Section 4 — Effect of debt payment programmes

Debt Arrangement and Attachment (Scotland) Bill: Stage 3 – in the Scottish Parliament at 3:30 pm on 13th November 2002.

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Photo of Tommy Sheridan Tommy Sheridan SSP 3:45 pm, 13th November 2002

Amendments 35 and 38 both attempt to ensure that when debts are being repaid as part of a debt arrangement scheme, they debts cannot be enforced by the use of other diligences.

It is important to note that when respondents to the Scottish Executive's consultation document, "Enforcement of Civil Obligations in Scotland", were asked whether enforcement should be stopped once a debt arrangement scheme application has been granted, 42 consultees said that it should be stopped while only three said that it should not be. If amendment 35 is disagreed to, it would still be possible to enforce debts that are subject to a debt arrangement scheme. I hope that the minister will address that point, because during stage 2, he said that he would return to the matter. Debts that are subject to a debt arrangement scheme should be ring fenced or protected.

For example, a debtor could agree to pay a mortgage or second loan secured on a house within a debt arrangement scheme. Even if the scheme were approved and payments were being made, it would still be possible for the creditor to serve a calling-up notice against the debt under the Conveyancing and Feudal Reform (Scotland) Act 1970. Such a notice would require the debtor to repay the loan, failing which ownership of the house would be transferred to the creditor.

A calling-up notice is not a diligence; it is a statutory remedy under the 1970 act that arises on breach of a loan secured on heritable property. It does not operate by decree and is not caught by section 4 as drafted. Amendment 35 would plug that loophole and therefore take on board the almost overwhelming view of respondents to the consultation that debts that are repaid within a debt arrangement scheme should not be subject to enforcement. During stage 2, the minister felt that that point had some validity and promised to examine it. As a result, I hope that he will agree to support amendments 35 and 38.

Amendment 38 would address the situation in which a creditor who gets a decree for payment can use it to serve an inhibition, which prevents a debtor from selling his or her house. I suggest that, if the debt is being repaid within a debt arrangement scheme, it is fair and sensible for any inhibition to fall once the scheme is approved. At present, the bill does not deal with any existing diligence; section 4 prevents future diligence only from being used against debts under the debt arrangement scheme. Again, I refer members to the Executive's recent public consultation, in which 93 per cent of respondents said that enforcement should stop where debts were being repaid with a debt arrangement scheme.

Amendments 35 and 38 are entirely consistent with the results of the Executive's wide-ranging consultation, which the minister said, throughout stage 2, he was awaiting. We have now received those results and he will see that my amendments are in line with them. I hope that that means that he will support my amendments.

I move amendment 35.

Photo of Richard Simpson Richard Simpson Labour

We discussed and rejected the content of amendments 35 and 38 during stage 2. Both concern what happens to creditors' rights in relation to heritable property when a debtor enters a debt payment scheme, but the bill already provides that all diligence and sequestration will be stopped. Subsections 4(2) and (3) prohibit creditors from commencing or executing any diligence for payment or seeking to sequestrate a person who participates in a scheme. As that includes inhibition, amendment 38 is unnecessary.

Amendment 35 would have wide-reaching implications for other areas of law, such as contract and property law. The restrictions that are referred to in the amendment would inevitably cause lenders to change their practices.

The Executive has followed the approach of the Scottish Law Commission, which first recommended a debt arrangement scheme in 1985 in its "Report on Diligence and Debtor Protection". We consider that, although 16 years have passed since the Law Commission's report, many of its conclusions on matters of legal principle remain valid today. In our consultation document, we suggested that heritably secured debt should not be part of a debt arrangement scheme. It is worth noting that that is not, of course, part of the voluntary arrangements on which the bill is intended to build.

Restraints on the calling up of standard securities could be considered appropriately only in a full review of heritable securities over the homes of all debtors, taking account of all the implications for property and contract law.

We must consider any such exemptions both in light of the scheme as a whole and cumulatively. For example, for how long could a debt payment programme run? If it could run for, say, nine years, or if there were no time limit, a lender would be unable to recover potentially valuable property over decades. As we have said before, we would be worried about the effect that that could have on the economy and the availability of mortgages.

We believe that amendments 35 should be withdrawn or, failing that, rejected, and that amendment 38 should not be moved.

Photo of Tommy Sheridan Tommy Sheridan SSP

The minister is in danger of over-egging the pudding in relation to the consequences of amendment 35. The idea that the economy will collapse if the amendment is agreed to is scaremongering, to say the least.

The thrust of the bill is the prevention of further diligence or recovery against debts that are already within a debt arrangement scheme. The existing loophole will not be closed unless amendment 35 is agreed to.

The minister says that he does not think that amendment 38 is necessary because its provisions will be covered in the bill. I therefore hoped that the minister would have no problem in supporting it. Given that he thinks that the point is already covered, let us have a wee insurance policy to ensure that there is no problem. I will press amendments 35 and 38.

Photo of Murray Tosh Murray Tosh Conservative

The question is, that amendment 35 be agreed to. Are we agreed?

Members:

No.

Division number 7

For: Adam, Brian, Campbell, Colin, Canavan, Dennis, Crawford, Bruce, Ewing, Dr Winnie, Ewing, Fergus, Ewing, Mrs Margaret, Gibson, Mr Kenneth, Grahame, Christine, Hamilton, Mr Duncan, Harper, Robin, Hyslop, Fiona, Ingram, Mr Adam, Lochhead, Richard, MacAskill, Mr Kenny, MacDonald, Ms Margo, Marwick, Tricia, McAllion, Mr John, McGugan, Irene, McLeod, Fiona, Morgan, Alasdair, Neil, Alex, Quinan, Mr Lloyd, Robison, Shona, Russell, Michael, Sheridan, Tommy, Sturgeon, Nicola, Swinney, Mr John, Ullrich, Kay, Welsh, Mr Andrew, White, Ms Sandra, Wilson, Andrew
Against: Aitken, Bill, Alexander, Ms Wendy, Baillie, Jackie, Barrie, Scott, Boyack, Sarah, Brankin, Rhona, Brown, Robert, Butler, Bill, Chisholm, Malcolm, Craigie, Cathie, Curran, Ms Margaret, Deacon, Susan, Douglas-Hamilton, Lord James, Eadie, Helen, Ferguson, Patricia, Fergusson, Alex, Fitzpatrick, Brian, Fraser, Murdo, Gallie, Phil, Gillon, Karen, Godman, Trish, Goldie, Miss Annabel, Gorrie, Donald, Grant, Rhoda, Gray, Iain, Henry, Hugh, Home Robertson, Mr John, Hughes, Janis, Jackson, Dr Sylvia, Jackson, Gordon, Jamieson, Cathy, Jamieson, Margaret, Jenkins, Ian, Johnstone, Alex, Kerr, Mr Andy, Lamont, Johann, Livingstone, Marilyn, Lyon, George, Macdonald, Lewis, Macintosh, Mr Kenneth, MacKay, Angus, Maclean, Kate, Macmillan, Maureen, Martin, Paul, McAveety, Mr Frank, McCabe, Mr Tom, McIntosh, Mrs Lyndsay, McLeish, Henry, McMahon, Mr Michael, McNeil, Mr Duncan, McNeill, Pauline, McNulty, Des, Monteith, Mr Brian, Morrison, Mr Alasdair, Muldoon, Bristow, Mulligan, Mrs Mary, Mundell, David, Munro, John Farquhar, Murray, Dr Elaine, Oldfather, Irene, Peacock, Peter, Peattie, Cathy, Radcliffe, Nora, Raffan, Mr Keith, Robson, Euan, Rumbles, Mr Mike, Scanlon, Mary, Scott, John, Scott, Tavish, Simpson, Dr Richard, Smith, Iain, Smith, Mrs Margaret, Stephen, Nicol, Stone, Mr Jamie, Thomson, Elaine, Wallace, Ben, Wallace, Mr Jim, Watson, Mike, Whitefield, Karen, Wilson, Allan, Young, John

Photo of Murray Tosh Murray Tosh Conservative

The result of the division is: For 32, Against 81, Abstentions 0.

Amendment 35 disagreed to.

Photo of Murray Tosh Murray Tosh Conservative

Amendment 36 is grouped with amendment 45. I call Tommy Sheridan to move amendment 46—sorry, amendment 36.

Photo of Tommy Sheridan Tommy Sheridan SSP

I am glad that I am not the only one who is getting confused, Presiding Officer.

Amendment 36 would freeze contractual interest from accruing on debts that are being repaid through debt arrangement schemes. The members of the Social Justice Committee will be aware that many organisations that gave evidence to that committee agreed that if contractual interest on debts cannot be frozen during the operation of debt arrangement schemes, many people will never see an end to multiple debt. It is not uncommon for debtors to have real-terms interest rates of 200 per cent. That is the norm for most clients of advice agencies in Scotland, according to Citizens Advice Scotland's 2001 report.

In short, if contractual interest is not frozen, the debt arrangement scheme might be a failure as a policy initiative. The matter is so important that the whole debt arrangement scheme might fall if contractual interest is not frozen. I hope that the minister will take on board that grave warning. I also hope that he has listened to the evidence that the advice agencies gave to the Social Justice Committee. Amendment 36 is serious and important. I hope that members will bear it in mind that if there is no freezing of contractual interest and if the measures on the composition of debts are not passed, there will be serious consequences for the ability of the debt arrangement scheme to help debtors throughout Scotland.

I move amendment 36.

Photo of Robert Brown Robert Brown Liberal Democrat

Amendment 45 relates to a not dissimilar issue, which is that of freezing interest and the composition of debt. That issue was referred to during the Social Justice Committee's deliberations and most members of the committee had considerable sympathy with it. We touched earlier on the background to amendment 45, in the debate on Lyndsay McIntosh's amendment 25. Many debtors who receive advice have debts that amount to many thousands of pounds, which they are unlikely to pay in full over any reasonable period.

That situation has a number of effects. The first is that the creditor will not recover their money. The second is that the debtor becomes demoralised, which means that the repayment of even part of the debt is unlikely unless there is a degree of incentive or encouragement to keep up the payments, which might be significant for those who have relatively small incomes. There are many examples—which are not imaginary—of debts that would take 27 years or some such period to repay. In such situations, repayment in full is not likely because people become discouraged and do not carry on their repayments.

In the discussions at stage 2, the deputy minister was sympathetic to the Social Justice Committee's suggestions, but, in opposition, he said that they might overlap with Westminster legislation because of the commercial element. One can understand that. Another question was whether our suggestions overlapped with the European convention on human rights—in particular, the first protocol to the convention. It might be helpful to read from the first article of that protocol, which states:

"Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law.

The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest".

We are talking about creditors' rights. In common with a number of human rights provisions, that one is not absolute or black and white. Conditions and exceptions are involved and alternative arrangements are possible. For example, in bankruptcy law, creditors receive payment of a dividend—20 per cent, 50 per cent or whatever—in exchange for the full writing-off of the remaining debts.

The principle exists and I accept entirely that it is a complex area in which there is overlap with the Scotland Act 1998, the ECHR provisions, the Human Rights Act 1998 and so on. However, I ask the minister—I hope that I will receive a positive response—to undertake to consider the issue in more detail in the light of the civil diligence review and to return to Parliament on the matter in due course, rather than rule out the possibility of instituting this arrangement at the present time.

I accept Tommy Sheridan's proposition in introducing the matter, that if the arrangements for the composition of debts and the freezing of interest are not included in the arrangements, that will to some extent undermine the intention of the Executive and the Parliament that there should be success in those areas.

Photo of Kenneth Gibson Kenneth Gibson Scottish National Party

Thank you, Presiding Officer. We covered the matter to a great extent at stage 1 and I submitted an amendment at stage 2. I support what Mr Sheridan and Mr Brown have said. Although I do not agree that not freezing contractual interest would cause a debt arrangement scheme to fail—that is over-egging the pudding somewhat—I believe that it would damage it. I hope that the Executive will reflect on the comments that have been made at stages 1 and 2 and support Mr Sheridan's amendment 36. I understand that Robert Brown is thinking of not moving amendment 45. If the Executive were to support Mr Sheridan's amendment, we would go some way towards achieving what many members would like to see.

Photo of Jim Wallace Jim Wallace Liberal Democrat

As all members who have taken part in the debate have said, the issue was covered in detail at stage 2. As Robert Brown said, my colleague, Richard Simpson expressed at that time some sympathy with the general objective of amendments 36 and 45. I share that sympathy but, for reasons that I shall explain, we do not think that it will be possible to give effect to the amendments.

Since that time, we have received an analysis of the consultation responses. The responses showed mixed views on whether the composition of debts or the freezing of interest should be imposed on creditors. I do not want to go into the fine detail, but the consultation responses reveal that, of a total of 40 respondents who addressed the issue, 24 were in favour and 14 were against those measures. Those who were in favour were mainly advice agencies that interpreted the consultation question—which asked about discharge on less than full payment—in different ways. Those who were against the amendments were, not surprisingly, mainly creditors who were very strongly opposed to any form of compulsory discharge of debts on less than full payment. There is no reason why creditors cannot voluntarily waive interest payments or write off part, or all, of a debt, as some do at present.

We will consider those views carefully and ensure that they are reflected, as far as possible, in the regulations that will now be subject to affirmative resolution. I stress the phrase "as far as possible", because we would like to allow for waiving interest by agreement between debtor and creditor and, where appropriate, for forgiveness of debt on less than full payment in line with voluntary practice in some negotiated settlements.

We know, from those who are operating voluntary schemes, that some creditors are prepared to freeze interest from the start of the scheme. To do so is often in their best interests. We also know that, towards the end of a scheme, some creditors are prepared to write off outstanding debts if debtors have paid regularly. That might not be in the creditor's best interests, but it represents recognition of the efforts that the debtor has made.

Amendment 36 would prevent any interest that was legally due to accrue on debts from being included in the programme. It would have the effect of overriding legally binding contractual arrangements that had previously been entered into by debtors. We sought legal opinion on whether an amendment could be drafted to provide reassurance that the debt arrangement scheme would allow for, but not compel, the freezing of interest and the writing off of debt without exceeding the legislative competence of the Parliament. Our advice is that it could not, hence the absence of an Executive amendment on the matter.

However desirable it might seem in social policy terms, a freeze on interest simply cannot be achieved with a stroke of the pen. It would override otherwise legally binding contractual arrangements that have been freely entered into and, as Robert Brown said, it would raise serious concerns about the infringement of creditors' rights to property under article 1 of protocol 1 of the European convention on human rights.

The creditor's right to receive full payment of the debt and interest that is due in terms of the contract into which the debtor and creditor have entered may be construed as the creditor's "possession" for the purposes of article 1 of protocol 1. The creditor could waive those rights, but it would be an entirely different matter for those rights to be automatically removed by legislation. On Robert Brown's point about public interest, it is not clear whether removing the creditor's rights would be in the public interest or in the interests of one section of the public—namely, debtors.

Robert Brown referred to the issue of bankruptcy as a possible precedent. However, the nature of bankruptcy is that a debtor's assets are insufficient to meet their debts. Amendments 36 and 45 could mean that a person would be able to pay their debts, but because of actions by the State, part of their obligation would be written off.

If the provisions in amendments 36 and 45 are contrary to the ECHR, as we believe, it would be outwith Parliament's legislative competence to introduce them. Robert Brown said that we could consider the issue in the context of the civil diligence review. I acknowledge the importance that members throughout the chamber attach to the issue of contractual interest in a debt payment programme. We would be willing to ascertain whether there are ways of addressing the matter that are within Parliament's competence. However, I cannot promise anything. Accordingly, I ask Parliament to reject amendments 36 and 45.

Photo of Tommy Sheridan Tommy Sheridan SSP

I am disappointed by the minister's response. The issue of contractual interest is of cross-party concern and is clearly a major issue that unites all the benefit advice and money advice agencies. The minister's response is not good enough. Under the bill as amended at stage 2, the minister will have the power to make regulations for sheriffs to deal with creditors' refusal to enter debt arrangement schemes. Either creditors would agree voluntarily to freeze interest or the matter could be referred by ministers to a sheriff.

Therefore, it is not an insurmountable problem to include in the bill the provision to freeze contractual interest in a debt payment programme. To say that that would not comply with the ECHR is, to be frank, a red herring. Amendment 36 is important and I urge Parliament to support it. Without amendment 36, the debt arrangement scheme could be fatally wounded.

Photo of Murray Tosh Murray Tosh Conservative

The question is, that amendment 36 be agreed to. Are we agreed?

Members:

No.

Division number 8

For: Adam, Brian, Campbell, Colin, Canavan, Dennis, Crawford, Bruce, Ewing, Dr Winnie, Ewing, Fergus, Ewing, Mrs Margaret, Gibson, Mr Kenneth, Gorrie, Donald, Grahame, Christine, Hamilton, Mr Duncan, Harper, Robin, Hyslop, Fiona, Ingram, Mr Adam, Lochhead, Richard, MacAskill, Mr Kenny, MacDonald, Ms Margo, Marwick, Tricia, McAllion, Mr John, McGugan, Irene, McLeod, Fiona, Morgan, Alasdair, Neil, Alex, Paterson, Mr Gil, Quinan, Mr Lloyd, Robison, Shona, Russell, Michael, Sheridan, Tommy, Sturgeon, Nicola, Swinney, Mr John, Ullrich, Kay, Welsh, Mr Andrew, White, Ms Sandra, Wilson, Andrew
Against: Aitken, Bill, Alexander, Ms Wendy, Baillie, Jackie, Barrie, Scott, Boyack, Sarah, Brankin, Rhona, Brown, Robert, Butler, Bill, Chisholm, Malcolm, Craigie, Cathie, Curran, Ms Margaret, Deacon, Susan, Douglas-Hamilton, Lord James, Eadie, Helen, Ferguson, Patricia, Fitzpatrick, Brian, Fraser, Murdo, Gallie, Phil, Gillon, Karen, Godman, Trish, Goldie, Miss Annabel, Grant, Rhoda, Gray, Iain, Harding, Mr Keith, Henry, Hugh, Home Robertson, Mr John, Hughes, Janis, Jackson, Dr Sylvia, Jackson, Gordon, Jamieson, Cathy, Jamieson, Margaret, Jenkins, Ian, Johnstone, Alex, Kerr, Mr Andy, Lamont, Johann, Livingstone, Marilyn, Lyon, George, Macdonald, Lewis, Macintosh, Mr Kenneth, MacKay, Angus, Maclean, Kate, Macmillan, Maureen, Martin, Paul, McAveety, Mr Frank, McCabe, Mr Tom, McIntosh, Mrs Lyndsay, McLeish, Henry, McLetchie, David, McMahon, Mr Michael, McNeil, Mr Duncan, McNeill, Pauline, McNulty, Des, Monteith, Mr Brian, Morrison, Mr Alasdair, Muldoon, Bristow, Mulligan, Mrs Mary, Munro, John Farquhar, Murray, Dr Elaine, Oldfather, Irene, Peacock, Peter, Peattie, Cathy, Radcliffe, Nora, Raffan, Mr Keith, Robson, Euan, Rumbles, Mr Mike, Scanlon, Mary, Scott, John, Scott, Tavish, Simpson, Dr Richard, Smith, Iain, Smith, Mrs Margaret, Stephen, Nicol, Stone, Mr Jamie, Thomson, Elaine, Wallace, Ben, Wallace, Mr Jim, Watson, Mike, Whitefield, Karen, Wilson, Allan, Young, John

Photo of Murray Tosh Murray Tosh Conservative

The result of the division is: For 34, Against 80, Abstentions 0.

Amendment 36 disagreed to.

[Amendment 38 moved—[Tommy Sheridan].]

Photo of Murray Tosh Murray Tosh Conservative

The question is, that amendment 38 be agreed to. Are we agreed?

Members:

No.

Division number 9

For: Adam, Brian, Campbell, Colin, Canavan, Dennis, Crawford, Bruce, Ewing, Dr Winnie, Ewing, Fergus, Ewing, Mrs Margaret, Gibson, Mr Kenneth, Grahame, Christine, Hamilton, Mr Duncan, Harper, Robin, Hyslop, Fiona, Ingram, Mr Adam, Lochhead, Richard, MacAskill, Mr Kenny, MacDonald, Ms Margo, Marwick, Tricia, McGugan, Irene, McLeod, Fiona, Morgan, Alasdair, Neil, Alex, Paterson, Mr Gil, Quinan, Mr Lloyd, Robison, Shona, Sheridan, Tommy, Sturgeon, Nicola, Swinney, Mr John, Ullrich, Kay, Welsh, Mr Andrew, White, Ms Sandra, Wilson, Andrew
Against: Aitken, Bill, Alexander, Ms Wendy, Baillie, Jackie, Barrie, Scott, Boyack, Sarah, Brankin, Rhona, Brown, Robert, Butler, Bill, Chisholm, Malcolm, Craigie, Cathie, Curran, Ms Margaret, Deacon, Susan, Douglas-Hamilton, Lord James, Eadie, Helen, Ferguson, Patricia, Fitzpatrick, Brian, Fraser, Murdo, Gallie, Phil, Gillon, Karen, Godman, Trish, Goldie, Miss Annabel, Gorrie, Donald, Grant, Rhoda, Gray, Iain, Harding, Mr Keith, Henry, Hugh, Home Robertson, Mr John, Hughes, Janis, Jackson, Dr Sylvia, Jamieson, Cathy, Jamieson, Margaret, Jenkins, Ian, Johnstone, Alex, Kerr, Mr Andy, Lamont, Johann, Livingstone, Marilyn, Lyon, George, Macdonald, Lewis, Macintosh, Mr Kenneth, MacKay, Angus, Maclean, Kate, Macmillan, Maureen, Martin, Paul, McAllion, Mr John, McAveety, Mr Frank, McCabe, Mr Tom, McIntosh, Mrs Lyndsay, McLeish, Henry, McLetchie, David, McMahon, Mr Michael, McNeil, Mr Duncan, McNeill, Pauline, McNulty, Des, Monteith, Mr Brian, Morrison, Mr Alasdair, Muldoon, Bristow, Mulligan, Mrs Mary, Munro, John Farquhar, Murray, Dr Elaine, Oldfather, Irene, Peacock, Peter, Peattie, Cathy, Radcliffe, Nora, Raffan, Mr Keith, Robson, Euan, Rumbles, Mr Mike, Scanlon, Mary, Scott, John, Scott, Tavish, Simpson, Dr Richard, Smith, Iain, Smith, Mrs Margaret, Stephen, Nicol, Thomson, Elaine, Wallace, Ben, Wallace, Mr Jim, Watson, Mike, Wilson, Allan, Young, John

Photo of Murray Tosh Murray Tosh Conservative

The result of the division is: For 31, Against 79, Abstentions 0.

Amendment 38 disagreed to.