The government is currently consulting on draft regulations to introduce a new debt solution known as the Statutory Debt Repayment Plan (SDRP), which will focus on repayment of debt (rather than debt relief).
The SDRP will include a broad range of debts and will protect debtors from enforcement action, creditor contact, as well as interest, fees and charges on their debts while they repay them. For creditors, this could result in necessary changes to policies, processes and systems.
Arum held a series of webinars recently to gather feedback on the proposal from both public and private sectors (including central and local government, the advice sector, banks, fintechs, collections and enforcement agencies, lobbyists and IVA providers).
Here are the top 5 things that came out of our sessions we think you need to know about the draft regulations:
1. Admin fee confusion
A 10% admin fee will be taken from each installment and 90% is distributed to the creditors. However, each creditor needs to ‘gross-up’ the payment – to treat it as if the admin fee had not been deducted. This means you will put 100% on your books, but only 90% in your bank.
This proposed regulation asks more questions than gives answers; apart from the accounting treatment headache, what happens with customers’ credit files at Credit Reporting Agencies (CRAs)? Is the debt satisfied or partially satisfied?
2. Slow priority
The debt adviser has no discretion as to how to distribute the monthly instalment – it is simply 30% to priority debts and 70% to all debts (including priority debts).
This means priority debts will exist for a long time, increasing the risk of more serious consequences should the plan fail
3. Set up to fail?
The plan has a strict ‘3 strikes and you’re out’ process, which sounds good were it not for the payment break rules. On the one hand, the consultation acknowledges that payment breaks are likely to be needed for urgent and unforeseen circumstances, yet on the other it demands 14 days’ notice to request the payment break.
In our experience, peoples’ lives are messy and complicated and do not follow neat rules laid into legislation.
4. As broad as it is narrow
The government has argued having a fee lower than FairShare (on average) will be offset by the economies of scale. It says the SDRP will include a broader range of debts to a broader range of creditors, coupled with its anticipated low failure rate (see previous point!), should provide a higher, more stable fee over time.
However, senior figures in the advice sector we’ve spoken to see the SDRP as a niche product that won’t suit most of their clients.
5. Exceptionally average
The government has said that in exceptional circumstances, debt advisers can propose plans that exceed 7 years and can propose plans up to 10 years in length.
Figures we’ve seen from industry leaders suggest that 10 years is likely to be the average length of a plan – not an exception at all.
We believe the broad consensus is that the SDRP is a step forward, but the proposals need modifying if it is to be the solution the market hoped it would be. Some suggest a better solution would be a Debt Management Plan with additional protections, rather than an entirely new scheme.
Arum is working with partners and clients across all sectors to provide HM Treasury with an independent view from an industry expert and we, along with many others, will submit our response to the consultation by the 5 August deadline.
If you would like to know more about the SDRP, you can watch the recording of our webinar or get in touch with me directly.
Steve Coppard
Group Director of Debt Policy & Strategy
Arum