Money Advice Trust response to consultation on Protected Trust Deeds-Improving the process

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1 Money Advice Trust response to consultation on Protected Trust Deeds-Improving the process 1 About the Money Advice Trust The Money Advice Trust (MAT) is a charity formed in 1991 to increase the quality and availability of money advice in the UK. We work with the UK s leading money advice agencies, government and the private sector to increase the availability of money advice, improve its quality, and enhance the efficiency and effectiveness of its delivery. MAT s vision is to help people across the UK to tackle their debts and manage their money wisely. MAT aims to support individuals and micro-businesses in the UK through their debts and into financial health, and to improve the capability, quality and efficient delivery of free independent money advice by: Delivering advice to the public via National Debtline, Business Debtline and My Money Steps; Supporting advisers; Making the case for free money advice; Coordinating initiatives to improve money advice; Sharing research and information to shape and influence policy.

2 2 Unilateral response to this consultation This response departs from MAT s usual practice in relation to responding to consultations, which involves soliciting the views of our partners in the free-toclient money advice sector and collating these comments prior to submitting an integrated sector-wide response. Please note that we consent to public disclosure of this response. 3 Introductory Money Advice Trust comment We welcome the opportunity to contribute to the consultation on Protected Trust Deeds. Our response considers questions only as they relate specifically to the Common Financial Statement which is facilitated by the Money Advice Trust on behalf of the debt advice sector. With regard to the rest of the consultation, we have decided not to respond as our colleagues in Citizens Advice Scotland and Money Advice Scotland will be better placed to comment on the detailed proposals. 4 Comments on individual issues Question 24. Should a single mechanism be employed as industry standard to calculate a debtor's income and expenditure, for example CFS? We would welcome the proposal to use a single standardised mechanism for calculating a debtor s income and expenditure. In doing so, we believe that the Protected Trust Deed (PTD) process will be simplified for all parties. As well as a simplified landscape for documentation, using a common, recognised budgeting tool such as CFS should assist creditors in making decisions about offers of repayment, as well as helping Insolvency Practitioners to propose both affordable and sustainable repayment offers on behalf of their clients. A common budgeting tool should speed up the process for all parties and enable quicker decisions with less follow up queries. Ensuring that the same standards are employed across the sector will also produce a consistency in approach to calculating income and expenditure and a fairer outcome for all parties.

3 Question 25. If yes, should it be the CFS figures that are adopted as industry standard? The Common Financial Statement (CFS) is used by both advice agencies and third party organisations to make debt repayment offers to creditors on behalf of people in debt. It provides an instantly recognisable detailed budgeting format which enables an accurate overview of a person s income, expenditure, assets and liabilities to be produced. In addition to the standardised budgeting format, the CFS also provides a set of trigger figures which are available to advice agencies and other third party organisations that use the tool, but not to members of the public. One of the benefits of the CFS methodology is that the figures are calculated using independent data from the Office for National Statistics Living Costs and Food Survey (previously known as the Family Expenditure Survey). The trigger figures themselves represent pre-agreed levels of discretionary household expenditure. Trigger figures are updated annually although a mechanism exists to up-rate the figures in line with the consumer price index which means that they remain responsive to fluctuations in prices of everyday consumer goods. The trigger figures help to identify levels of monthly expenditure deemed reasonable when completing the CFS, and are designed to make repayment offers as realistic and sustainable as possible. However, we note from this consultation document that the Protected Trust Deeds Working Party (PTDWP) were in agreement that the CFS figures should be used by all parties as the maximum figures. 1 We would emphasise that the CFS trigger figures are designed to offer guidance on suitable amounts and are not intended to set maximum expenditure figures. This is because individual household situations can vary and a degree of flexibility is vital to ensure that budgets are both realistic and sustainable. An example of how this has been effectively captured can be found in the reference to the CFS in the Professional Guidance written for Debt Arrangement Scheme money advisers: Use, as a base line, the trigger figures for expenditure as detailed in the nationally agreed, BBA and MAT partner agencies income and expenditure form (Common Financial Statement). However, care must be taken to ensure that individual circumstances are taken into account and where necessary include a letter of support. 2 1 Protected Trust Deeds Improving the process (s. 7.10). The Scottish Government 2 Professional Guidance written for Debt Arrangement Scheme money advisers (s )

4 For example, a household may have a particular expenditure item due to an illness or disability that causes them to exceed a particular trigger figure, perhaps due to a special diet or mobility needs. In this case, creditors can accept offers that exceed the trigger figure once the reason for the exception has been explained. This allows for the degree of flexibility that is essential in order to ensure that any arrangements entered into are realistic and sustainable over time. The CFS is designed to provide creditors with information about a person s financial situation in a recognised, industry standard format which is designed to assist creditors in making a decision about the repayment offers being made. As a result, CFS is sponsored by the British Bankers Association and the Finance & Leasing Association. It is also referred to in various codes of practice, guidance and debt management tools including the following: The Lending Standards Board Lending Code; Credit Services Association Code of Practice; Finance & Leasing Association Lending Code; Office of Fair Trading Debt Collection Guidance; Office of Fair Trading Debt Management Guidance; Office of Fair Trading Second Charge Lending Guidance; Insolvency Service Individual Voluntary Arrangement Protocol; Debt Relief Order application and guidance; Debt Arrangement Scheme; Money Advice Liaison Group (MALG) Mental Health Guidelines; CASHflow; and My Money Steps. It is also widely used by creditor organisations and has been adopted by a number of utility companies for assessing offers of payment. As well as simplifying the process for creditors when considering the offers of repayment being made under the Trust Deed, using a standardised budgeting format such as the CFS can also assist people in debt who may have accessed free, independent debt advice prior to approaching an insolvency practitioner and already completed a budget with an adviser. To date, over 2,000 licences have been issued allowing for use of the CFS and access to the associated trigger figures. The CFS is widely recognised and used amongst the advice sector and built into training programmes (such as the IMA Certificate in money advice practice 3 ) and a number of software packages used by the following organisations: Citizens Advice; CASE (Citizens Advice case management system); 3

5 Citizens Advice Scotland; Citizens Advice Northern Ireland; Money Advice Scotland; Institute of Money Advisers; Advice UK; Advice Northern Ireland; Advice Pro (Advice UK developed case management system); IIzuka (formally Wroses); PG Debt; and Payplan. Question 26. If you do not agree that the CFS should be used, should some other figures, be used, for example CCCS? We suggest that the CFS represents the industry standard and should be adopted in the guidance. We would draw your attention to further work we are doing in this area as outlined below. The Money Advice Trust (MAT) is keen to ensure that the tools used within the advice sector are fit for purpose to ensure best outcomes for people who are dealing with their debts. As a result, we believe that we should constantly assess the effectiveness of our work and in particular the tools that we manage and facilitate on behalf of the sector to ensure that they meet the requirements of all stakeholders. With this in mind, MAT has been undertaking its own review of sector budgeting tools and in particular associated guideline figures in order to draw comparison, and highlight any areas of disparity in the various methods currently being used. We note that the PTD Working Party is undertaking similar work and we would welcome the opportunity to collaborate and share information about our findings in this area. Question 27. Where a decision is made to use a consistent method of calculating excess income, what percentage of a debtor's excess income should be paid to the trustee after the calculation is complete? 100%, 80%, 75% or another figure? The CFS trigger figures are designed to support an affordable and sustainable budget for people experiencing difficulty in repaying their debts. However, we would express caution in requiring people to pay 100% of their excess income to the trustee after the calculation is complete.

6 Individual household situations can undergo changes which range from minor income fluctuations such as short-term illness, or expenditure increases such as increases in fuel costs, to larger-scale income shocks such as loss of a job. Also there will be everyday domestic emergencies such as unexpected extra expenditure on household goods when the cooker breaks down, school trips, travel to visit a sick relative, and so on. Whilst the consequences of the more dramatic drops in surplus income will obviously have a more significant impact on a PTD, allowing some flexibility for smaller surplus income and expenditure fluctuations will provide a cushion to help people to continue to meet their PTD payments. For this reason, we would recommend that the repayment amount is no higher than 75% of excess income. This would go some way to future-proofing the household budget and allow the PTD to be sustainable over its lifetime. Money Advice Trust January 2012