Changes to the protected trust deed regime are needed to make it more effective in supporting people who are in debt, according to a committee of MSPs in a report published today.
Amongst its calls within the report, the Economy, Energy & Fair Work Committee is seeking changes to the way fees are charged in protected trust deeds. The current rules can see debtors making contributions but not reducing their overall debt levels for at least the first two years.
It also recommends that the minimum debt level to enter a protected trust deed is increased to ensure there is more surplus income to repay the debt to creditors. However, it is conscious that this may force more debtors into bankruptcy. The committee therefore reiterates the importance of looking at the interaction between all statutory debt solutions via a general debt review.
Last year around 8,000 people entered a protected trust deed, which involves a debtor’s assets being managed by an insolvency practitioner for the benefit of the creditors for a four-year period, during which part of the debtor’s income is paid to the insolvency practitioner. Debt advisers predict that debt problems across the country will become much more serious due to the COVID-19 recession.
The committee also heard evidence that online advertising and social media campaigns can target people in debt, offering a solution which is not always suitable for their circumstances.
Committee convener Michelle Ballantyne MSP commented: “A debt solution should work in reducing that person’s debt. We heard evidence which showed that fees were being frontloaded, resulting in the overall debt not lowering despite payments being made. This needs to change.
“The committee welcomes the Scottish Government's commitment to conduct an overarching debt review. However, it is incredibly important that the Scottish Government listen to the committee's recommendations to ensure that protected trust deeds act as an effective debt solution and debtors are safeguarded from the potential harm that can be caused when things go wrong.”
She added: “People in debt must receive the right help and advice and not choose a solution based purely on what they saw on social media that day. The committee recommends tighter regulations on online advertising and believes that free independent money advice would help ensure that people make the decision right for them.”