The Common Financial Statement

CPAG

The Common Financial Statement

The ‘Common Financial Statement’ (CFS) is a tool that provides a detailed budgeting format that enables an accurate overview of a client’s income, expenditure, assets and liabilities. This tool assists with the preparation of realistic and sustainable repayment offers. The CFS improves communication and transparency between creditors and advisers negotiating on behalf of clients.

Supporting creditors will accept offers made by the CFS, providing those offers are made by independent money advisers based on expenditure trigger figures that follow the latest guidelines. It is recognised by a range of formal schemes and codes of practice.

The ‘common financial tool’ (CFT – see here) is used to assess a client’s situation against different statutory debt solutions. It uses trigger figures to determine if a client’s expenditure is reasonable.

How to access the Common Financial Statement

The CFS is available to recognised debt advice agencies but not to the general public.

To use the CFS and access the associated trigger figures, you must apply for authorisation. Authorisation can be given to:

•a third-party organisation negotiating debt repayment offers for a client or providing financial advice on statutory debt solutions;

•an organisation involved in making decisions about debt repayment.

The CFS authorisation covers users at an organisational level. Therefore only one authorisation is required per organisation. To apply for authorisation, email the CFS mailbox: aib_cfs_enquiries_mailbox@aib.gov.uk.

It can be accessed through case management software such as CASTLE Debt, Microsoft Excel, PETRA, PGdebt 9, IIZUKA Case Manager, AdvicePro, Liquid Advice, MACS and Topaz.

How to complete the Common Financial Statement

It is important that information entered into a CFS from the client has been verified and evidence recorded in the client’s case file.

When completing the CFS the first information entered is the client’s:

•name;

•address;

•date of birth (optional);

•national insurance number (optional);

•number of dependants;

•number of vehicles.

Information relating to the agency (such as the case reference number and CFS licence number) is also entered.

The next stage is to record the client’s income. This includes:

•income from employment or self-employment;

•certain benefits and tax credits;

•pension payments;

•rent or board received;

•any other source of income.

It is important to include all forms of the client’s income and the frequency with which they receive it (weekly, fortnightly, annually). The form automatically converts all income to a monthly equivalent.

If the client has any assets or equity (such as property), these must be recorded and the box marked to show that this has been discussed with the client.

Next, the client’s expenditure is recorded. This is listed under five categories: essential expenditure, phone, travel, housekeeping and other expenditure. Note:

•Priority bills and other essential expenditure should be listed first.

•Non-priority expenditure is then recorded. This includes travel, phone and housekeeping costs.

•For living and household costs, the client can average their spending based on information from recent shopping receipts or bank statements.

•A client must then think about other things they spend money on – eg, repairs, self-care and entertainment.

Once this information has been recorded, a list of priority and non-priority debts is entered. Priority debts should have been identified by this stage. Amounts owed need to be recorded, as well as any repayment offers made to priority debts. The information entered into the CFS must:

•be accurate and realistic; and

•note any fees or charges being made by the debt agency; and

•be provided to creditors as soon as the client has confirmed its accuracy; and

•be sent to the creditor only after obtaining the client’s consent; and

•be sent to the client along with any accompanying correspondence.

When completing the CFS, the debt adviser must:

•take reasonable steps to verify the client’s identity, income and expenditure; and

•notify the client as soon as possible if a creditor will not work with the adviser’s agency; and

•seek explanations for any unusually high or low expenditure listed on the financial statement.

The trigger figures

‘Trigger figures’ represent pre-agreed levels for certain areas of household expenditure. They cover expenditure for telephone, travel, housekeeping and other costs. They identify reasonable levels of monthly expenditure when completing the CFA.

They are calculated from research by the government’s Living Costs and Food Survey, which takes information from a random sample of lower-income UK households provided by the Office for National Statistics.1 It collects information about spending patterns and living costs to reflect household budgets across the UK. Trigger figures are updated annually and published in April.

Trigger figures change depending on household sizes – for each additional adult or child in a household, the trigger figure will increase.

Trigger figures provide a guideline maximum figure for expenditure but not a minimum. The basic principle is that spending should be accepted as reasonable if it is within the relevant trigger figure amount. Spending above the trigger figure may be reasonable depending on the client’s circumstances. An explanation of these circumstances should be included with the financial statement if expenditure is above a trigger figure.

The CFS collects information on a client’s income, expenditure and debts, which can be presented to creditors to show that repayments are sustainable.

Information entered in the CFS must be verified to ensure it is accurate. For some expenses, trigger figures are used to measure whether expenditure is at a reasonable level. If expenditure levels are higher than trigger figures, an explanation must be provided, along with the CFS when it is sent to creditors.

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How creditors use the Common Financial Statement

The FCA’s Consumer Credit Sourcebook (CONC) is the specialist sourcebook for credit-regulated activities. It states that a creditor should pay regard to provisions in the CFS and use them when considering the client’s repayment offer.

What will consumer creditors accept?

Creditors are advised by the Lending Standards Board (LSB) to accept the CFS if received from a debt adviser with the authority to act on behalf of their client. If repayment offers based upon expenditure fall within the trigger figures, they should not challenge them unless they believe the information in the CFS is incomplete or inaccurate.

Issues with local and UK government creditors

The CFS is currently not required to be used across central and local government organisations. They often use a non-standardised income and expenditure form. These are not publicly accessible, therefore little information is available about spending and how disposable income is defined.

This can result in repayment rates being set by local and UK government creditors, which are unaffordable for the client. Often these types of creditors will look at a client’s income and not their realistic expenditure.

Due to this, government organisations will not take into account that clients may have multiple governmental creditors that compete for payments from a client who cannot cover even one of the government creditors. HRMC expects 50 per cent of an individual’s disposable income to be put towards their ‘time to pay’ arrangement, which may be unreasonable if the client has other priority debts.

For example, if a client owes both council tax and rent to the local council, the different departments will both be looking for 50 per cent of a client’s disposable income, leaving the client at risk of being unable to pay other creditors.

Creditors are advised by the FCA’s Consumer Credit Sourcebook and the LSB to accept a CFS and use it as evidence when considering a client’s repayment offer.

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