Breathing Space Regulations – The Next Step
The Breathing Space Regulations came into effect earlier this month, with the UK government estimating that the new rules will help around 700,000 people who are struggling with problem debt.
The scheme allows individuals with financial difficulties a period of 60 days free from enforcement action, unnecessary correspondence, or further fees, interest, and charges piling up. This time is to be used to work with professional advisers.
There is an additional scheme for those in mental health crisis treatment – the respite period in these cases will last until the underlying mental health issue plus 30 days.
The Government notes that the scheme may also benefit creditors, with over £400 million in extra debt repayments expected over the course of the first year of the scheme.
In practice, although fees, charges, and interest will be frozen, there is no ‘payment holiday’, as the debt repayments plus any other ongoing payments such as rent and bills will continue to need to be made while the debt solution is worked up and agreed.
The second part of the Government’s scheme is a proposed ‘Statutory Debt Repayment Plan’ (SDRP), which will be an agreement that will allow someone in problem debt to repay their debts to a manageable timetable, with additional legal protections from creditor action for the duration of the plan. This element of the scheme has not yet been implemented, but HM Treasury is set to work on the SDRP in the near future. The FCA’s regulatory initiatives grid suggests that the technical consultation could start in early 2022, with the Regulations ready by the end of 2022.
Debt Relief Orders
The Government’s summary of responses to its consultation on the proposed changes to the monetary eligibility criteria for debt relief orders (DROs) was published on 10 May 2021. Debt Relief Orders offer access to debt relief for those with lower levels of unmanageable debt who cannot pay their creditors.
Under the current rules, individuals seeking a DRO must meet strict monetary eligibility criteria, as well as other non-financial criteria.
The proposal is to extend the total amount of debt allowable from £20,000 to £30,000, and the allowable value of assets from £1000 to £2000. Under the proposal, the allowable surplus income will also increase from £50 to £75.
The Government currently plans to introduce the changes as soon as possible, with the aim being that they will come into force before the end of the first 60-day breathing space procedure, which will be 3 July.
The consultation highlighted that almost all respondents, which included debt advisers and those from the creditor community, agreed that change was necessary and was long overdue, with some respondents suggesting that the changes should be considered as part of the wider review of the personal insolvency regime, which the Government has accepted. The review will also consider questions around barriers to entry, potential raises in the £30,000 limit, and potential changes to the process of applying for a DRO. Some of the changes suggested in the responses would require an amendment to the legislation.
The Government will issue a Call for Evidence on the personal insolvency framework in the near future.
Training Your Staff
Training staff gives them the confidence to speak to and support customers in financial difficulties. Our dedicated course takes learners through techniques that have been tried and tested, covers questioning skills, empathy, and active listening, what to say, when to say it, and how to support customers. It also covers the recording of the customer’s personal information in line with the General Data Protection Regulation and the Data Protection Act 2018.
This online course, priced at just £15, is accessible at the delegate’s convenience, and provides a certificate upon successful completion, allowing firms to track and record each user’s progress. For large groups, we can offer a simplified enrolment service and pricing, simply email Robert.email@example.com.
Proposals for the FCA’s ‘Consumer Duty’
The FCA has published its Consultation Paper on the application of a new Consumer Duty, designed to embed a higher standard of care to customers, with firms expected to ensure a consistent focus on consumer outcomes and to put customers in a position where they can act and make decisions in their best interests.
The proposals relate to products and services sold to ‘retail clients’ – in other words all customers other than professional clients, which means that the proposal would also apply to the provision of services to most SMEs. The proposals would also apply to firms that are involved in the manufacture or supply of products and services to retail clients, even if they do not have a direct relationship with the customer.
The Consumer Duty would require:
Firms to consider what outcomes customers should be able to expect from their products and services
Firms to act in ways that enable these outcomes
The assessment of the effectiveness of these actions.
The FCA are holding a webinar on 10 June which will set out their proposals in more detail. The deadline for feedback is 31 July 2021.