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The Credit Services Association (CSA)
New personal debt guidelines could force more people unnecessarily into insolvency
A leading trade association is concerned that new guidelines for debt advisers could keep customers in debt for longer by failing to reflect their true financial position, and in the worst case push them into unnecessary and potentially damaging insolvency.
The Credit Services Association (CSA), which represents the UK debt collection and debt purchase sectors, believes that the revised guidelines - presented by the Money Advice Service (MAS) for use with the Standard Financial Statement (SFS) – require further consideration.
Peter Wallwork, Chief Executive of the CSA, says that while the thinking behind the recent changes to the SFS are laudable, the outcomes could be disastrous for some consumers: “The issue centres around the so-called ‘trigger figures’* and whether the increased figures now being proposed accurately reflect the customer’s true financial position,” he says.
The SFS is a tool primarily used by debt advisors to summarise a person's income and outgoings, along with any debts they owe. It provides a single format for financial statements, allowing the debt advice sector and creditors to work together to achieve the right outcomes for people struggling with their finances.
However, in a recent meeting of the SFS Governance Group, which includes the CSA, members were presented with a set of revised ‘trigger figures’ that in some cases were 30% or more greater than those published last year.
“The challenge to MAS is that if these new figures turn out to be wrong, advisors and creditors alike will quickly lose confidence in the system and stop using it. The challenge, also, is to ensure consistency amongst advisors and stop anyone from using the guidance as an ‘allowance’, in which case the customer’s true financial position becomes distorted.
“At best, this will reduce the volume and value of arrangements and offers from customers to repay their debts and keep them in debt for longer. In the worst case, however, the figures may suggest that a customer is better to go bankrupt when they don’t need to.
“This is unlikely to be in their best interests – it will all-but destroy their chances of ever being granted credit again – and is definitely not in the interests of the creditor. There is even a question mark as regards whether keeping a customer in debt for longer by inaccurately assessing their financial position satisfies the principles of a ‘fair outcome’.”
In fairness to the advice sector, Mr Wallwork explains, MAS has sought to re-assure creditors that the revised figures are simply a guide and should not form the starting point for any assessment of expenditure. But he questions whether the previous trigger figure levels really needed fixing at all:
“Statisticians from MAS have used a method of calculation that appears to differ from previous methodologies and is at odds with the methods used in Scotland, but they are adamant that their calculations are accurate and reflect the impact of inflation, Universal Credit, and households with a second adult. While the CSA continues to support the SFS in principle, the accuracy of these figures is essential.”
The CSA has called for an early review on how the guidelines are being used, and the new trigger levels that have been set.
“Everyone wants to work from an agreed set of numbers that are fair and appropriate,” Mr Wallwork concludes, “and the CSA calls upon all advisers to use the SFS in the spirit it was intended; any new figures must be given as a guide, and not an allowance.
*The trigger figures represent pre-agreed levels for certain areas of discretionary household expenditure. The trigger figures help identify levels of monthly expenditure deemed reasonable when completing the SFS.