The Breathing Space Regulations – or to give them their full name, the Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020 (the Regulations) – have now been published together with the guidance for creditors. The FCA’s feedback from its consultation on changes to its Handbook is due to be published shortly.
The Regulations come into force on 4 May 2021 and give eligible people in problem debt - who receive professional debt advice -access to a 60 day period in which most enforcement action and contact from creditors is paused and most interest and charges on debts are frozen. For individuals receiving mental health crisis treatment, the Regulations establish an alternate route to access the protections of a moratorium for the duration of the person’s mental health crisis treatment, plus 30 days.
We have set out below six key questions for secured lenders to consider in implementing the Regulations.
Implementation: Six key questions for secured lenders
1. Scope of application: have you considered which loans are in or out of scope of the Regulations?
The definition of “qualifying debt” is the starting point (and the Regulations extend to buy-to-let as well as regulated mortgages), but other aspects of the application criteria of the Regulations (for example, based on the location of the debt/ordinary residence of the eligible person) can be more complex.
2. Identification of additional debts: operationally, are you able to read-across your loan portfolios/brands for other debts which may not have been listed by the customer?
When you receive a notification, as well as searching your records for details of the debt you’ve been notified about, you must also search for any additional debts owed to you by the debtor.
3. Mortgages as on “ongoing liability”: have you considered the impact of the categorisation of a mortgage secured against the debtor’s primary residence as an “ongoing liability”, but that this does not include arrears accrued up to the start of the breathing space.
In particular, the impact on any suspended possession order payments, where the customer’s payment includes a sum towards arrears.
4. Enforcement activity: have you identified what is or isn’t considered to be enforcement activity for the purposes of the Regulations and how this will impact your mortgage enforcement processes?
For example, will you continue to progress existing possession proceedings through to obtaining a possession order for customers in breathing space or will you take a more restrictive approach than the Regulations permit?
5. Relationship with existing law and regulation: have you considered the relationship between your obligations under existing law and regulation and the new Regulations?
For example, will your approach to customer contact be the same where the “qualifying debt” is a regulated mortgage contract or an unregulated buy-to-let loan?
6. Changes to processes: how will you implement the Regulations into your processes?
For example, once qualifying debts have been identified, how will you record this on the relevant accounts, who do you need to notify, how will you make the changes to the accounts to ensure that the customer does not pay the fees, charges and interest that are frozen?