New regulations will help improve the transparency of and address the high costs and disappointing returns to creditors associated with Protected Trust Deeds.
These changes will help ensure that only those with more serious debts apply for this insolvency solution and provide transparency about how much of the contributions they will pay will be returned to creditors.
Over recent years, the Scottish Government has had concerns about the performance of PTDs – because more than a third of all PTDs pay no dividend at all to creditors.
Minister for Enterprise, Energy and Tourism, Fergus Ewing said:
“These changes will address the two main problems associated with Protected Trust Deeds - rising costs and disappointing returns to creditors. Protected Trust Deeds will not serve as a sustainable debt relief solution for either creditors or debtors if more than half of all of the receipts are spent on costs. I am pleased that we have been able to make these changes and I look forward to them coming into force.”
Frank McKillop, ABCUL (Association of British Credit Unions Limited) Scotland Policy and Relations Manager said:
“When a credit union member genuinely cannot repay their loan – which is made from other people’s savings – it is wrong that the vast bulk of what they can afford to pay is so often pocketed by their trustee and not passed on to creditors. New measures to clamp down on abuses of Protected Trust Deeds and provide greater transparency for creditors are welcome and vital to make the process fairer.”
The Scottish Government has developed these changes by drawing on responses to its consultation exercises and other feedback from stakeholders. The new regulations which improve information provided to creditors will:
- Introduce a minimum debt level of £5,000.
- Make a trust deed ineligible to be protected if the debtor’s total debts can be repaid, in full, within a 48 month period
- Exclude pre-trust deed fees, such as fact-finding fees, so that these can no-longer be charged separately and will be treated the same as other debts
- Change the way trustees levy their fees. Trustees will no longer be able to charge their fees at an hourly rate - they will be required to charge a single, fixed upfront fee augmented by a percentage of funds ingathered
- Ensure that creditors are notified of the level of fees that the trustee will charge before they are asked to agree to the trust deed
- Ensure that creditors are asked to approve any increase to the trustee’s fixed fee
- Ensure that no contributions can be paid from a debtor’s social security benefits.
Yvonne MacDermid, Chief Executive of Money Advice Scotland commented:
“We welcome the laying of the Regulations as, amongst other policies, they provide for improved transparency in terms of the levels of Trustee fees, and the exclusion of pre-trust deed fees. These particular policies will aid consumer protection, and provide for a clean market in Scotland. We further welcome that no contribution can be paid by the debtor from their social security benefit, towards their Protected Trust Deed.”
Notes to editors
Trust deeds are voluntary agreements entered into by a debtor. PTDs are ‘protected’ in the sense that creditors who do not agree to the terms of the trust deed have no higher right to recover their debts than creditors who do agree. Once protected, the trust deed is binding on all creditors who can usually take no further action, providing the debtor complies with the terms of the trust deed. Upon completion of the PTD any remaining unpaid debt is discharged and cannot be pursued by creditors.
More information about Trust Deeds can be found here www.aib.gov.uk