‘Threatening’ debt letters that ‘make people suicidal’ banned after Martin Lewis campaign
DEBT letters that "make people suicidal" due to their "threatening" language have been banned after a campaign by Martin Lewis.
The letters, known as "default notices", are sent to people who've fallen behind on overdraft, credit card, store card, payday and personal loan payments before lenders take further action.
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Mr Lewis, founder of consumer site MoneySavingExpert.com and charity the Money and Mental Health Policy Institute (MMHPI), argued that the format and language used is outdated as it determined by rules in the 1974 Consumer Credit Act.
He warned that the threatening and confusing language could push struggling people to the brink.
According to the MMHPI, 100,000 people in problem debt attempt to take their own life in England each year, with intimidating debt letters being a "key contributing factor".
The letters also have to recommend people in problem debt consult their solicitor or local trading standards board - something the MMHPI says is "outdated".
But now the government has agreed that letters should be redesigned to be simpler and less threatening.
How to cut the cost of your debt
IF you're in large amounts of debt it can be really worrying. Here are some tips from Citizens Advice on how you can take action.
Check your bank balance on a regular basis - knowing your spending patterns is the first step to managing your money
Work out your budget - by writing down your income and taking away your essential bills such as food and transport
If you have money left over, plan in advance what else you’ll spend or save. If you don’t, look at ways to cut your costs
Pay off more than the minimum - If you’ve got credit card debts aim to pay off more than the minimum amount on your credit card each month to bring down your bill quicker
Pay your most expensive credit card sooner - If you have more than one credit card and can’t pay them off in full each month, prioritise the most expensive card (the one with the highest interest rate)
Prioritise your debts - If you’ve got several debts and you can’t afford to pay them all it’s important to prioritise them
Your rent, mortgage, council tax and energy bills should be paid first because the consequences can be more serious if you don't pay
Get advice - If you’re struggling to pay your debts month after month it’s important you get advice as soon as possible, before they build up even further
Groups like Citizens Advice and Money Advice Trust can help you prioritise and negotiate with your creditors to offer you more affordable repayment plans
Letters will also no longer contain upper case letters, while firms will now be forced to signpost people to sources of free debt advice.
The Treasury expects the new rules to take force through legislation in December 2020 with lenders having up to six months to make the changes.
Martin Lewis, founder and chair of the MMHPI charity, said: “It’s no exaggeration to say that this change could save lives."
He added: "And the timing is crucial, with millions of people facing debt and distress due to the pandemic, the sooner we end these out-of-date laws which force lenders to send intimidating letters the better."
According to banking trade body UK Finance, more than 2million mortgage payment holidays have been granted due to the effects of the pandemic.
While just over 1million credit card payment deferrals, 738,000 personal loan payment holidays, and over 27million interest-free overdrafts have been dished out since the outset of the crisis.
Eric Leenders, managing director of personal finance at UK Finance said: "Lenders have to send Default Notices and these important changes announced today will ensure that customers receive more appropriate and supportive communications.”
John Glen, economic secretary to the Treasury, added: "These new rules will help to take the fear out of finance by ensuring letters are easier to understand, less threatening, and empower people to take control of their finances."
But while the move may be a step in the right direction, Peter Tutton, head of policy at charity StepChange, warns that the crackdown needs to be wider spread.
He said: "These proposed changes to debt collection letters are a welcome recognition that intimidating and confusing language isn't necessary to engage with people in problem debt.
"However, these letters are just one piece of the debt collection puzzle, and we know that in other areas, including bailiff notices and other government debt collection practices, intimidating letters and quick escalation to intrusive enforcement are still rife."
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The current support for coronavirus hit borrowers, including payment holidays and interest-free overdrafts, is due to end on October 31.
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Lenders initially offered payment holidays for a three-month period, but this was then extended for another three months in June.
But borrowers continuing to struggle may now have credit card and loan interest and charges cancelled under new rules that took force this month.