loan companies will profit from the debt arrangement scheme if we are not careful. I ask the minister to look at the possibility of separating out capital from interest charged. He could make sure that the scheme addresses the capital load, so that payday loan companies and credit unions get that back, but treats the interest in a slightly different manner. It is an idea, which I ask him to consider and return to at a later date.
I am also concerned that, at the moment, if someone has substantial debt, they end up on a debt register. It is possible for marketing companies to access that register, phone people up and ask them whether they would like help from a private company to file for bankruptcy. Those companies are profiting from people in extremely dire financial circumstances. Will the Government look at making it illegal to sell that data on to private companies for them to exploit? I believe that that is within the Government’s power. I hope that the minister will look at it in the context of bankruptcy legislation.
I hope that the minister can see that we are presenting these ideas in the most genuine manner. We simply cannot wait any longer to act on payday loan companies. I get the points from the SNP back benches about waiting for independence and the need to regulate. I have pointed to the work that Stella Creasy is doing at Westminster on regulation and have said that we cannot wait for a change of Government in 2015 and we cannot wait for independence in 2016. Think of the interest that will be charged in two or two and a half years if we do not act now for people who take out these small loans. We have to do more today. I have put some ideas to the minister about how we can do that. I ask him to please work with us on this issue. These are legal loan sharks who are exploiting vulnerable families across the country. The minister has the ability to crack down on legal loan sharking. I ask him to look to do so today.
I call Fergus Ewing to wind up the debate. Minister, you have until just before 5 o’clock.
16:48
I have thoroughly enjoyed this debate, from which I think a consensus is struggling to emerge.
I undertake to all members who have contributed to this debate that the Accountant in Bankruptcy and I will study carefully what has been said, because a wide range of points have been made. I am determined to ensure that we listen to Parliament and consider any specific, constructive proposals that emerge in these debates so that they have a purpose. A number of specific proposals have emerged during the debate.
There is a great consensus that payday loans represent a contemporary, growing and widespread problem that has very serious consequences. The numbers—4 million payday loans in 2009 and rising—illustrate that the problem is serious. Irrespective of differences of opinion about the constitutional future of our country, it is accepted that the powers to address these matters rest largely with Westminster. It is a sadness to me that the powers have not been used by the current and previous Governments. That is deeply unfortunate, and I would prefer that the powers rest here.
I have made those points clearly, but I will not dwell on them because I think that people who are following the debate—particularly in the light of the Daily Record’s marvellous contribution, which all parties have praised—are interested in what we can do now to help. A number of suggestions have been made, and I will look at all of them.
I will respond to the amendments. The Conservative amendment asks us
“to work with the UK Government to increase awareness of the Scottish Debt Arrangement Scheme with creditors based in the rest of the UK.”
We are doing that and we will continue to do that. Shortly before Christmas, I met a number of banks, most of whose operations are south of the border, to engage with them on the extent to which they can at least inform their customers who are in difficulty that the debt arrangement scheme exists.
The problem is difficult, because banks’ legal duties constrain them in pointing customers in a particular direction. However, Alex Johnstone would expect me to have such engagement, and it is right that I have it. We are working closely with the major creditors that appear time and again in the bankruptcy claims list or the protected trust deeds list and which are the major creditors in most consumers’ affairs. We will support the Conservative amendment.
I started with the mindset of wanting to support Labour’s amendment. Of course, we support and are doing all the things that the amendment urges us to do and which we can do. We work closely with local authorities and we warn of the consequences that payday loans can have for some people. I have always done that.
I think that one of the first members’ business debates of the parliamentary session was initiated by Margaret Burgess—now a minister—when she spoke with passion about her deep knowledge of the area, and I was the minister who responded. I say with all respect to Kezia Dugdale’s comments that I made my position on payday loans very clear then. My position has not changed and has remained ever since exactly as it was. I think that the vast majority of members share that position.
Labour’s amendment has two difficulties. First, it invites us
“to curb high interest short-term lending”
but, sadly, we do not have the powers to do that. We cannot adopt a proposition that we know that we cannot implement.
Secondly, rather than ask us to consider a guarantee loan fund, the amendment says that there should be such a fund. As a minister, I cannot accept an uncosted and open-ended commitment in an amendment. That is the precise legal position—if I accepted the proposal, I would be bound to implement it, and I have no doubt that Labour members would quickly urge me to do so. That is how Oppositions are, and I was no different. However, if Labour Party spokespeople wish to discuss the proposal with me at the meeting that I have agreed to have with Kezia Dugdale or in any other way, I will be happy to meet them, because we all want to achieve the same things.
I hope that I have given an explanation. It does not really matter that we will not support the Labour amendment, because we will look closely at the idea. I have to say that, in Mr Macintosh’s response to my intervention, the idea transmogrified from a guarantee loan fund to the possibility of underwriting loans, which is somewhat different. Nonetheless, I am happy to look at any options that emerge from the process.
I am a little puzzled. The minister says that we cannot legislate on pegging interest rates, but I thought that we in the Parliament could legislate on how far we would allow banks to go on loans. Will he shed more light on that?
The power to control interest rates is reserved. We do not have the power to cap payday loans. In my opening speech, I alluded to the fact that France, Finland, many states of the United States of America, Canada and many other states and countries have applied thresholds. We do not have the power to do that in this country. I think that both Mr Malik’s party and mine would like to have those powers, but I have already covered that matter.
Will the minister give way?
With respect, I want to respond to some of the points that have been made in the debate.
Concern has been expressed about the availability of money advice throughout the country. That is an important matter. Before 2011, there were 135 approved advisers throughout the country. In 2011, we changed the law so that individual advisers were no longer approved but organisations that offer money advice and are suitably qualified to ensure that the people who work for them can provide accredited and professional money advice were approved. There are now 105 approved money adviser organisations, which include, for example, Citizens Advice, Money Advice Scotland, local authorities and many private sector bodies. We are therefore better served in respect of the availability of money advice, although there is more work to be done.
Does the minister recognise that 22 of the 105 organisations that he referred to are in the private sector and are therefore profiting from offering debt advice? Ideally, we would like there to be more debt advisers in the public sector. Labour has put forward that suggestion today.
There are a number of very good—indeed, excellent—money advisers in the public sector, but we must recognise that the private sector plays an important role. The top 10 DAS-approved adviser organisations include several private sector ones.
We want a partnership between the public sector and the private sector in order to ensure that the appropriate advice is available. That, of course, goes beyond the debt arrangement scheme. The other options that may be appropriate for individuals as a last resort include bankruptcy or a protected trust deed. In some cases, especially complex ones, some of the work that is required to be undertaken to administer a protected trust deed or bankruptcy involves a qualified insolvency practitioner, so there is a role for the private sector.
I think that Mike MacKenzie referred to the fact that the numbers of sequestrations in Scotland have reduced, and he made the link between that modest but welcome reduction in the number of personal sequestrations and the growth in the number of people who have entered debt arrangement schemes, particularly over the past couple of years. That is a very important point. In 2005-06 only 128 people entered into debt arrangement schemes; last year 3,319 did so; and so far this year—we still have February and March to go, of course, so a sixth of the year is yet to elapse—3,900 people have entered a debt arrangement scheme.
The significance of that is that around 4,000 people in Scotland as opposed to just over 100 have adopted the Scottish Government’s scheme, which was designed to help people to pay off their debts in full over time, not to help them to get off or free from their debts under bankruptcy or a protected trust deed. That is a major change in our society, which is to be welcomed, as we all believe that those who can pay their debts should do so. Perhaps it indicates that some individuals previously entered into debt relief options instead of debt management options—in other words, they did not pay their debts to creditors when, in fact, they could have done.
That is proof positive that the debt arrangement scheme that we have debated has been a success, and I very much welcome the cross-party support for it. All the parties that are represented in the chamber have welcomed the announcement that we have made today that we will extend and improve further the debt arrangement scheme, and I am very appreciative of the support that we have received from those parties. We will bring forward the statutory instrument for consideration by the relevant committee so that it can be made law by the summer.
I conclude by once again paying tribute to the Daily Record for its excellent journal, and I pay tribute to Fergus Muirhead, Christine Sinclair and Kelly Gallagher, who provided the advice in it. I am quite sure that no one would accuse me of shamelessness at any time.
Minister, I really need you to finish.
We have all united in supporting the Daily Record, and I am very pleased that I have taken part as the responsible minister.