Government acts on ‘thuggish’ debt letters

The government is to introduce new rules about the wording on debt letters sent to those in arrears on repayments, in order to reduce distress and help people better understand and manage their debts

The changes, which follow a campaign by mental health charities, will be delivered through secondary legislation and are expected to come into force in December 2020.

All lenders will then be required to adopt the new rules within six months.

Default notices are designed to give people who are falling behind on their debts fair warning before lenders take further action, but much of the formatting and content has not been updated in nearly 40 years.

Research from the Money and Mental Health Policy Institute and debt charities has shown that large amounts of capitalised text and legal terms can make the information contained in the letter hard to understand, which has the unintended consequence of confusing and distressing people.

This has a negative impact on people’s mental health as well as their ability to effectively manage their debt.

The new rules will make debt letters less threatening by restricting the amount of information that must be made prominent and requiring lenders to use bold or underlined text rather than capital letters. Lenders will also now be able to replace legal terms with more widely understood words and letters will clearly signpost people to the best sources of free debt advice.

John Glen, economic secretary to the Treasury, said: ‘Being behind on your credit repayments can be a really distressing experience which is made worse by a confusing and intimidating letter from your lender.

‘As part of our effort to help to people struggling with their finances, it’s right that we look again at the legislation around these letters. These new rules will help to take the fear out of finance by ensuring that letters are easier to understand, less threatening, and empower people to take control of their finances.’

Martin Lewis, founder and chair of the Money and Mental Health Policy Institute charity, welcomed the government’s decision, pointing out that the timing is crucial as the disruption caused by Covid-19 has increase many people’s financial distress and debt.

Lewis said: ‘It’s no exaggeration to say that this change could save lives.

‘Over 100,000 in England attempt to take their lives each year due to debts, and four times that consider it.

‘So we’re delighted the government has agreed to back this element of our campaign and change the default demand rules.

‘The last thing people struggling with debt need is a bunch of thuggish letters dropping through the letterbox, in language they can’t understand, written in shouty capitals alongside threats of court action.

‘Today’s changes will make the most distressing debt letters much less intimidating, and crucially will also easily and calmly point people in serious debt to get the free, non-profit, debt advice they need.’

Pat Sweet |Reporter, Accountancy Daily [2010-2021]

Pat Sweet was the former online reporter at Accountancy Daily and contributor to the monthly Accountancy magazine, pub...

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