Financial Guidance and Claims Bill [HL]

Written evidence submitted by One Advice Group (FGCB30)

 

Introduction and context:

This submission is made on behalf of One Advice Group Ltd. (OAG) which incorporates HB Financial Solutions Ltd. (trading as Harrington Brooks (HB)), One Advice Ltd. (trading as Harrington Brooks IVA (HB IVA)) and OpenDoor (Legal Services) Ltd. (trading as OpenDoor (OD)).

· HB Financial Solutions Limited (HB / Harrington Brooks) – a Financial Conduct Authority (FCA) regulated debt counselling and debt management business with c.21,013 paying, active Debt Management Plans (DMP).

· One Advice Limited (OAL / One Advice and Trading as Harrington Brooks IVA) – a provider of Individual Voluntary Arrangements (IVA) regulated by the Insolvency Practitioners Association (IPA) with c.25,397 active plans.

Harrington Brooks is one of the UK’s leading, independent, commercial debt solutions providers with c.£600m of debts under management for 45,000 customers nationwide. Fully authorised in March 2017, the Group makes c450k individual creditor payments each month across a range of c6000 different creditors. The Group is also one of the region’s largest employers with 375 staff members working out of our headquarters in Sale, Manchester.

OAG welcomes the Bill as it is important to ensure that customers can access the debt advice they need that is appropriate to their means and circumstances. We support a healthy debt advice industry where the fee charging, free to consumer and third/voluntary sector work side by side, complementing, not competing, with each other to ensure best outcomes for consumers.

OAG also supports the introduction of a breathing space and statutory debt management plan (SDMP) and submitted recommendations to HM Treasury in the January 2018 call for evidence.

OAG secured a face to face meeting with Peter Wyman and submitted evidence in December 2017 with regards to the Independent Review of the Funding of Debt Advice. We agree that expanding the capacity and bandwidth of the provision of debt advice is paramount and OAG are also supportive of the 20 recommendations announced as a result of this research.

OAG is particularly interested in how the new guidance body, set up as a result of the Financial Guidance and Claims Bill, will ensure adequate and appropriate monies are made available to provide both debt and pension advice to the public and how these monies would be allocated. Especially when, for example, the recommendations of the research done by Peter Wyman calls for an increase in the financial services levy and a one off public awareness campaign.

Thank you in advance for the Committee’s consideration of this submission.

Yours sincerely,

Nick Pearson,

Group External Relations Manager

One Advice Group Ltd

House of Commons Public Bill Committee

Regarding the Financial Guidance and Claims Bill

Written evidence provided for consideration,

particularly in relation to the Debt Respite Scheme

1. We see the main benefits of the breathing space and SDMP as:

A. Providing improved access:

· A mandatory Breathing Space will allow the client and advisor sufficient time to put the debtor’s financial situation on to an orderly footing and allow time for a suitable and appropriate debt solution product to be put in place.

· The certainty afforded by the SDMP to debtors in terms of fees, charges, interest and recovery action should encourage more people to seek debt advice. This would be particularly the case if the non FCA regulated creditors, noted in this response, are subject to the SDMP.

B. Better support :

· Many non FCA regulated creditors, such as local councils and HMRC, use collection tactics, particularly bailiffs, which lead to clients repaying debts to them at the expense of higher priority commitments, such as rent or fuel, not to mention insisting on repayments which lead to unacceptable pressures on personal budgets e.g. requiring people to go without adequate food and clothing, in order to repay the debt.

· The benefits of the SDMP should lead to better outcomes for consumers and indeed creditors. The collection activities of local authorities collecting council tax arrears, which are well documented as being a major source of detriment to people in debt, would be severely curtailed.

C. Increased repayments:

· We envisage that affordable solutions will see long term and sustainable repayments whilst reducing collection and associated costs etc. for creditors.

· An SDMP should allow the client to have a modest but adequate standard of living. In this context, affordable repayments are more likely to be achievable and thus sustained until the end of the SDMP.

We believe that consideration should be given to limiting a SDMP to a maximum ten-year period to give the debtor some "light at the end of the tunnel."

2. Eligibility for the breathing space and SDMP: One Advice Group (OAG) is of the view that the breathing space and SDMP should be made widely available in England, Wales and Northern Ireland, and not be limited to those experiencing "problem debt", because trying to define serious problem debt is fraught with difficulties and may compromise the success of the breathing space.

A key objective of the Breathing Space and SDMP should be to encourage consumers to seek debt advice as soon as possible, ideally before repayments are missed, or a cycle of borrowing more to pay off other debts is entered into.

3. Regulated debt advisors should be tasked with exercising the breathing space and SDMP in consultation with the client as they are the best people to make a decision about whether the Breathing Space is suitable, appropriate and in the client’s best interests.

We take the view that both should only be available to people who seek FCA regulated debt advice as we believe this may encourage people to seek expert advice as early as possible. We cannot envisage who else except a regulated debt advisor could be responsible for the advice.

It must be emphasised that the regulated debt advisor is bound by FCA rules and guidance and that the client will rarely be aware which debt solution is most appropriate for their situation.

4. Simple and flexible: The application process must be as flexible and inclusive as possible, so with few/no exclusions. Entry criteria and/or exemptions may prohibit entry to those who would benefit from the Breathing Space and/or SDMP the most.

5. The role of the Insolvency Service: In our view, the Insolvency Service would be the Government Department that should take on this responsibility as they have experience of performing a similar role with Debt Relief Orders, a debt solution where debts may be owed to creditors that are FCA authorised and non-FCA authorised.

The regulated debt advisor would send a list of all debts to be covered by the Breathing Space to the Insolvency Service.

The Insolvency Service would contact all creditors to advise them a Breathing Space was in place, and detailing the fact that all recovery action, fees, charges and interest are to be suspended with immediate effect.

We would suggest that in cases where a creditor ignores the notice, a fine could be levied on them by the Insolvency Service as a way of encouraging compliance.

We feel that a letter/email notice from the Insolvency Service, as a Government Department, would hold more weight and be more likely to be observed than say a letter om an advice provider informing a creditor about the Breathing Space.

Any Court action for recovery of debts should automatically be stayed, pending the end of the six week Breathing Space. If, in the event that court action and the Breathing Space notification has "crossed in the post" then the regulated debt advisor could simply advise the creditor or their representative that all action should be stayed. This may require an amendment to the County Court rules.

6. Statistical records and register: The Insolvency Service is ideally placed to centrally monitor and record statistical information about the Breathing Space and SDMP and enforce it on creditors who may wish to ignore it.

We envisage that the Insolvency Service would have responsibility for maintaining the Breathing Space Register.

7. Inclusion of all debts: The Breathing Space should apply to all debts, including non-priority unsecured debts, priority debts such as rent, mortgage/secured loans as well as any Council Tax debts owed to local authorities and HMRC.

The only exemptions we envisage would be student loans and arrears of maintenance. We believe that the Breathing Space should apply to creditors enforcing debts such as fines for parking offences and non-payment of a TV licence etc. We would suggest that any debts which come to light during the Breathing Space should be able to be added to the Breathing Space. Normally those debts which were incurred during the lifetime of the Breathing Space would only be included if the regulated debt advisor felt there were reasonable grounds for doing so e.g. the debtor had to take on credit to deal with an emergency.

To clarify, we also suggest late payment of a fine or penalty should also be included in the Breathing Space.

Self-employed people/sole traders should be able to apply for a Breathing Space. There is no evidence to suggest they are any more financially capable or financially educated than debtors who are in PAYE jobs or in receipt of benefits.

8. Frozen interest, fees and charges: We believe that all interest, fees and charges should be frozen at this stage for all debts eligible for the Breathing Space.

We believe this will help encourage debtors who would benefit from the Breathing Space to seek advice. For clients in England and Wales, the debt solutions open to them (Debt Relief Order, Bankruptcy, IVA, informal debt write off and the proposed Statutory DMP) will all freeze interest and charges on certain debts.

This prospect can be used to encourage clients to keep engaging with the debt advisor until a solution is agreed upon and put in place.

9. The client’s responsibilities: The Breathing Space participant should be obliged to attend advice sessions, telephone based advice calls, provide evidence of income/expenditure, cooperate with annual reviews of the SDMP, and provide in a timely manner, details about all their debts.

In the event that the client does not cooperate with the regulated debt advisor, they would inform the Insolvency Service that the Breathing Space had been terminated.

10. Repayments: In the case of priority debts such as mortgages, secured loans, rent and utilities clients should be obliged to make the normal payments as far as possible. Similarly, if the client has sufficient disposable income to make some pro rata or token repayments to unsecured/non-priority creditors, this should be encouraged by the regulated debt advisor.

11. Extensions to the suggested six week period: In our experience, it is very rare for a client to be able to complete a DRO, a debtors petition for bankruptcy or IVA within six weeks, not least because, as with DROs and bankruptcy, many clients have to save up in order to pay the fees.

In these cases, a regulated debt advisor should be allowed to apply to extend Breathing Space to up to six months in the first instance.

With a Statutory DMP, or indeed a DMP, as they exist currently, providers should normally be able to get this solution in place within six weeks and at that point the Breathing Space is replaced by the SDMP or other debt solution.

As noted above, the six week Breathing Space could end sooner than six weeks if the client does not engage or cooperate with the regulated debt advisor in a timely manner.

12. Credit files: Currently, the recording of debt solutions on the Credit Reference Agency (CRAs) files by providers, and by different CRA firms, is mired in confusion as there is such a diversity of what is recorded and by whom. We are of the view that the FCA and other regulators need to oblige creditors to adopt a standardised approach in this matter.

We can see the advantage of the registration of the Breathing Space (as a warning to potential lenders) and indeed would suggest that the Insolvency Service should be given the responsibility to publish and update a register of Breathing Space applications.

As it stands currently, any default during the Breathing Space will already be recorded on the CRA file and we believe that for many creditors this will be sufficient for their needs.

For some creditors, such as Local Authorities, HMRC etc. they do not currently register default with the CRAs and therefore this is not relevant.

13. Notification to creditors: We suggest the regulated debt advisor should be responsible for notifying the Insolvency Service that a customer has entered a Breathing Space. The Insolvency Service would then communicate this to all the creditors listed on the application.

We propose that this should be done within two working days of the first contact with the client where it is determined that a Breathing Space is required.

14. Creditor exemptions: Whilst we can see a case for excluding debts owed to sole traders and other small business, in our view the Breathing Space should apply to all creditors, including debts to family and friends (with the client’s consent).

15. Benefit to creditors: We envisage that a Breathing Space scheme would save creditors some costs in terms of wasted collection activity. The Accountant in Bankruptcy lists the benefits to creditors of DAS as including:

o The debtor has actively sought money advice

· The debtor’s income and expenditure has been assessed by an approved money advisor

· The debtor wishes to repay their debt 

· You will receive a regular payment towards the debt owed  

· No additional debt recovery costs are involved

16. Public awareness: To ensure that a Breathing Space and SDMP adds value to existing support structures, it is important that government uses its resources to publicise the benefits of getting debt help. A prolonged and innovative public information campaign is required.

In the interests of customer choice and to optimise capacity, all providers of debt advice be they from the free, commercial or volunteer sector should be signposted to fairly and equally.

17. Safeguards: In our view, the regulated debt advisor is the key to preventing abuse in the Breathing Space scheme. They are the bulwarks against abuse by debtors. Any system can be abused if people are determined enough but it is vital that the scheme is not made overly bureaucratic in order to prevent any chance of abuse. The baby must not be thrown out with the bathwater.

Paying for the SDMP

18. The hybrid fee model: Having examined the different options, OAG believes that a hybrid model of creditor and debtor contributions to the costs of a SDMP is possible and desirable for commercial firms delivering the SDMP.

We anticipate that firms such as ours would operate a similar fee model to that operated by commercial firms delivering the DAS DPP with clients paying our fees but creditors paying the distribution and administration fees of up to 8% and 2% of client repayment respectively.

In the case of the charity Relate, as just one example, better off clients are asked to make a contribution towards the costs of the service and this subsidises the service for those who cannot afford to pay a fee.

We think there is merit in exploring whether all clients with above a certain level of monthly repayment for distribution should be obliged to make either a one off and/or monthly contribution to the costs of the SDMP, even where it is provided by a charitable provider such as Stepchange, Citizens Advice or other free to client debt advice providers. These contributions could be used to help fund debt advice for those who cannot afford to pay a fee.

We believe that serious consideration should be given for SDMP fees to be based on the estimated annual cost of the SDMP rather than the total cost of the SDMP over the projected life of the plan. The anticipated annual fees would be communicated to the client post annual review. We think this provides an accurate assessment of the likely costs of the plan.

19. Administrative challenges: It is likely that the volume of SDMPs will be substantially in excess of the volumes of bankruptcies and DROs currently handled by the Insolvency Service. As with the DAS in Scotland, we think it appropriate for 2% of the debtor’s repayment be used to cover Insolvency Service administration costs, but this fee should be paid by creditors.

There is likely to be a number of creditors who object to their inclusion in the SDMP and the Insolvency Service will need to adjudicate on these cases which may require additional resource to allow them to be dealt with in a timely and efficient manner.

For commercial providers, a mechanism for referrals should be established to allow us to more accurately refer clients to free sector advisors - this would include a mechanism to allow us to share details of any Fact Find or Income/Expenditure assessment we have carried out, as this will help speed up the process for the agency accepting the referral.

20. Protections for clients: Unlike the Breathing Space, we do not think it is advisable or appropriate for a SDMP to include all the client’s debts.

Debts such as mortgages, secured loans, rent and debts to family/friends should not be included in the SDMP. The normal repayments plus any repayments separately negotiated by the regulated debt advisor should be included in the client’s expenditure assessment.

The focus for the SDMP should typically be unsecured debts. For those debts that are included in the SDMP, all interest, fees, charges and all recovery action should be frozen. As far as possible, the regulated debt advisor should be given as much discretion as possible to propose which debts are included/excluded.

In the Scottish DAS, there is currently an element of debt forgiveness/write off. We think the option of a time limited SDMP of say 10 years (the FCA has concerns about existing DMPs that exceed this) should be considered, with any unpaid debt written off after the plan has run as agreed for 120 months. This would give clients some "light at the end of the tunnel" and may encourage them to stay on plan.

21. Suitable advice: Advisors who give debt advice must work for an organisation that is authorised and regulated by the FCA to provide debt advice. The FCA Consumer Credit Sourcebook and particularly CONC 8 outlines the rules and guidance for debt advice and we believe these rules and guidance are sufficient for an advisor to determine if the SDMP is appropriate or not.

We believe that anyone giving debt advice to consumers should possess a mandatory qualification before they can deliver advice. We think this should be the equivalent of an examination such as CeMAP. It is our view that, as with DROs, only Approved Intermediaries should be allowed to propose a SDMP.

For the SDMP to succeed it is crucial that the regulated debt advisor has the key and central role in determining if a SDMP is appropriate or not.

We think it is unhelpful to be over prescriptive about how the advisor should reach the point of recommending a SDMP to a client as this will simply mire the scheme in unnecessary and time-consuming form filling. It will reduce the number of people eligible for the scheme and who could benefit from it. The popularity of the existing DMP model has been due in no small part to the informal nature of the process.

22. Creditor objections: We believe that a SDMP should be binding on all the creditors listed on it. We oppose any suggestion that the SDMP should be put to a vote of creditors (as is the case with the IVA).

In our view, creditors should only have the right to object to the SDMP if they have documentary evidence to suggest that any significant aspect of the proposal is incorrect e.g. they have proof that the client has more income or assets than stated.

We believe it should be for the Insolvency Service to determine the merits of the creditor objection.

23. Client responsibilities: In addition to meeting agreed repayments (which we envisage could be modified at any time if the client’s financial circumstances deteriorate/improve, with the option of payment holidays etc.), we think that the client should also be obliged to cooperate with periodic reviews of the plan by the debt advisor.

FCA rules and guidance provide more than adequate clarity on these issues and we think nothing further is required for the proposed SDMP.

Debt advisors should be allowed to propose plan suspensions, reduced payments or repayment holidays where no repayment is made.

There should be no limit placed on this flexibility as every case should be treated on its own merits, with the debtor’s position articulated to the creditors by the debt advisor.

In the event of disputes about the revised proposals, the Insolvency Service should act as arbiter.

24. Failure of the plan: If a plan fails we think that, as at present, creditors should be able to reapply interest, fees and charges and backdate to the start of the last annual review of the SDMP.

If the plan fails before review, then interest, fees and charges should be applied back to the date of the start of the SDMP. This may encourage debtors to continue on the plan even if/when payment fatigue sets in.

25. Measurements of success: There should be a number of key performance indicators that will determine the success of both the Breathing Space and SDMP. This could include:

· Number of people accessing debt advice at earlier stages

· Number of people accessing the schemes

· Plan and payment sustainability

· Volume of returns to creditors

· SDMP failure rate data

· Ability to successfully manage lending in the future

· Over all better client wellbeing including reductions in level of reported mental health issues related to debt

· Creditors able to successfully collect against bad debt with reduced costs

· Cost savings by avoiding wasted enforcement action

The Accountant in Bankruptcy has considerable experience of analysing the data from DAS from this perspective and could provide much useful advice and guidance in this area.

February 2018

 

Prepared 6th February 2018