HM Treasury has recently published a call for evidence on a proposed breathing space scheme for consumers with serious debt problems. What could this mean for consumer credit lenders?
The Government committed in its 2017 manifesto to implement a new scheme to help consumers who are in serious problem debt. The proposed statutory scheme, if launched, will prevent lenders from charging further interest and charges as well as taking any enforcement action for a period of up to six weeks. The second part of the scheme would see statutory repayment plans being offered to those consumers to help them repay their debts. The aim of the scheme is to give consumers time to arrange their finances and repay their debts in a manageable way.
It is envisaged that it would apply to all consumer debts and not just those of consumer credit providers.
Scotland's Debt Arrangement Scheme (DAS)
HMT describes the Scottish Debt Arrangement Scheme (DAS) as an example of a statutory scheme designed to encourage consumers to seek advice (and help) earlier where there are greater incentives for them to do so. In Scotland, those who enter a DAS have the right to have their fees and interest frozen and up to six weeks breathing space to put in place a repayment plan.
It is surprising that despite the existence of an existing government backed scheme in the UK, which has similar characteristics to the type of scheme envisaged in the HMT paper, the call for evidence does not include any learnings about the DAS and how well it currently operates in Scotland.
For example, there is no commentary on the number of consumers who have used the scheme, any issues which have arisen for consumers and creditors alike in satisfying the DAS requirements, and also whether there has been evidence of misuse of the scheme. Other issues likely to be relevant to creditors are the appropriateness of a 6 week period and what this means for changes to existing systems. Finally what impacts or changes may be needed for Credit Reference Agency reporting purposes?
Impact on requirements for consumer credit lenders
Consumer credit lenders are already required to show forbearance and suspend the active pursuit of recovery of a debt to customers in CONC 7.3.11 for an initial period of 30 days where a customer informs them that he or she is developing a repayment plan. This can be extended for a further 30 days where there is reasonable evidence the plan is being progressed but has yet to be finalised.
The HMT paper refers to the existing rules in Chapter 7 of CONC in the context of the FCA regime, which it says is helping to deliver a higher standard of consumer protection in the consumer credit sector. It is not clear however whether the proposed breathing space scheme would operate alongside existing CONC requirements, or in place of CONC. It is also not clear how the proposed scheme would operate alongside existing consumer credit requirements, such as the requirement to issue NODS or NOSIAs, as well as the other statutory protection schemes already available to consumers who are unable to repay their debts.
Persistent debt, problem debt and serious problem debt
This is the latest in a number of regulatory developments concerning consumer indebtedness this year that impact consumer credit providers. The government remains concerned about the high levels of personal debt and there have been several initiatives from different regulators with consumer debt at their heart.
The FCA is currently reviewing its CONC rules on creditworthiness and affordability, and credit card providers are implementing persistent debt remedies under the Credit Card Market Study. In addition, the PRA undertook a review of consumer credit lending by PRA regulated firms from a prudential perspective earlier this year. At the same time, the Financial Guidance and Claims Bill will create a new single financial guidance body for consumers.
What about public sector debts?
So far, the regulatory focus has very much concentrated on consumer debts as a result of credit provided by private sector lenders, yet not all debt is owed to the private sector. Consumers can fall into significant financial difficulty due to debts owed to local authorities, HMRC and the DWP.
The HMT paper makes reference to public debts and describes some of the steps being taken to ensure consumers can meet their debts to public creditors. Importantly it recognises that if the government is serious about effectively tackling consumer debt, regulatory efforts need to be widened to consider all other debts that can lead to serious problem debt in society, and not just those owed to private sector / consumer credit providers.
A number of questions have been included in the call for evidence. Responses are due by 16 January 2018.