CSA responds to ‘debt threat’ letter announcement

12th October 2020

The Credit Services Association (CSA) has welcomed that Treasury’s announcement on changes to default notices ‘debt threat’ letter changes.

Chris Leslie, Chief Executive of the Credit Services Association (CSA), said “The wording of these ‘default letters’ has been prescribed in old legislation for decades – so we completely agree it’s about time the law was updated. An overhaul of the rules governing the precise sentences that creditors are forced to use in these formal letters was long overdue and it’s good news the Treasury have finally agreed to act.”

“Making an initial letter less intimidating of course has to be a good thing,” he says. “It’s something that the CSA and other trade bodies, as well as firms, have argued is overdue from as far back as 2014.”

“Communications with consumers in default do need to be clear and comprehensible, but they now need to be designed for the 21st century and sensitive to customer circumstances.”

“When a relationship between a firm and a customer has broken down, it is reasonable that a firm should convey the gravity of the situation to the customer and what may happen if it remains unresolved. Creditors would welcome the flexibility to be able to convey similar information but in a more nuanced and relevant way. Some customers will have vulnerabilities or mental health issues while others will not. Some customers may simply be failing to engage. That is why any new legislation must be balanced and fair, giving the creditor the opportunity to tailor the language used so it is most appropriate.”

“We hope that this new policy will take into account the views and experience on all sides, including that of firms and industry bodies which have been trying to improve customer experience in spite of some of the anachronistic and unhelpful existing regulations.”

According to the Treasury announcement, lenders will finally be able to replace legal terms in Default Letters 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 that 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.”

The CSA and others wrote last year to say that if the rules and the regulator oblige the creditor to follow a particular path, it is unfair to criticise the industry for doing what it is told in law that it has to do.

Leslie added “Even the most finely crafted letter may appear intimidating to a confused consumer and do little to aid their understanding.”

“The technical, rigid nature of the Consumer Credit Act 1974 sometimes means there can be an understandable nervousness in writing documentation that is clear, simple and concise. I think we can all agree that a letter that is intended to explain a customer’s situation is of little use when all it achieves is to drive the consumer to seek further explanation, with all of the inherent worry that this brings.”

The new rules will be delivered through secondary legislation and are expected to come into force in December 2020. All lenders will then be required to make the changes within six months.