Last week’s Budget came with proposals for helping customers in financial difficulty. The Treasury is consulting on the introduction of Breathing Spaces and Statutory Debt Repayment Plans, which would offer a period of respite from creditor action to arrange a debt solution for customers struggling with debts and allow those debts to be consolidated into a single, affordable plan.
A statutory debt repayment plan would be a long-term solution. It would enable the individual to enter into a formal agreement with all of their creditors to repay their debts over a manageable time period. The plan would be a significant intervention, ceasing all enforcement action by creditors against a debtor during that period, and preventing the charging of interest, default fees and charges on all debts included in in the plan.
The purpose of these plans is to give greater protection to debtors from the 'race to the bottom' in debt collection. Currently, a customer may try to agree a debt plan with their creditors, but there is always an incentive for any creditor to bypass the plan and seek to collect their money before others. This creates a ‘race to the bottom’ in the treatment of customers with all creditors seeking to get there first. By ceasing all enforcement action, customers will be able to agree a single plan with the debt advisor without being chased by other creditors.
The success of these schemes is conditional on individuals seeking debt advice. But the number of customers seeking timely debt advice is relatively low. Barriers to seeking advice include individuals not understanding who to turn to, and the perceived stigma of seeking help. The Government should ensure that these issues are also considered in the next phase of the consultation process.
Frontier regularly advises on issues relating to financial services in the UK and Europe.
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