The Scottish Parliament is currently shining a spotlight on the use of Protected Trust Deeds, a statutory debt solution for people who find themselves in debt.

This solution enables some people who can’t pay off all their debts to get relief without having to pay back everything they owe, and it works similarly to a bankruptcy.

PTDs are a suitable option for some debtors, particularly those who have no assets, some disposable income and whose employment would be affected by entering bankruptcy, and many PTDs work well.

But when they break down, the harm caused to the debtor can be significant, especially if they have already made contributions over a period of years.

This is a problem Citizens Advice Bureaux across Scotland are seeing, and here is a typical example of when it goes wrong: A client approached a CAB for help after their trust deed broke down.

They had entered a four-year PTD for a £6,813 debt, paying £125 per month. After two years, £2,743 has been made in repayment contributions.

All well and good. But the client had a change in circumstances and could no longer afford to make repayments which lead to the PTD breaking down and being “failed” by the trustee who was managing it. This meant the client was no longer in the PTD but at least, you would think, they now only had a debt of £3,440.

Not so. The £2,743 of repaid contributions was allocated to the trustee’s fees for administering the PTD – it hadn’t made any impact on reducing the client’s debt.

The client was therefore left with the full £6,813 debt plus further interest, despite having made £2,743 worth of contributions, and they found themselves in a terrible situation – back to square one with the full amount of debt having wasted thousands of pounds, with no money to meet the full debts, and left feeling helpless.

Fortunately, the CAB was there to help pick up the pieces and got the client into a more suitable debt option, but it is clear the way PTDs operate needs looked at. Put simply, the detriment to the debtor from a PTD failing is far too severe, and uniquely severe, compared to other statutory debt solutions such as a Debt Arrangement Scheme or bankruptcy.

In a debt arrangement scheme the client’s debt would be reduced by up to 90% of payments made, in a bankruptcy they will be discharged from their debts no matter what changes happen to their income.

When a PTD fails, it is unacceptable that debtors can be left with their whole debt despite having made significant repayment contributions. We acknowledge that trustees need payment for their administration of the PTD, but the consequences of failure are overwhelmingly skewed to the debtor and the rewards overwhelmingly skewed to the trustee.

This urgently needs rebalanced. While Citizens Advice Scotland is not calling for a wholesale reform of Protected Trust Deeds, we do want to see more done to help ease the burden on those who experience a PTD that fails, and also to stop people from being exposed to entering this option if it is not suitable for them in the first place.

Specifically, there needs to be action to reduce the number of debtors pushed towards a PTD through misleading lead generator marketing.

Lead generators are companies that market PTDs across all forms of media, pushing people who are in debt towards a PTD with a promise of “a government-backed scheme that allows people to write off 80% of their debt”.

This selling point does not take account of the significant fees that are also paid in a PTD, which for some people means they pay back nearly as much as their debt anyway, getting very little actual debt relief.

There are also incentives for lead generators who sell leads to Insolvency Practitioners, which we understand can be worth more than £1,000 per client.

There is a selfevident danger of partial advice from lead generators, especially those that are unregulated, if generating PTD leads is their most profitable activity.

There also needs to be increased availability of free and independent advice across all the debt options through better funding of those who operate in the sector such as Citizens Advice Bureaux – who are one of the largest providers of free debt advice in communities across Scotland.

The place of PTDs in Scotland’s landscape of statutory debt solutions is being undermined by the detriment they can cause to people’s lives if they go wrong, and through the pernicious marketing of PTD as a debt solution to some people who it is simply not suitable for. We welcome the interest from the Parliament’s Economy Committee and urge MSPs to recommend that the Scottish Government acts to put a stop to the activities of lead generators to limit the numbers entering PTDs inappropriately, and to significantly soften the impact for those debtors whose financial circumstances mean they cannot continue in the PTD.

Myles Fitt is spokesman on financial health for Citizens Advice Scotland