The Bankruptcy Law Reform consultation proposed a single financial tool to ensure consistency in assessment of debtors’ income and expenditure. Creating a common standard of financial assessment for advisers in the private, public and third sectors to use throughout Scotland is contained within the Bankruptcy and Debt Advice Act 2014 – the bill received Royal Ascent on 29^th April 2014.

There are two main tools currently operating: the Common Financial Statement (CFS) and the StepChange tool.

The Common Financial Tool Working Group (CFTWG) was set up to consider the two existing tools, and they were also asked to explore if there was any merit and particular advantages in developing a Scottish-specific tool. The CFTWG was made up of bankers, insolvency practioners, lawyers and unions, as well as the AiB and Money Advice agencies.

The potential solutions were analysed using a sample of 50 current cases. For each case, the funds ingathered over a 48 month repayment period were assessed. The findings highlighted only marginal differences in realisation between the tools and the practical pros and cons of each tool were also scrutinised. It was concluded that developing a Scottish specific tool would offer no real advantages over the two existing solutions which were already available.

The CFTWG’s final recommendation was for CFS to become the single assessment tool in Scotland.

What is the Common Financial Statement?

The Common Financial Statement (CFS) was first published by the British Bankers’ Association (BBA) and the Money Advice Trust (MAT) in 2002. It continues to be managed by the Money Advice Trust (MAT). It is a standard budget format which helps creditors, advisers, and people with debt get a clearer picture of an individual’s or household’s financial situation.

The main purpose of the CFS is to facilitate a discussion between the adviser and the debtor in order to develop a sustainable repayment plan which not only gets the best return for creditors but also provides the debtor with the best opportunity for financial (and in number of cases lifestyle) rehabilitation – and to break the cycle of debt once and for all.

Contained within the CFS are 4 categories of trigger figures for: Telecomms, Travel, Housekeeping and Other e.g. household repairs and maintenance. Trigger figures represent levels of expenditure among households in the bottom quintile of the income distribution in the UK and are calculated based on research from the UK Government’s Living Costs and Food Survey.

Fixed expenditure categories such as rent and mortgage payments do not have a trigger figure as spending on these items varies widely from household to household.

The CFS trigger figures are reviewed annually and published in April. Interim changes to the figures may be made if there is a significant increase within any expenditure category. Trigger figures should not be disclosed to anyone without a CFS licence, nor should they be disclosed to the general public, or used as financial or debt repayment targets. If trigger figures are exceeded by debtors reasons have to be provided.

A CFS licence must be obtained by all those who provide money advice to debtors before they can use the CFS tool. The licence is available free of charge from the Money Advice Trust.

Why was the CFS selected?

During the analysis, it was found that trigger figures were breached more by those using the StepChange budget guidelines than those debtors who engaged with the CFS tool. Other reasons included:

• Financial rehabilitation – the CFS tool allows debtors to set money aside for unexpected events.
• Clarity for creditors – the British Banker’s Association (BBA), Finance and Leasing Association (FLA) and major utility companies already recognise this tool as industry standard.
• It’s fairer to debtors – the CFS is overseen by a sub-group consisting of representatives from the BBA, FLA, Building Society Association, Advice UK and Citizen’s Advice.  Any changes to the CFS trigger figures are approved by the sub-group. (AiB is now a member).
• The CFS structure and uniformity encourages a consistent response from creditors, and reduces queries.
• The majority of money advice services currently using the CFS, and therefore are already familiar with the rules and the software.
• During the consultation we received 25 responses in support of the CFS, and only 4 in support of the StepChange model.

What next?

The Bankruptcy and Debt Advice (Scotland) Act 2014 gives Scottish Ministers power to specify a common financial tool and the secondary legislation which is currently being drafted will provide the detail of the CFS tool and how it will operate.

Money advisers will be required to use the CFS with clients to assess surplus income and verify income and expenditure prior to entry into a statutory debt solution.

The AiB are currently considering how a provision for savings can be included in the regulations and we will also develop guidance in addition to the Money Advice Trust CFS guidance, which will be specific to Scottish statutory debt solution (DAS). The trigger figures will be built in to the new AiB case management system.

The Common Financial Tool Regulations will be introduced to Scottish Parliament later this year and will be commenced by April 2015. The AiB has a representation on CFS Client Support Steering Group (CSSG) which will enable us to monitor progress on the current discussions which are taking place at a UK level on a single income and expenditure statement (based on CFS format, principles and trigger figures). The new ‘CFS-Plus’ will improve the CFS including revising categories and allowing for savings provision.