Katie Evans, Head of Research and Policy, Money and Mental Health
The FCA has given government the green light to stop debt threat letters
27 March 2019
Please note: this post contains information about suicide that readers may find distressing. If you’re in need of support, you can call Samaritans for free on 116 123 anytime of the day – or you can text SHOUT to 85258. For information about where to find support with your money or mental health, you can find some resources on our get help page.
Late last year Money and Mental Health launched the Stop the Debt Threats campaign, which is aiming to bring an end to intimidating creditors letters to people in problem debt. This followed our research into the links between problem debt and suicide, which suggested that letters from creditors can leave people feeling trapped and hopeless in a way that can put lives at risk. While suicide is always complex, with a range of factors leading a person to feel they can no longer continue living, debt letters cause enormous stress are often part of the problem – and a part that we should be able to solve.
No creditor, after all, should want to send letters that terrify their customers, even if they have fallen behind on payments. If a person is too scared to respond quickly to a letter indicating there’s a problem, their financial situation is likely to get worse, reducing the chances the firm will get paid. It’s not in anyone’s interest to send letters that don’t do their job of encouraging and supporting a customer to find a way forwards – for example, through agreeing a repayment plan or seeking free debt advice.
The source of the problem
When we dug deeper into the letters people in problem debt are receiving, we realised that part of the problem was actually with the law. An important piece of legislation, the Consumer Credit Act 1974, sets out certain rules about when firms must contact customers in problem debt. Detailed regulations then set out, in lots of detail, exactly what firms must include in their letters.
Unfortunately, many of these rules were written decades ago. They focus, rightly, on making sure customers in problem debt have all the information they need about their rights and the consequences if they don’t pay their debts. But the wording used isn’t necessarily that which you would expect today – the tone is more formal, and in certain places firms are encouraged to put text in block capitals – which, in the age of the internet, we often read as shouting.
Most importantly, the law doesn’t require firms to signpost customers to the brilliant free debt advice services available today, because many of them didn’t exist when the rules were written. For example, customers are advised to contact a solicitor, which risks immediately making a customer fearful that there is no way out apart from seeking costly legal advice.
In other words, the rules force creditors to put big chunks of intimidating, out-of-date text in letters, which is is often preceded by threats of court action at the top of letters. Our research warns that receiving these kinds of long, incomprehensible letters – especially from multiple lenders simultaneously – is leaving many people in distress.
Unfortunately, because these rules are written into law, it isn’t easy to change them. And making the whole picture more difficult is the fact that the Consumer Credit Act also provides people with very strong protections if firms don’t provide the information that they are meant to – which is a good thing. Our challenge, then, is to work out how to keep the good stuff (very strong consumer protection and strict penalties for firms who misbehave) while changing the bits that work less well (intimidating, outdated wording).
Happily, we launched our campaign in the middle of a review of the Consumer Credit Act by the the Financial Conduct Authority (FCA), the UK’s main financial regulator. It was charged with looking over the legislation and reporting to the government on what should be kept, and whether any provisions could be moved into FCA rules. It published its final report earlier this week, and the government now have to consider their findings and make a decision on how to proceed.
The FCA report confirmed our view, that it would be possible to move the detailed regulations around the content of debt letters into its rule book for firms. To ensure consumers keep the same rights and firms face the same penalties if they break the rules, however, the Consumer Credit Act would need to be amended. While this might not be easy, it shouldn’t be impossible.
Importantly, the FCA’s review also stated that moving the regulations about the content of collections letters into FCA rules would offer an opportunity to review and update them. In particular, that could help help ensure people in problem debt still get all the information they need, but that they’re better directed to the most appropriate bits – especially free debt advice.
It would also avoid a similar situation in future where the way we communicate changes, but the law doesn’t. The FCA is well placed to design and test new wording to ensure it’s as effective as possible in helping people resolve debt problems, without causing undue psychological distress.
The government should be reviewing the FCA’s report and responding in due course. We’ll be keeping the pressure on them to make these changes to prevent letters causing unnecessary distress, and to save lives. If you’d like to help us, you can sign the petition here.