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Committee remains ‘unconvinced’ by debt repayment system

28 January 2019 Written by Yuill & Kyle Solicitors Category: Blog

A new method to calculate the financial situation of those who are in debt or facing bankruptcy should be postponed until significant reservations are addressed, according to Holyrood committee.

Following the Economy, Energy and Fair Work Committee’s inquiry into the Common Financial Tool (Scotland) Regulations, the Committee recommended that a more comprehensive review should be carried out, and the introduction of the system be deferred a year until March 2020.

This is the second time the Committee had not endorsed the debt repayment system, when the Scottish Government withdrew regulations to replace the Common Financial Statement (CFS) with the Standard Financial Statement (SFS) as Scotland’s Common Financial Tool on the 9th November 2018.

During its inquiry into the SFS system, the Holyrood Committee heard evidence from financial advisers that the ‘trigger figures’ - which set repayment levels to take into account any necessary household spending - are less flexible and require additional evidence before approval. This could mean that people in debt are more likely to struggle with repayments and could result in a higher workload for those dedicated money advisers.

What is the Standard Financial Statement?

The SFS was introduced in England and Wales on the 1st April 2017, replacing the CFS and the tool published by debt charity StepChange. The SFS is said to include the following benefits:

  • A single standard format for gathering both income and expenditure
  • A unique set of Spending Guidelines
  • Greater consistency to the debt advice process for all involved (advisers, creditors and consumers)
  • Potential for more streamlined sharing of data between organisations assisting an over-indebted individual

However, Gordon Lindhurst, the Convener of the Economy, Energy and Fair Work Committee, explained:

Following extensive consideration of the regulations, the Committee is unconvinced of the adoption of the Standard Financial Statement. We have significant reservations around the rationale for moving to the SFS and the impact its introduction will have on the living standards of those who are paying back debt.

How is debt repayment currently calculated in Scotland?

The CFS was first published by the British Bankers’ Association (BBA) and the Money Advice Trust (MAT) at the end of 2002, when the Finance & Leasing Association (FLA) became its third sponsor by April 2004. The CFS helps to calculate a payment proposal for those in debt to repay their creditors. It provides a detailed budgeting format enabling an accurate overview of someone’s assets, expenditure, income and liabilities. The CFS was adopted as Scotland’s Common Financial Tool since its introduction in April 2015.

The Committee went on to recommend the review should include consideration of:

  • A minimum income standard for debtors
  • Evidence from debtors with lived experience of the current income assessment processes.
  • Providing more scope for the exercise of professional judgement
  • Reducing the administrative workload for money advisers

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