The Scottish government has announced planned reforms to the debt arrangement scheme (DAS) that will fix the amount of debt owed to creditors.
Fergus Ewing, the minister for enterprise, has brought forward new rules to amend the DAS which will freeze interest and charges from an earlier date in order to support those individuals who take out high interest loans.
At a meeting of the parliament yesterday (7 February), Ewing told ministers that he expects the reforms to be implemented by summer 2013.
Interest and charges will be frozen from the date when a debtor’s application is submitted to creditors.
Ewing said: “In practice, that could protect the debtor from as much as two or three months of additional interest charges.
“That might not sound like much, but we are talking about two or three months during which the debtor would be worried sick about the mounting interest charges.”
He also promised changes to the rules on payment holidays to make them more flexible.
The DAS is an alternative to bankruptcy and allows individuals to repay what they owe over an extended period.
In the current year 2012/2013, there have been 3,900 DAS cases, up from 128 in 2005/2006.
Peter Dean, managing director of the Carrington Dean Group, one of the providers of the DAS, said: “These rule changes to the DAS will mean interest will be frozen on payday loans far more quickly if people experience financial difficulties.
“We are seeing a massive increase in the number of debtors struggling with these loans and this change is urgently required as some payday loan companies charge in excess of 4,000% APR.”
The motion is supported by John Swinney, the cabinet secretary for finance, employment and sustainable growth, and Derek Mackay, minister for local government and planning.