The UK government committed in its 2017 general election manifesto to introduce “breathing spaces” for those who may have problem debt. A breathing space would give customers of financial service providers a 6-week window where they pay no interest or fees without having to enter into a formal debt solution such as bankruptcy. The government hopes that such a scheme, which already exists in Scotland, will encourage customers to seek advice at an earlier stage, help better manage their debts, and reduce the amount of debt written off by creditors.
As part of the process for introducing the scheme, HM Treasury has today concluded a call for evidence from creditors and the debt advice sector. The questions asked raise a number of critical issues about the design of such a scheme, including how to define “serious problem debt” and what eligibility criteria to impose to avoid the system being abused.
Phil Sneade, working in Frontier’s financial services team, said “Government and UK regulators are increasingly focused on consumer debt, particularly for ‘vulnerable’ customers. Measures to tackle persistent debt for credit card customers have recently been announced by the Financial Conduct Authority (FCA) as part of wider work looking into high cost credit products, including overdrafts. To properly tackle debt issues it is critical to look holistically at a customer’s entire financial situation, and breathing spaces have the potential to do just that. As and when this policy is developed, it will be important to consider the interplay between breathing spaces and both the existing FCA rules and the FCA’s own evolving consumer credit policies, to ensure those with debt issues are provided with a clear, simple and consistent approach.”
Frontier works on these and other regulatory issues in financial services.
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