The debt arrangement scheme: a template for UK debt reform?

credit card debtPersonal insolvency expert Peter Dean makes the case for UK-wide adoption of DAS.

If there were ever any doubts that the UK urgently needs to reform its personal debt regime, they were dispelled by the Financial Inclusion Commission, which decried existing solutions in England, Wales and Northern Ireland as no longer ‘fit for purpose’.

Eight months after the Financial Inclusion Commission issued its report, fresh evidence has emerged that supports not only the case for reform, but underpins the case for looking to Scotland for an example of a modern, fair and effective debt solution: namely the debt arrangement scheme (DAS).

One of the key recommendations made by the Financial Inclusion Commission was to adapt Scotland’s DAS for the whole of the UK. DAS, which has the distinction of being the only statutory debt management plan in the UK, was first introduced by the Scottish government in 2004.

Official data just released by the Accountant in Bankruptcy (an agency of the Scottish Government) shows that DAS has made a significant impact on personal debt, with more than £100 million repaid to creditors over the last four years. It is a remarkable success that’s largely gone unsung; though in November, Scotland’s Business Minister, Fergus Ewing, highlighted the merits of DAS, hailing it as, ‘one of the most modern, transparent and fair systems of insolvency in the world’.

What is DAS?

For now, DAS is neither widely known nor understood beyond Scotland, but if, as seems highly possible, it is to be rolled out in future across the rest of the UK, now is a good time to take stock of how it works.

It is a formal debt solution overseen by the DAS Administrator (a senior civil servant) that enables people to repay their debt in a manageable way through a debt payment programme (DPP). A key feature is that all interest, fees and charges on debts are frozen from the time the debtor applies for the DPP. It generally covers unsecured debts such as bank loans and overdrafts and credit and store cards. There is no limit on the level of debt that can be included, and the scheme can last up to 10 years, ending when the final payment is made.

Benefits of DAS

  • frozen interest, fees and charges on debt
  • debtor can pay over a longer period
  • reduced arrangement fees
  • more breathing space
  • reduced time on a debtor’s credit file
  • offer of financial skills training

From the creditor perspective, under a DAS, they are guaranteed to receive at last 90p of every £1 they are owed. There are also formal procedures laid down in respect to debtors’ responsibilities for maintaining payments, and clear legal and financial consequences should they fail to do so. These issues are dealt with efficiently and promptly.

Private sector involvement drove success of DAS

DAS was not an instant success. I have been involved with DAS since 2006, helping to educate the public, free debt advice sector and the wider financial community about its benefits. A major problem in the early days was the fact only the public sector could advise on it, which acted as a serious brake on its adoption with just 99 cases approved between 2006 and 2007.

It took until 2008 when private sector firms were allowed to participate for it to achieve wider adoption.  The figures highlight the difference private sector involvement made: in 2008/09 there was a near ten-fold rise to more than 900 DAS cases approved.

Aspects of DAS were refined and improved through subsequent legislation in 2008 and 2011, ultimately resulting in a trusted debt solution that to date has helped more than 21,000 financially troubled Scots to resolve problem debt.

Why the rest of UK needs DAS

Some may argue that as the UK economy recovers, debt solution reform is not a priority. That is a short-sighted argument that fails to take account of key factors, that taken collectively, mean that millions of people have precarious personal finances and are either in serious debt or fear that they could soon be mired in unmanageable debt.

Although the chancellor scrapped proposed tax credit cuts in the autumn statement, low-income families remain anxious about a future switch to universal credit, which is subject to a £3.5 billion cut. The Resolution Foundation thinktank estimates that by 2020, more than 3 million households will lose an average of £1,000 a year, while some may lose as much as £3,000 a year.

Deflation may pressure companies into wage cuts or layoffs to offset falling prices – further squeezing family finances. Against this less than rosy backdrop, consumers are in as much need as ever of a reputable statutory debt solution that can help them deal with their debts effectively and get back on their feet. In this context, DAS has much to offer to all UK citizens.

About the author

Peter Dean is managing director of Carrington Dean and Carrington Dean Ireland, which offer independent debt advice, solutions and payment distribution services.