Calls for Government to end debt letters during pandemic

With millions of people facing debt problems because of the pandemic, the Money and Mental Health Policy Institute is urging the Government to save lives by putting an end to threatening debt letters.

Money and Mental Health’s research shows that rules in the Consumer Credit Act (1974) compel lenders to send intimidating letters to people struggling with many types of debt. By law, these letters have to contain threatening and confusing language, often alongside threats of court action.

Money and Mental Health says that the legislation demands that lenders’ debt letters must include the following complex and intimidating text in full when people are seriously behind on payments — and that this should be capitalised or in bold text:

The research also shows that 100,000 people in problem debt attempt to take their own lives each year in England, and that these letters are a key contributing factor. Receiving them from multiple lenders on a daily basis is leaving people in huge distress and unable to see a solution to their situation.

Money and Mental Health is warning that this issue will escalate during the coronavirus crisis as many people in debt have been granted a temporary debt repayment ‘holiday’ by lenders, in which they don’t need to make repayments on mortgages, credit cards and loans. 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.

The letter is also sent to consumers who have never had financial problems but have been granted mortgage or other official payment holiday. By law, consumers should 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.

In the long term, millions more people are facing the risk of debt problems due to the economic impact of the outbreak — raising serious concerns that threatening debt letters will contribute to unnecessary lost lives in the coming months and years.

Money and Mental Health’s ‘Stop the Debt Threats’ campaign is urging the government to urgently address this issue, by updating rules in the Consumer Credit Act that dictate the content of debt letters. Small changes to these rules could make debt letters less threatening and distressing, and would save lives.

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.  It’s a simple change to get rid of a rule that benefits neither lender, borrower, nor the economy — and at this time, without exaggeration it could save lives.”

Claire Herbert, Mental Health Policy Lead at the Money and Pensions Service said “At a time of considerable stress, problems with money are another significant threat to people’s overall wellbeing. Anyone worried about keeping up with payments should speak to the organisation they owe money to as soon as possible.”

Carlos Osorio, Director of Debt Recovery at TDX Group, an Equifax company said “We fully support the calls from the Money and Mental Health Policy Institution charity to end the outdated and harmful practice of sending threatening debt letters. The COVID-19 crisis should act as a watershed moment, allowing the government and debt industry to reshape the way we think and operate around debt and debt collection.”

“The pandemic has had an enormous financial effect across much of our society, with 40% of UK households seeing their income drop since February*. Our own data shows that in the first four weeks of lockdown alone there was a three-fold increase in the number of consumers identified with short-term vulnerability. Furlough, reduced working hours and redundancies continue to impact people’s ability to keep up with repayments. Aggressive debt collection was not fair or effective before the crisis and it is even less so now. ”

“Via our network at TDX Group, we’re in contact with 60,000 customers each week, as we try to help them with overdue bills. Aggressive debt collection is counter-productive, making it less likely people will engage, and puts vulnerable people at further risk. All debt collection activity should be informed by customer data and insight, tailored to individual customer needs and circumstances, and delivered via the recipient’s preferred contact channel. ”

“We have enhanced our communication with customers on behalf of our clients since COVID-19 emerged, and launched our V+ service to identify and cater for those mostat risk of financial vulnerability. We passionately believe that earlier and better identification of vulnerability, coupled with sympathetic and tailored treatment, will improve outcomes for both creditors and individuals in debt.”