CfRC and Debt Justice have teamed up to submit a joint response to Government's proposals for a Statutory Debt Repayment Plan ('SDRP'). To inform our submission, we convened a roundtable event that brought together people with personal experience of debt to explore Government's proposals and commissioned a short survey.
Whilst supportive of the protections from creditor fees, charges, and enforcement action that the SDRP could provide, the proposals would considerably increase the profits of debt collection agencies, and the lack of any write-off, combined with assessments of disposable being based on the Standard Financial Statement's 'trigger figures' - based on the actual spending of the lowest income quintile - risks trapping debtors in poverty for lengthy periods. The SDRP will therefore not make any contribution to addressing the considerable ‘debt overhang’ that is likely to be caused by the cost-of-living crisis and the coming recession.
The current proposals also lack the flexibility to deal with the complex realities of people's lives, and place unrealistic burdens on debt advisers to police payment behaviour and limit access to credit over periods of up to seven years.
Commenting on Government's proposals, CfRC's Chief Executive, Damon Gibbons, said:
"At least half of all debt on existing Debt Management Plans has already been written off by originating lenders and sold onto debt collection companies for an average of about 10p in the pound (£). Purchasers typically base their business models on collecting about twice as much as they paid and routinely offer discounts to those who can pay a lump sum in ‘full and final settlement’.
We therefore believe that SDRP providers should be required to attempt to negotiate a ‘full and final settlement’ for these debts as part of the SDRP rules. Without such a requirement, SDRP providers will face a conflict of interest, as putting debtors into an SDRP without negotiating such a settlement would benefit them financially.
We also believe that SDRP providers should be supported by Government to enable those debtors who are not able to offer a lump sum as ‘full and final settlement’ to do so.
HM Treasury could provide a fund for SDRP providers to use for this purpose, which would subsequently be collected back through repayments on the SDRP. Debtors would gain from having a proportion of their debt written off, and debt collection agencies would obtain a lump sum repayment earlier (albeit at a lower overall level), which is what they currently appear to prefer to having to wait for many years for full settlement. There would be substantial savings to the taxpayer due to the reduction in social costs associated with long-term over-indebtedness. Such an approach would also help to address the coming debt overhang."
The full submission is available here.