Call to end ‘thuggish’ letters for problem debt

A mental health charity is calling on the government to stop requiring lenders to issue ‘debt threat’ letters to consumers when payments are overdue, as part of its financial support measures during the coronavirus crisis

The Money and Mental Health Policy Institute campaign wants changes made to the regulations under the Consumer Credit Act (1974), which currently force lenders to send intimidating letters to people struggling with many types of debt including includes repayments on overdrafts, credit and store cards, payday loans, and personal loans.

 It points out these letters contain language which it says is complex and confusing and often include threats of court action. There is also a requirement for the warning text to be capitalised or put in bold.

The charity says its research indicates over 100,000 people in problem debt attempt suicide each year in England, and that intimidating debt letters are a key contributing factor. It is concerned that this issue will escalate during the coronavirus crisis for two reasons.

Firstly, many people in debt have been granted a temporary debt repayment ‘holiday’ by lenders, but lenders are still forced by law to send intimidating debt letters to anyone they consider to be in arrears in this period — even if they have been granted a payment holiday.

Secondly, even those who have never had financial problems, but have been granted mortgage or other official payment holidays, should by law receive one of these letters after two missed payments. The regulatory authorities are currently looking to work around this law, but this will clearly cause unnecessary distress and confusion, the charity says.

Martin Lewis, founder and chair of the Money and Mental Health Policy Institute, said: ‘The fact that lenders are forced by a decades-old law to send thuggish letters to people with debt problems is staggering. These letters ruin lives, and many lenders say they don’t want to send them, but the law gives them no option.

‘In the next few weeks, we’ll have the perverse situation where lenders will be compelled to send threatening letters to millions of people, even if they’ve been given permission for a temporary break from debt repayments.

‘That will cause distress and confusion at a time when people in financial hardship, and many struggling with mental health issues, least need it.

‘The government has put support systems in place covering a chunk of the population. Yet at such a sensitive stressful time, it needs to change the rules on debt letters.’

Examples of the text commonly used include ‘if you do not take the action required by this notice before the date shown then the further action set out below may be taken against you [or a surety],’ and other wording which suggests the individual needs to contact a court or solicitor.

The ’Stop the Debt Threats’ campaign is supported by over 30 leading mental health and debt organisations – including Mind, the Samaritans, Citizens Advice and Royal College of Psychiatrists. Five financial firms have also backed the campaign: Barclays, Monzo, nationwide, Metro Bank and Virgin Money.

Mortgage help

The Financial Conduct Authority (FCA) has issued guidance confirming the support firms should give to mortgage customers who are either coming to the end of a payment holiday or who are yet to request one.

For customers still experiencing temporary payment difficulties due to coronavirus, firms will offer support, with options including a full or part payment holiday for a further three months. Customers yet to apply for a payment holiday have until 31 October to do so.

The current ban on lender repossessions of homes will be continued to 31 October. This will ensure people are able to comply with the government’s policy to self-isolate if they need to.

Firms will communicate with customers regarding what happens when their payment holiday ends. They should offer a range of options for how the missed payments will be repaid, if they are able to resume payments.

The FCA says lenders will continue to support customers who have already had a payment holiday where they need further help. Firms should contact their customers to find out what they can re-pay and, for those who remain in temporary financial difficulty, offer further support, which will include the option of a further three-month full or part payment holiday..

Depending on the customer’s circumstances, firms may make them aware of self-help steps a customer may take or signpost customers towards sources of debt advice. This will be for anyone concerned about managing their money during coronavirus and wants to find out what steps to take to get back on track.

The FCA says that when implementing this guidance, firms should be particularly aware of the needs of their vulnerable customers and consider how they engage with them.

The guidance comes into force on 4 June  and only applies to mortgages. It does not apply to consumer credit products which are covered by separate guidance which will be updated in due course.

Stop the Debt Threats campaign

FCA Mortgages and coronavirus: updated guidance for firms

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