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In Focus Risk
proposed, building on The Insolvency Service ‘hub’ infrastructure from May 2021, where the requirements become signifi cantly more complex (such as with payment distribution or reconciliation). There does not appear to be a path to mapping Debt Management Plans (DMP) onboarded before May 2024 into SDRPs, which is a large body of customers in England and Wales. A signifi cant minority of DMPs will not meet current SDRP criteria, as they are not fl exible enough, so DMPs will continue to co-exist in volume after implementation and require creditors to administer three diff erent types of mainstream managed debt solutions in England & Wales (DMP, IVA and SDRP). Insolvency reform is ongoing in parallel along with major changes to the regulatory landscape (for example Consumer Duty from April 2023) The cost-of-living crisis is requiring more fl exibility in future payment arrangements. Despite the learning from DAS in Scotland, HMT has provided little incentive for ‘Fair
May 2022
Share’ providers to promote an SDRP over a DMP, where the 9% deduction from disposable income (including a payment distribution allocation of 1%) is well below ‘Fair Share’ contributions. The lack of fl exibility around missed payments and the rigid plan length parameters will mean more broken plans rather than the increased stick rate suggested in the impact assessment. ‘Improved returns to creditors’ is one of the
promises, however, it is unclear on how this will be achieved. There appears more friction in the process than for a DMP and with more participants (for example role of The Insolvency Service). It is likely that the proposed solution will require a product specifi c version of the SFS, which DEMSA has already picked up with MaPS, where MaPS are about to launch an ‘open source’ version of the SFS. There appear to be very few incentives for a consumer to choose an SDRP over an IVA or a DMP, especially as the credit reporting aspect has not yet been fully thought through. If you take the average debt balances proposed and look at average disposable
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incomes (DI) as they get further squeezed then many plans look like they will exceed 10 years, but would fail prematurely because of downward swings in DI or missed payments that cannot be remedied by using the ‘savings’ component of the SFS. Some of the thinking in this area looks
naïve and does not appear to have taken account of the knowledge that debt solution providers have been trying to relay, which they also do with the FCA on a regular basis. Downward variations in SDRPs still appears to have a very high administrative burden with less money available to ensure this works effi ciently and for the greater good. The devil is in the detail and the period
to August 2022 needs to be used wisely to determine the value of introducing this new regulated product and how this fi ts in with the CONC review being undertaken by the FCA. ‘Joined up’ thinking is a must where there is a signifi cant risk of major investment by creditors, service providers and the debt advice sector with no tangible business case to support its introduction. CCR
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