Proposals for Changes to Protected Trust Deeds

As an employee of Scotwest Credit Union, we know from both our own experience and speaking with our colleagues, that there has been a worrying rise in delinquency throughout the sector which is being driven by the inappropriate promotion of PTDs as an easy means of cancelling debt.
The three largest credit unions in Scotland, with combined assets of more than £250m and loan books of more than £150m, wrote off in excess of £1m in trust deeds during the financial year 2017-2018, which is 15% more than 2016-2017. Unfortunately, the number and value of trust deeds has continued to increase at an alarming pace during 2018-2019 which cannot be sustained.
In Scotwest alone, we have seen the level of debt written off almost treble in the last three years, with the first half of this year showing no signs of abating, sitting almost double compared to this time last year.
We firmly believe that there needs to be appropriate debt solutions in place for consumers and agree that, on some occasions, the PTD may be the most appropriate. However, the rise in popularity of PTDs does not correlate to the trends we see in our arrears figures and is hugely disproportionate to the level of consumers we see entering the Debt Arrangement Scheme (DAS). Indeed, the Accountant in Bankruptcy’s own statistics show that the PTD market has exploded in recent years.
One of the key principles that underpin the recent legislative reforms of the debt management and debt relief system in Scotland is that those debtors, who can pay their debt, should pay their debts. However, what we have seen in Scotwest Credit Union is that the average returns on debt through a PTD are only 12.5% compared to average returns through DAS of 92%.
The reasons that we believe that debtors are being lead into choosing to repay debts by PTD compared to other debt solutions are:
• Debt administrators receive substantially more fees from PTD than other forms of debt solution therefore it is in their interests to advise clients to choose a PTD; and
• There is a lack of regulation and due diligence on the quality of the advice received by debtors from administrators which mean that it is more likely that administrators will advise debtors to agree to a PTD

We are also concerned about the behaviour of trust deed administrators who have an incentive to advise debtors to sign trust deeds because of the fees the administrators receive. This is exposed by:
• The number of trust deeds where the credit unions have not received notification of the trust deeds within the statutory (S170(1) Bankruptcy (Scotland) Act2016) 5-week timescale to object to the trust deed becoming protected;
• The number of debtors we see who have been given bad advice because they are signing trust deeds when they could afford to pay; and
• Inappropriate advertising to entice debtors to enter trust deeds.

With over 30,000 members, Scotwest Credit Union is one of the largest credit unions in Scotland, holding over £62m in savings and a loan book of over £37m. The vital role our sector plays in ensuring access to affordable credit in Scotland has long been acknowledged by the Scottish Government.
The Scottish Government recently supported credit unions by funding a campaign to promote them because of the important role we play in ensuring access to affordable credit; however if the rise in PTDs continues to grow at the current rate; there will be fewer credit unions in operation to the detriment of people most in need of affordable credit.
Therefore, although we support the proposals in this consultation because they seek to control the number of PTDs, we do not believe that the proposals alone will stop the bad practice we have seen by insolvency practitioners nor will they strengthen the scrutiny and regulation of organisations that seek to promote and issue trust deeds.
Consequently, we believe that the Scottish Government need to do more to control the way that the insolvency practitioners manage and advise debtors on the suitability of PTDs and would therefore urge you to consider:
• Initiating a comprehensive review of legislation and practices around statutory debt solutions in Scotland.
• Implementing a legislative requirement that all solutions in Scotland are handled by FCA regulated individuals and firms
• Better scrutiny by the AiB of trust deed administrators. PTDs are a Scottish debt solution. The AiB should not rely on the UK Insolvency Practitioners Regulatory Bodies alone to satisfy themselves that there has been no bad behaviour by their members
• Banning competitions that offer debt to be repaid as the prize. Redacted textRedacted text