Coming Up For Air
What you need to know about the new Debt Breathing Space Regulations.
The Breathing Space and Mental Health Crisis Debt Respite Scheme came into force on 4th May 2021 in England and Wales. The regulations are designed to ensure that people in problem debt have the right to legal protections from creditor action for a defined period. The intention is to give time to those who are struggling to make repayments; allowing them to pause, seek advice and potentially enter a scheme in which they can resolve their debt. As a creditor organisation, you need to understand the implications of the new scheme and find practices and solutions to work with the regulations to help vulnerable people meet their obligations while keeping to both the letter and the spirit of the new law.
Why do we need it?
According to government figures, one in eight households in England will struggle to pay their domestic fuel bills in 2021. Figures from the Department for Business, Energy and Industrial Strategy show us that three million households are living fuel poverty [Evening Standard]. These figures highlight the current financial struggle is suffered by 12.5% of the England population. Across the board, personal debt in the UK stands at around £1.7 Trillion; £15 Billion up on last year. Latest statistics from debt charity StepChange show a 6% increase in the number of vulnerable consumers in debt in 2020. And with more than nine million people in the UK living in debt and the impact of the Covid pandemic this only looks to get worse [Credit Connect]
Under pressure from creditors, some consumers have taken out high interest loans in order to meet the more urgent repayments, dragging them into a vicious cycle of borrowing to pay interest on a loan to meet a debt they may, in other circumstances, been able to clear. The Breathing Space scheme aims to give people, especially vulnerable people, the time to take step back, seek out advice and find a workable resolution to their problem. Debt problems can rapidly lead to mental health crises so a period of grace will also help the more severely impacted to seek out mental wellbeing therapies.
From a humanitarian view, no organisation wants to add to an individual’s mental health problems but from financial view, Breathing Space makes sense too. Let’s face it the bigger the debt, the older the debt the more it becomes your problem as a creditor, as well as that of the consumer. So it’s in everyone’s interest to find a solution.
Who is eligible?
The impact assessment for breathing space, forecasts that it will help over 700,000 people across the UK get professional help in its first year, increasing up to 1.2 million a year by the tenth year of operation [gov.uk]. There are two types of breathing space: a standard breathing space and a mental health crisis breathing space.
A standard breathing space is available to any private individual (not companies) with problem debt. It gives them legal protections from creditor action for up to 60 days.
To be able to access the 60-day freeze to creditor action; the consumer must be assessed as eligible by an FCA Authorised debt advice firm or a local authority. Creditors may be notified at any stage during the debt recovery process that a debtor is entering a breathing space and must have processes in place to ensure compliance.
Those who are eligible for the breathing space scheme will receive professional debt advice, access to a sixty-day period whereby, creditors will not be able to add interest or fees to a consumer’s debts or take enforcement action. However, this should not be viewed as a payment holiday as the debtor will still need to keep making regular payments if they can afford to.
A mental health crisis breathing space is only available to someone who is receiving mental health crisis treatment and it has some stronger protections. People receiving mental health crisis treatment will be able to enter the moratorium without engaging with debt advice for the duration of their crisis treatment, and then for a further thirty days. There is no limit on how many times people receiving mental health crisis treatment can enter a moratorium via this approach.
What can organisations do to help?
As mentioned earlier, debt is a problem for both parties so start by viewing this as a shared problem and adopt a collaborative approach; organisations need to be more sensitive to customers struggling with problem debt, understanding that customers don’t intentionally get into debt problems. They should work collaboratively with their customers to resolve the problem and enable their customers to get into good habits to avoid future problem debt. Organisations should be looking to spot the warning signs of debt earlier. Putting preventative measures in place, whereby they are proactively communicating with customers to help them from getting into debt in the first place, alleviating the pressure of mounting debts for both parties. Additionally, organisations should implement processes to take account of consumers who may be in receipt of mental health breathing space so that they don’t inadvertently fall in foul of the law contacting them during the moratorium.
Technology has become integral to customer contact, and all customers are different. Being able to flexibly respond to your customers’ communication needs will be central for all businesses now and in the future. The sensitive nature of the debt collection process means that organisations, now more than ever, should look to humanise their approach. Whether it be personalised messages or providing agent names via live chats; a more tailored approach will likely encourage communication and build trust between the debtor and the creditor.
Stress should be removed from the process so that customers aren’t reluctant to make contact with their creditors. Allowing customers to get in touch in the most relevant and accessible way for them; be that a text message, email or by logging in to a dedicated platform, really empowers them to be in control and removes any awkwardness they may feel in discussing their account. This is good for the customer, as it puts them back in control, and benefits the business by opening communications with their struggling customers and eventually scaling up repayments when the time is right.