Hansard

When I commended the Bankruptcy and Diligence etc (Scotland) Bill to Parliament on 24 May 2006, I made a commitment to introduce at stage 2 an element of debt relief into the debt arrangement scheme. An amendment to enable that was discussed by the committee on 7 November 2006. At that time I said that I planned to come back to the committee in 2007 to ask it to approve regulations to freeze interest and charges in debt payment programmes. The regulations before the committee introduce that reform.The regulations are made under powers in section 7A of the Debt Arrangement and Attachment (Scotland) Act 2002, which is inserted in the 2002 act by section 211 of the Bankruptcy and Diligence etc (Scotland) Act 2007. The first commencement order under the act brings that power into force from 8 March this year. The commencement order will introduce a small amendment to section 48 of the Bankruptcy (Scotland) Act 1985, which clarifies the rules for prescription of debts in sequestration. It also introduces powers that enable a negative instrument, which I intend to lay before Parliament on Friday. The reforms of the debt arrangement scheme will commence on 30 June this year. That meets the commitment that I made to the committee to introduce improvements to the scheme at the earliest opportunity.A new regulation 49A in the Debt Arrangement Scheme (Scotland) Regulations 2004 will provide that any debt included in a debt payment programme will be frozen when that programme is approved. That means that creditors will be prevented from adding any further interest, fees, charges or other penalties to the debt from that date. That has purposely been defined as generally as possible to prevent a creditor from reintroducing interest by the back door in the form of charges.The intention is that what the debtor owes on the date the debt payment programme is approved will be the full and final amount that they have to repay to clear their debt. We think that that will make things much clearer for the debtor and will remove an undesirable element of uncertainty from the process. That should encourage more people into the debt arrangement scheme.The reform of the scheme addresses concerns raised by the money advice sector. I therefore expect the change to encourage take-up of the debt arrangement scheme. However, it may be necessary to widen the money advice gateway, so I intend to consider the matter as part of a review of the impact of interest freezing. I also said that if the freezing of interest is successful, we will consider further provision to cancel debts. I intend that the scheme should operate with interest freezing for a year before a decision is made on debt write-off by composition.The committee may wish to note some of the other changes that will be introduced by the regulations that I will introduce at the end of the week. The second set of regulations will simplify the process by which applications for approval of debt payment programmes are determined. They will also remove the constraint on fee-charging advisers that requires them to advise debtors of free alternatives. That is simply because there are too few free advisers in place to justify such a provision.The regulations will also provide that the debt arrangement scheme administrator will determine whether a debt payment programme is fair and reasonable in all cases when there is not full creditor consent. Under current rules, cases in which consent falls below a specified threshold are decided by the sheriff. We now consider that that unnecessarily delays the process.The regulations also introduce rules to prevent creditors from taking diligence against debtors after a debt payment programme is proposed but before it is approved. That will prevent a dissenting creditor from undermining a viable proposal. To prevent abuse by debtors, the moratorium on diligence will take effect for a maximum of one six-week period in any year.The second set of regulations will support the regulations that are before the committee. Together, they deliver reforms that are needed to ensure that the debt arrangement scheme effectively delivers debt relief and protection to debtors who need more time to repay multiple debts without forcing them into bankruptcy or a protected trust deed. Members will recall that we had that debate in this committee. I will ensure that the impact of the reforms is monitored and will introduce any further reforms that are needed under the powers enabled by the Bankruptcy and Diligence etc (Scotland) Act 2007.I commend the Debt Arrangement Scheme (Scotland) Amendment Regulations 2007 to the committee.