Regulators warn against threatening collections tactics

Members of the UK Regulators’ Network (UKRN) the Financial Conduct Authority (FC) FCA, Ofgem, Ofwat, and Ofcom, have published a joint letter setting out shared expectations in relation to debt collection and customers experiencing financial difficulty.

The letter calls on companies to improve their debt collection practices, after identifying shortcomings across the financial services industry, as well the communications, water and energy sectors.

In the letter, the regulators warned that they will take ‘robust action’ against firms whose behaviour risked affecting customers’ mental and physical health, or leads them to make decisions not in their best interests. Their warning comes during Debt Awareness Week, which is meant to highlight the support that is available to struggling borrowers.

Richard Lane, Chief Client Officer at StepChange Debt Charity, said “We’re pleased to see this letter acknowledge just how many people facing debt collection are in vulnerable circumstances and need support and empathy rather than punitive action. Since the cost of living crisis, we’ve seen the amount of utility arrears spike among our clients, with those on the lowest incomes struggling to cover steep rises in their essential costs.

“We know from previous research that the language used in collections communications can exacerbate problems for those facing financial difficulty, and lead to further harm rather than to greater debt recovery. For someone experiencing mental health issues or another vulnerability, threatening communications can cause them to disengage.

“This Debt Awareness Week, we’re focusing on some of the barriers that can stand in the way of people getting help with debt. It’s vital that firms do everything in their power to make it easier for customers to access support when they’re facing debt collection. This includes reviewing the tone of their communications and effectively signposting to free debt advice, in a way that is clear for the consumer.”

Conor D’Arcy, Interim Chief Executive of the Money and Mental Health Policy Institute, said “We’re really pleased to see regulators come together to recognise the harms that debt collection practices can cause, and to warn firms that they will face robust action if they fail to reduce that harm. People tell us that they often feel bombarded and harassed by the volume of messages they get from creditors about missed payments, and that this causes real distress when they are already under huge strain.

“At a time when half of people behind on consumer bills say they have felt suicidal as a result of rising costs, it’s absolutely vital that regulators act. So it’s a positive step that regulators have given firms a clear indication that inundating people in debt is not acceptable, and should reduce the frequency of debt communications when it is causing harm.”

“But regulators need to go further. In particular, they should set clear limits on how often firms can contact people so that all firms understand what exceeds an ‘appropriate’ level of communication. We will be watching closely to see if regulators follow through on their words and punish firms who fail to meet these standards.”

A link to the letter can be viewed here.