People in debt need more help
The help offered to people in debt varies too much. We need a uniform approach.
Would you know where to turn if you were struggling to pay your energy bills, credit card bill or even your rent or mortgage? You might go to your bank, utility company or creditor, explain your situation and ask for support – maybe a bit more time to get the money together, or the chance to make a reduced payment until your situation improves.
Some may be understanding and offer help, while others may steer you towards getting some independent debt advice. However, there will be some who say there is nothing they can do and continue to charge interest and charges on your debts.
Insolvency isn't for everyone
This sporadic approach to protection for people in debt is leaving many people struggling by without the help they desperately need, causing their debt problems to become significantly worse.
Under current law in England and Wales, the only way to guarantee a freeze on interest and charges and a halt on enforcement action is by taking an insolvency option, such as bankruptcy or a Debt Relief Order. These can be drastic measures and aren’t right for everyone’s circumstances. In 2013, just 22% of our clients were recommended an insolvency option following a debt advice session.
So what about the rest? Despite taking steps to try to repay their debts, they are left with no support beyond a patchwork of voluntary schemes and measures which too often don't offer adequate help
Inconsistent help
There are huge inconsistencies in the measures that are accessible to this group of people. Some creditors are regulated by the Financial Conduct Authority and have rules and guidance on treating customers fairly, but others - like private landlords, for example - are under no obligation to offer help and protection to tenants struggling to pay their rent.
These discrepancies mean that, even when people do reach out to their creditors for help, they may not get it. Nearly 80% of the clients we surveyed had contacted at least one of their creditors before seeking debt advice. Yet 32% said they were not offered any freeze on interest and charges or halt on enforcement action. Around 33% said none of their utility providers offered any assistance, 38% said their landlord gave no support, and 50% of people with Council Tax arrears said their council failed to help.
The consequences of refusing to offer help can be extremely damaging for those who are struggling to pay. We estimate that, over a six month period with no assistance from their creditors, the typical person in debt that we see could end up a further £2,300 worse off through interest and charges alone.
Without this support, people often fall back on coping strategies that simply make their debt problems worse. Of the clients whose creditors failed to help, 60% went on to take on more debt to try to fulfil their financial obligations, 29% felt pressured to pay a particular bill and so fell behind on others, and 21% took out a payday loan. If their circumstances don't improve, these people may then be unable to repay this additional debt, leading to a credit cycle that can be extremely difficult to break.
What we want to see happen
That’s why we’re calling for an extended breathing space scheme, providing a period of time during which people in temporary financial difficulty are given the same level of protection as those who are going through an insolvency solution. Interest and charges on accounts would be frozen and no enforcement action would be taken during this time.
Once people are able to start making repayments, they should then be given the support to do so at an affordable rate that won’t drag them deeper into difficulty.
Life events, like redundancy, illness or relationship breakdown, can happen to anyone and cause huge financial tremors for people. This scheme would give those people the chance to take a welcome pause, re-evaluate their finances and get back on track without the extra worry caused by falling into serious debt.
Now is the time for Government, creditors, regulators and the debt advice sector to come together and make this scheme a reality for all those who so desperately need it.
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