Accountant in Bankruptcy promotion of DAS provides biased view of debt solutions
The Accountant in Bankruptcy’s promotion of DAS provides an unbalanced view of solutions available for individuals facing debt difficulties. David Menzies examines why this may be the case and what should be done.
As a user of social media I have noticed a significant increase recently in the number of paid for adverts or promoted posts aimed at encouraging people towards the Debt Arrangement Scheme (DAS).
Drill down further and you find a larger media campaign of advertorials and not so obviously co-ordinated articles proclaiming the benefits of DAS.
The AiB is an Agency of the Scottish Government who have put at the heart of policy in this area a Financial Health Service for Scotland. Many of the changes to sequestration, trust deeds and indeed DAS have been made in recent years to ensure debtors have appropriate access to the most appropriate debt solution.
As the Scottish Government Agency with responsibility for implementing the policy it is reasonable to expect that any promotion they carry out would reflect the policy values, aims and objectives.
So why does the AiB promote only one debt solution? DAS.
Why do their advertorials and media promotions not ensure that those with debt worries are made aware of all options?
Unbiased debt advice
DAS can be, and is, a useful debt solution. In the right circumstances DAS offers a manageable way, with statutory protections, for those who have financial difficulties to reschedule their debt repayment and get back onto an even keel. However, it is not the panacea to debt worries and in many instances it may be more beneficial financially, emotionally and for the individual’s personal wellbeing to consider bankruptcy or a trust deed.
One of the central themes to the changes brought in through the Bankruptcy and Debt Advice (Scotland) Act 2015 (BADAS) was that debtors should have access to appropriate debt advice. This means unbiased debt advice which ensures that the debtor enters an appropriate debt solution for their situation. If the public only hear about one debt solution from the Scottish Government then it is difficult to envisage how their own policy can be delivered.
The last publicly available accounts for the AiB shows that DAS brought in nearly £600,000 in income for the AiB. That represents the commission of 2% of all funds paid into each DAS. There are suggestions that the AiB are looking to double the rate of commission to 4% very shortly.
The AiB accounts do not disclose enough detail to drill down and identify the contribution that each of their activities makes. The AiB has however estimated that the DAS commission they receive covers only half the costs associated with operating the scheme. If that is the case then this would suggest annual operating costs of nearly £1.2m.
This seems an astounding amount given that most of the work involved administering DAS is the payment distribution which is contracted out at no cost to the AiB (the payment distributors also taking a commission).
Conflicts of interest
At the heart of the biased promotion of DAS above other debt solutions lies the issue of AiB conflict of interest and funding.
The AiB have a clear conflict of interest to promote DAS above all other debt solutions. The AiB are the sole provider of DAS. Increased DAS activity has a direct impact on their income - more than any other debt solution.
There are also more political motives when you look at the wider landscape. That brings in to focus the conflict between the AiB’s role as the debt solution provider and Scottish Government policy adviser.
Fees, funding and conflict of interest were examined closely by the Scottish Parliament’s Economy, Jobs and Fair Work Committee when they scrutinised the Bankruptcy Fees (Scotland) Regulations 2017. Due to concerns raised and explained to the Committee by ICAS and Govan Law Centre, the Scottish Government revoked these Regulations and are to consult on alternative proposals.
I am due to meet with the Minister for Business Innovation and Energy in the coming weeks and I expect these issues will feature in our conversation.
In the meantime, the AiB should increase transparency in their dealings and ensure that promotion of debt solutions as part of a Scottish Financial Health Service are fair, balanced and unbiased.