NORTH LANARKSHIRE COUNCIL REPORT POLICY AND RESOURCES (FINANCE) SUB-COMMITTEE. STRIKING THE BALANCE : A NEW APPROACH TO DEBT MANAGEMENT

Transcription

1 NORTH LANARKSHIRE COUNCIL REPORT To: POLICY AND RESOURCES (FINANCE) SUB-COMMITTEE. Subject: STRIKING THE BALANCE : A NEW APPROACH TO DEBT MANAGEMENT From: DIRECTOR OF FINANCE Date: 31 October, 2001 Ref: AC/PD 1. Introduction 1.1 The Scottish Executive have issued a consultation paper on Striking The Balance: A New Approach To Debt Management. The paper details the findings and recommendations of the Working Group on a Replacement for Poinding and Warrant Sale. The group were asked to review the legal framework in Scotland for dealing with debt. The group recommend that any new approach must ensure debtors are treated humanely; that they are given every opportunity to resolve their situation without the need for enforcement action; and that a clear distinction is drawn between those who cannot pay their debts and those who will not. Responses to the paper were to be made by 17 October In consultation with the Convener a response has been submitted to comply with the time limit. 1.3 A copy of the consultation paper has been lodged in the Members library. A copy of the response is attached. 2. Legislative Changes 2.1 The Scottish Executive have acknowledged the response and confirmed it will be given full consideration and help in the formulation of policy on this issue before proposals are put to Parliament. Members will be advised of legislative changes as and when they are made. 3. Recommendations 3.1 The Committee are asked to homologate the response. Director of Finance

2 DRAFT RESPONSE TO CONSULTATION PAPER STRIKING THE BALANCE: AN APPROACH TO DEBT MANAGEMENT COMMENTS ON CONSULTATION QUESTIONS FOR DISCUSSION Please state: (1) Your name, organisation and address Whether you represent debtor, creditor or other interests 0 North Lanarkshire Council, P.O. Box 14, Civic Centre, Motherwell. Representing the interest of, in the main, creditor, sometimes debtor and adviser by virtue of operating consumer and money advice centres. (2) Do you agree with the guiding principles set out by the working group in their report - the need for responsible behaviour by both creditors and debtors, the principle of least coercion and the need to avoid loopholes in the law? (Part IV, paragraphs 72-85) Guiding principles:- * Responsible creditor behaviour; The increasing availability of credit is no doubt responsible to a large extent for multiple over indebtedness. Encouraging and regulating responsible lending as recommended would be a sensible starting point, getting to the root of the problem at the outset. The proposal to review the process to recover unpaid Council Tax is noted. Council Tax does not however readily fit within the normal credit operations as it is a compulsory tax that is not related to a specific purchase. This clearly differentiates it from other types of debt. This must be taken into account in any review. The improvement in Council Tax collection levels by Local Authorities should be noted, in particular legislative changes such as early billing have had a positive effect in North Lanarkshire Council. 0 Responsible debtor behaviour. It is agreed that responsible debtor behaviour is important and that serious consequences should follow for those who can but will not pay and who evade or put off paying debts for their own personal gain. C:\TEMP\striking the balance 2.dociJ. A.

3 2 The principle of least coercion The views of the working group are noted and it is generally agreed that the principle of least coercion is a good one. However, the expense of following through on each option where the one before has failed to recover all or any part of the debt due should be capable of being recovered from the debtor. There is also an access to information issue in that arresting bank accounts is only possible where this information has been made available to the creditor and in this regard being able to data-match would be of assistance. 0 Avoiding loopholes in the law. It is agreed that targeting the type of person described in paragraph 78 is important. These are people who can but won t pay and who are avoiding payment of debts lawfully due and owing by them. (3) The working group argue that it is not possible to view poinding and warrant sale in isolation from its wider context, and identify a number of factors which they think need to be taken into account. Do you agree with their analysis: if not, what are the relevant factors to be borne in mind? (Part 11, paragraphs 22-36). Generally agree with the comments in Part I1 that the proposed system should take into account the wider environment. Pleased to note the recognition of the considerable effort in developing It Pays To Pay demonstrating Councils are committed to doing everything in their power to recover Council Tax. Money Advice is already provided by the Council and should be used as an integral part of any new system. It is important that the wider context should be looked at and that poindings and warrant sales cannot be looked at in isolation. They are only one part of the process of recovering debt. Again, the information issue arises in that sharing information amongst Council departments and other organisations would assist in recovering debts and sums due at an earlier stage. Such information would have to be used responsibly and may require further regulation. (4) The working group describe a number of key issues and pressing problems surrounding the operation of the existing system affecting both debtors and creditors, as well as the wider interests of society as a whole. Do you agree with their commentary? Are there any other issues that the group should also have considered? (Part I11 paragraphs 37-69) C:\TEMP\striking the balance 2.dociJ. A.

4 Debtors Interests Lack of Advice and information for the debtor 3 It is agreed that as much information as possible should be given to a debtor at an early stage to avoid recourse to enforcement action and that the information provided should be in plain English. This benefits not only the debtor but the creditor who can at a later stage and if necessary, demonstrate that the debtor must have been aware of the implications and consequences of hidher failure to pay. 0 A formal code of conduct to address issues such as intimidation tactics and the issuing of fundamentally misleading letters would leave all creditors in no doubt as to the standards required. This code, however, should be capable of being enforced by an appropriate authority (perhaps the DTI) and organisations falling foul of the code should be penalised (perhaps by way of a civil penalty or fine). It is proposed to develop a debt arrangement scheme to help debtors manage their debts and reach negotiated settlements with multiple creditors. The consumer and money advice centres have access to such a scheme, which would require to be provided by a body independent of all creditors. Further work is required to determine how this is to be put into practice and in particular the coordination between existing agencies. Impartiality is essential as creditors must have confidence in the basis and operation of the scheme. 0 It is agreed that entering into debtor s domestic premises for the purpose of poinding or to remove items for sale is not only humiliating but is unlikely to realise goods of value. That said, any alternative system against corporeal movable property should actually reduce the debt and not simply pay off the expenses of the action taken by the creditor. 0 It is agreed that officers of the court should be professional and act in a responsible and accountable manner. 0 Creditors Interests The provision of information regarding a debtor, in order to assess the means of enforcement, by way of compulsory disclosure by a third party would be a useful tool. Data protection and Human Rights issues will arise not to mention the practical difficulties in setting up the information sharing system. The working group has recommended that further investigations with the UK Government and other interested parties on the scope of possible information sharing and this is welcomed. C:\TEMP\striking the balance Z.doc/J. A.

5 4 Local And Central Government Debts Agree with the unique situation of Council Tax. Despite criticism by the Accounts Commission, improvement in collection levels have been achieved by Local Authorities across Scotland. It is important payment of taxation is seen as a different type of debt. Consideration should be given, as has been the case previously in the rating system, to ranking council tax debt. The recent trend and different practices emerging in relation to multiple years arrears is noted. There is a concern if current year collection is concentrated upon then it may adversely affect the recovery of prior years arrears which is still necessary to ensure the Council meets its budgeted income. Councils currently do not have the power to jointly bill and collect council tax and rent arrears. As recognised in It Pays To Pay changes to legislation should be considered. (5) Do you agree with the working group that the law must be able to oblige people to meet obligations which they should honour voluntarily? (Part IV, paragraphs 75-78) It is agreed that the law must be able to oblige people to meet obligations which they should honour voluntarily. What is proposed in the consultation paper is a new approach to debt management. Once again the availability of information to both debtors and creditors at an early stage is vital in reducing the number of debts and increasing early recovery using the least coercive means. A note of caution, once again, is that not everyone agrees with the principle and a perennial loop into voluntary advice should not exist. People who do not comply with or benefit from advice, should be fast-tracked through a legal framework, thus limiting time-wasting. (6) The working group s research did not identify any other country that did not have some form of final enforcement. Do you agree with their view that some form of sanction is necessary in order to address the minority of people who can but refuse to pay their debts? (Part IV, paragraphs 70-84) It is agreed that some form of sanction is necessary in order to address the minority of people who can but refuse to pay their debts. Otherwise guidelines, codes of conduct and even legislation which comes to a point falling short of this is unlikely to achieve its purpose. C:\TEMP\striking the balance 2.doc/J. A

6 5 If so, do you agree with the working group that, excluding the possibility of civil imprisonment, the only alternative is to provide for some means of enforcement against valuable but non-essential property? (Part VI, paragraphs & ) It is acknowledged, excluding the possibility of imprisonment that there are no other means of enforcement accept to take action on valuable but non-essential property. Do you agree with the working group that commercial and domestic cases should be treated differently? (Part V, paragraphs 86-92) It is agreed that commercial and domestic cases should be treated differently when enforcing or collecting unpaid debts. Do you agree with the working group that improved advice and information for debtors at an early stage is the key to achieving better outcomes in resolving debt cases? (Part VI, paragraphs 93-96) It is agreed that improving advice and information for debtors at an early stage is the key to achieving better outcomes in resolving debt cases. However further clarification is required on the practical implementation and resource implications. Even before this, responsible creditor action would go some way to helping the situation. Creditors who advertise their services and to indicate that they will not carry out any credit checks when purchasing expensive items such as cars are irresponsible in that they are encouraging indebtedness without first checking whether or not the debtor is in a position to repay in terms of their new credit agreement. This potentially risks the debts of other creditors and may result in multiple creditors incurring multiple fees and expenses which also require to be recovered with the result that many, if not all of the creditors may not be in a position to recover the sums due to them. To what extent do you think that access to information about debtor s circumstances has a role to play in securing better outcomes in debt cases? (Part 111, paragraphs and Part VI, paragraph 97) Access to information about the debtor s circumstances has an important role to play in securing better outcomes in debt cases. It is also likely to result in recovery of debt through least coercive means which is identified as one of the guiding principles by the working group. The sharing of information among different organisations is likely to raise Human Rights and Data Protection issues and the working group has indicated that further investigation and consideration will be given as to how this can be taken forward. C:\TEMP\striking the balance 2.doc/J. A.

7 6 It is noted that an opportunity currently exists for debtors to provide maximum information to creditors by voluntary disclosure and that this should be introduced as a useful step in the process. (11) To what extent do you think that allowing greater access to such information, were it to be achievable, would be acceptable to individuals and the business community? What issues do you think would have to be considered? (Part 111, paragraphs and Part VI, paragraph 97) It is difficult to assess what extent greater access to information would be acceptable. This may benefit form further research and consultation. (12) The group recommends a new judicially supervised enforcement procedure which would also provide greater protection for the debtor and more opportunities to achieve negotiated settlement. To what extent do you think that such a procedure is necessary and appropriate? Please state your reasons. (Part VI, paragraphs ) The timescales applied to the process. As well as protecting the debtor, the interest of the creditor has to be protected and it should not be open to debtors to evade paying their debts by less intrusive means of recovery and force the creditor to resort to applying for a means inquiry. The advice pack to be sent to the debtor should, in ideal circumstances, be intimated at a stage earlier than that proposed by either the creditor or an independent body or the existing consumer advice centres. (13) Do you think that such a procedure should take place in the sheriff court? The Sheriff Court is an appropriate forum for such a procedure. (14) Would the provisions of additional information and advice alone, without any possibility of enforcement action, be a satisfactory approach for enabling debts to be recovered? (Part VI, paragraphs ) No, The alternative of sequestration was highlighted by the working group but it has been pointed out, quite correctly that the debt has to be 21,500 or over before this remedy can be pursued. Whilst it is proper to enhance debtor protection there requires to be an ultimate sanction for recovering debts particularly for those who can but won t pay. (15) To what extent do you agree that establishing a statutory debt arrangement scheme should be a central element of a new approach for the longer term? (Part 111, paragraphs and Part VI, paragraphs ) In the longer term a statutory debt management arrangement scheme is likely to be central. to a new approach to the management of multiple over indebtedness. C:\TEMP\striking the balance 2.dodJ. A.

8 7 (16) The working group makes a series of broad recommendations for action on a wide front. To what extent do you agree with these recommendations? The need for plain English and user friendly format for information aimed at debtors. Agree. A review of policy on recovery of unpaid council tax and the use by local authorities of summary warrant procedure. Agree subject to items raised in Section 18(c) Increased Debtor protection under summary warrants Agree. Rolling out in-court adviser service more widely across Scotland. Agree. However, there may be resource implications which require to be more fully considered. A thorough on going review of enforcement officers. Agree Additional judicial training on debt issues. Agree. Consideration of the value of fitness tests applied to the providers of debt and money advice Agree that certain uniform standards would be of assistance. Action with the UK Government to review the fitness tests required for those who extend credit. Agree Follow-up of findings from DTI Over-Indebtedness taskforce on responsible lending and borrowing, marketing and transparency of financial products and credit payments. Agree C:\TEMP\striking the balance 2.dociJ. A.

9 8 Which of the wider recommendations for reform mentioned in question 16, in your view, have the most significant contribution to make? (h) and (i) If the working group s proposals were implemented, what impact do you think they would on debtors? on creditors? on tax collection and recovery arrangements? on the courts? Debtors would certainly have more information available to them at an earlier stage and would be in a position to manage their affairs and debts more effectively. Creditors may suffer delays in recovering the sums due and owing to them. The review on responsible lending etc. should be welcomed. Special consideration should be given to local taxes Local authorities may have a difficulty in recovering Council Tax if the proposals are less effective in practice than the existing arrangements. Levels of Council Tax collection have improved across Scotland, It is important for those who rely on Council Services that no action should be taken which would adversely affect this improvement There will be significant resource implications for the Courts acting on a supervisory manner. Training has been recommended. Staffing of courts including the number of sheriffs may have to be reviewed and this is something that they will have to be consulted upon. Please feel free to comment further on any other aspect of the report and recommendations not mentioned here. The majority of debt incurred by a Local Authority relates to the collection of council tax and rent and the provision of mandatory services which cannot be withdrawn. This should be acknowledged by giving priority to these debts when assessing the liabilities of a debtor. C:\TEMP\striking the balance 2.doc/J. A.