The Treasury is introducing new rules on how businesses should construct letters sent to people in debt.
Carly Davies Debt Recovery Manager provides an update.
The emphasis will be on helping customers to better understand and manage their debts, reducing distress and supporting mental health
Default Notices are designed to give people who are falling behind on their debts fair warning before lenders take further action, but much of the formatting and content has not been updated in nearly 40 years.
Research from the Money and Mental Health Policy Institute and debt charities has shown that large amounts of capitalised text and legal terms can make the information contained in the letter hard to understand, which has the unintended consequence of confusing and distressing people.
This has a negative impact on people’s mental health as well as their ability to effectively manage their debt.
The new rules will make debt letters less threatening by restricting the amount of information that must be made prominent and requiring lenders to use bold or underlined text rather than capital letters. Letters will clearly signpost people to the best sources of free debt advice.
John Glen, Economic Secretary to the Treasury, said: “Being behind on your credit repayments can be a really distressing experience which is made worse by a confusing and intimidating letter from your lender.
“As part of our effort to help to people struggling with their finances, it’s right that we look again at the legislation around these letters. These new rules will help to take the fear out of finance by ensuring that letters are easier to understand, less threatening, and empower people to take control of their finances.”
The government has also given the Financial Conduct Authority strong powers to protect consumers who borrow money, including cracking down on payday lenders, capping the cost of rent-to-own, and taking action on overdraft fees.
The new rules will be delivered through secondary legislation and are expected to come into force in December 2020. All lenders will then be required to make the changes within six months.
Please contact Carly on 01228 585245 if you would like help with either debt collection or credit control.