Many annual reviews say the year has gone by so fast. But it seems like a very long while since I wrote my review of Debt Advice in 2018.
2019 has been very difficult for debt advice. There have been few bright spots (apart from affordability complaints), a lot of delays to policy decisions being taken and an ever-worsening benefits environment for our clients.
2019 – what happened & what didn’t
These are the issues that stand out to me – many of them are inter-connected, making them harder to resolve.
Falling Disposable Incomes (DI)
Falling DIs hit DMPs and IVAs, making them harder to sustain. DIs below £50 rule out everything except insolvency or, as a temporary measure, token payments.
A negative DI used to be unusual – but in 2019 advisers are now starting to see large numbers of negative DIs where even insolvency is just a sticking plaster on a large wound.
Anna Hall tweeted about finding around 40% of clients in a Citizens Advice/StepChange pilot had a negative DI:
We learnt that the vast majority of the credit industry is not set up to handle this group in a helpful way for clients and it is a battle for both client and adviser to get anywhere. There is a widespread lack of awareness of the 40% with creditors, funders and policy makers.
It is also extremely expensive for creditors and advice sector to support the processes required to keep an account on hold or get a write off or improve a clients situation. We have seen really positive signs that creditors really want to change the current situation.
… in reality there is not the capacity in the sector to sustain this at the levels of clients we are seeing. It’s much more expensive than a client who reaches a solution. I am certain that so much of the work done isn’t necessary for getting a good client outcome (or a helpful one for a creditor either).
Three insolvency issues – some talk, no progress
The number of people being missold IVAs continues. The more disposable incomes drop, the fewer people should be suitable for an IVA and the more should be choosing bankruptcy or a DRO. The Insolvency Service’s consultation on the Regulation of Insolvency Practitioners closed in October – here is Money Advice Trust’s response setting out why the current system is broken and has to be changed.
Debt advisers don’t often stand up and say how DROs need to be improved. So well done to CAP for pointing out many of the problems with DROs in its “Unlocking a new start” report which recommended:
Bring DRO rules on omitted debts in line with bankruptcy, so all debts within the £20,000 limit incurred before the application are covered, including historical benefits and Tax Credit overpayments.
This would make DROs much easier and quicker for debt advisers to set up. And prevent people emerging from a DRO with a debt that wasn’t included.
Lastly the problem of the unaffordable level of bankruptcy fees gets worse as DIs fall. How can anyone with a negative DI save up £680? Debt advisers know even the £90 for a DRO is out of reach for many clients.
The AIB’s research on the impact of the lower Scottish insolvency payments (£200 and £90) found that more than a third of clients had to borrow the fees or get help from charities. One adviser said:
This is about money and it is about the Scottish Government being prepared to raise that money from some of the most vulnerable in society, even if it causes them suffering and even if they must beg and borrow to raise it. That is morally bankrupt.
The situation in England is far worse and the Insolvency Service should face up to this issue.
Cases getting more complex
A couple of years ago I was saying that I rarely saw an IVA-suitable case. In 2019, I rarely even saw a simple DMP case.
The main drivers I have seen are: erratic incomes because of the gig economy; benefits and LHA being frozen; moving to universal credit has left clients with rent arrears who never had them before; high levels of deductions from UC; increasing numbers of old alleged tax credits overpayments; more casualties of the two-child policy; low council tax support leaving people with unaffordable council tax bills; and (this may be a purely London problem) parking tickets and traffic penalties, with associated bailiff issues, are multiplying.
Debt advice agencies are facing a choice between giving an excellent service to some clients, a sub-optimal one to a lot more or being overwhelmed by the workload.
CAP took the decision to stop seeing any new clients in the summer for a period. Other agencies only take simple cases – happy to have referrals for DROs but not being willing to challenge benefit overpayment decisions, or interested in helping clients with benefit applications. Which leaves agencies such as Citizens Advice and Law Centres under an even greater weight of complex cases.
Affordability – a lot of progress but hundreds of thousands of clients lose out
This year major progress has been made with guarantor loan affordability complaints. A very high percentage of these cases brought by borrowers or by guarantors is being won at the Financial Ombudsman (FOS). Amigo is upholding some complaints directly, has reduced the number of top-up loans and seems to not be rushing to court so soon.
This is now at the point where every debt adviser’s first thought when they find a client has a guarantor loan should be whether an affordability complaint can be made. These are not a small niche product any more and they cause misery. As I was writing this article, a single parent, working part-time left this comment:
Its definitely not affordable. They never checked anything when I applied… I can’t afford to pay any of my other debts except council tax which have agreed a payment plan with me. The rest including CCJs are on the backburner until I can sort this out with Amigo. I try to save through the month, I pay my rent, the kids are always priority, then Amigo payment [£296] becomes due & I end up not eating much at all for a week or so just to make sure the kids have enough that week & that I can pay that month.
In November and December Provident has started accepting hundreds of FOS decisions on affordability complaints for loans over six years old. BrightHouse may be about to do the same. Some of the Provident refunds are very large, this isn’t the largest I have seen:
In 2019 the massive scale of payday loan misselling has emerged with Administrators publishing numbers of the claims they have been upholding when a lender goes under. See More payday lenders go under – was anything learned from Wonga? where I look at the scandal that these customers get no compensation and why debt advice agencies need to do more to help clients with affordability complaints.
No progress on debt advice funding
MAS debt advice contracts have been criticised for being overly bureaucratic, with unrealistic volume targets, insufficient time for CPD or social policy, and being too short-term for staff job security or debt advice agency planning.
2019 has made all this worse, with more clients, in more desperate situations, more complex cases and fewer debt solutions available. This year debt advice has become an increasingly stressful occupation, experienced staff are leaving and recruitment is getting harder.
For the last two years MAS/MaPS seems to have been preoccupied with its rebranding, its listening events and its own staff switching roles. In a year which was crying out for a new approach to debt advice funding, nothing much appears to have happened. I am an Open Banking fan, but the PACE pilot MaPS is working on seems unsuitable for complex cases or where there is negative DI.
This isn’t just a MaPS problem. The local authority grants that keep many Citizens Advices going are being cut. Law Centres are badly hit by legal aid cuts.
No progress on the breathing space or SDRP
The breathing space, a policy supported by every major party in their 2017 manifestos, was a casualty of governmental paralysis this year.
What may change in 2020?
The FCA will see a couple of its debt policies go live:
- the credit card persistent debt intervention will be reaching the 36-month point for many customers, see Credit card says you’re in persistent debt & must pay more … but what if you can’t? I don’t know what the lenders intend to do – apart from sending yet another letter. It could be a damp squib. It could result in many wanting debt advice. Or people being panicked into consolidating at a poor interest rate.
- the remaining banks will have to announce their new, simple overdraft rates. I am sceptical that competition will reduce charges and so far there hasn’t been much sign of it from the first few banks announcing their new arranged overdraft fees, see Are your overdraft fees going up? New “simpler” charges may not be cheaper!
A couple of positive but minor changes will come in: the benefits and LHA freezes will end in April, the minimum wage should increase.
The breathing space may finally arrive late this year. But that needs to be accompanied with extra funding for debt advice if it is to make a real impact.
In 2019 with record employment numbers and historically low-interest rates, there were millions of foodbank parcels needed and the debt advice system was struggling to keep up with demand. Any downturn in the economy and 2020 looks scary.