Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020

Lord Agnew of Oulton Excerpts

Tuesday 6th October 2020 Lords Chamber

Moved by

[Lord Agnew of Oulton]

That the draft Regulations laid before the House on 9 September be approved.

[The Minister of State, Cabinet Office and the Treasury (Lord Agnew of Oulton) (Con)]

My Lords, the regulations before us today will establish a breathing space scheme for individuals who live in England and Wales. This is a temporary period of respite from creditor action to help people in problem debt consider their options and engage with professional debt advice. To many in this Chamber, the scheme will need no introduction, as noble Lords were the driving force behind amendments to the Financial Guidance and Claims Act 2018, under which the Government present these regulations today. Since then, of course, the Government have had to make unprecedented policy interventions to save jobs and support livelihoods due to the impact of Covid-19, so the need for this scheme is even more pressing.

A breathing space—or, to use the term in the regulations, a moratorium—will pause most enforcement action, creditor contact, and interest and charges on a person’s qualifying debts. There are two kinds of moratorium. The first, a breathing space moratorium, lasts for 60 days and is open to anyone who engages with debt advice and meets the eligibility criteria. The second, a mental health crisis moratorium, available where a person is in mental health crisis treatment, extends those protections for as long as that treatment lasts, plus 30 days.

Professional debt advice providers have a central role in the scheme. They can initiate a moratorium for anyone who meets the relevant eligibility criteria and conditions. They should not do so if it would be inappropriate—for example, if their client could go into a debt solution like an IVA or bankruptcy straight away, or if they could manage their finances without a moratorium. There are other important safeguards to ensure that clients are complying with the scheme’s rules as far as possible. For example, certain ongoing liabilities such as a mortgage or rent must be paid as they fall due during a breathing space moratorium. If they are not, or if the client is not engaging with debt advice, the debt adviser can decide whether the breathing space moratorium should continue.

Of course, the Government recognise that, during mental health crisis treatment, it will be harder to engage with debt advice in this way and that it may be less reasonable to expect the individual to keep up specific obligations on them. The scheme anticipates this, with alternative access for people in mental health crisis treatment to a moratorium with equally strong protections that last longer, and where the conditions on the debtor are relaxed. This type of moratorium can only be accessed once an approved mental health professional has certified that a person is in crisis treatment. The debt adviser need not provide advice directly to the person but will still check that the relevant eligibility criteria are met and that an AMHP has provided the necessary evidence. A breathing space moratorium can only be accessed once every 12 months, but there is no limit to the number of times that a person can enter a mental health crisis moratorium.

I will now move on to implementation and begin by addressing the recommendations made by the Secondary Legislation Scrutiny Committee. It recommended that the Government consider establishing a comprehensive debt adviser register. Access to professional debt advice is crucial, but our view is that instead of creating a new register, this can be best achieved by working with the Money and Pensions Service and other stake- holders to clearly direct people to free debt advice provision, including on GOV.UK and via MaPS’s existing online tools. In its most recent report on the regulations, the committee also suggested that the Government should bring forward the start date for the scheme to earlier than May 2021, in response to Covid. Simply making the regulations does not give effect to the scheme’s protections; creditors large and small need time to change their systems and debt advice providers need to plan and train their staff. This is against the backdrop of everyone making unprecedented efforts to help people affected by the financial impact of Covid. While the Government appreciate the committee’s intent, they are firmly of the view that May 2021 is ambitious but achievable. The Government continue to work to support implementation next May, and detailed scheme guidance is to be published by the end of this year.

Beyond the committee’s recommendations, there are other areas of implementation that I would like to bring to noble Lords’ attention. A barrier to individuals seeking help with debts can often be fear of the impact any intervention will have on their credit score. The Government have considered this issue carefully. Debt advice providers need clarity on this to advise their clients, and the Government are mindful to avoid unintended consequences for debtors and creditors in the scheme. A moratorium is not a payment holiday or a payment deferral scheme. Other than pausing interest and fees, no new arrangements are made regarding the debts protected in a moratorium, so the Government do not consider it appropriate to ask creditors to pause reporting to credit reference agencies. Credit files take up to 50 days to update, so the impact on an individual during the 60-day moratorium would in any case be limited.

The Government have also considered whether it would appropriate to seek a new flag or code to show a breathing space on a credit file. This could have longer-lasting effects and, in the mental health crisis moratorium, sensitive information about a person’s treatment could be inferred from credit files. This is not acceptable. We therefore propose that creditors should continue to report payments in line with their existing arrangements, encouraging payments to continue during the moratorium wherever possible. The Government will keep this position and its effects under review.

The breathing space scheme will encourage people to engage with professional debt advice and create the necessary space for them to make better decisions based on that advice. Importantly, it will also protect people receiving mental health crisis treatment until they are more able to engage in this way. I hope we can agree that these regulations are a positive step forward in an area that has long been important to many in this Chamber, with the potential to change lives. I beg to move.

--- Later in debate ---

[Lord Agnew of Oulton (Con)]

My Lords, I thank noble Lords for their thoughtful contributions, and I am grateful for the chance to respond to the points that have been raised.

I think we can all agree that current events make the case for this scheme to be introduced as soon as possible. I understand the point made by some noble Lords about the need to try to bring it in sooner. However, we have worked extensively with the sector and we feel that it is unlikely that we will be able to bring it in much sooner, probably due more to the need to train advisers than to issues related to the lending sector. The noble Lord, Lord Blunkett, and the right reverend Prelate the Bishop of Rochester are concerned about that. However, we want the scheme to work well, so we want to get it launched properly.

The noble Lord, Lord Tunnicliffe, my noble friend Lord Kirkhope and the noble Baroness, Lady Janke, asked about the SDRP. Many of the challenges apply in relation to the statutory debt repayment plan, which is complex; the Government want to ensure that the strong protections promised can be achieved. The financial services Bill will shortly be debated in Parliament. It contains a clause to give the Government the full range of powers they need to implement the SDRP and ensure that the protections that it offers mirror those in the breathing space regulations. Secondary regulations will then need to be prepared, appropriately consulted on and made. I cannot commit today to a specific date for introducing the SDRP, but I assure noble Lords that the Government are aware of the desire to see the second part of the debt respite scheme up and running as soon as possible.

We have also heard concerns that creditors will struggle to be ready, given the challenges of operating in the pandemic. The Government understand those concerns, but the scheme is, and remains, a priority in the current circumstances. The date of May feels like a reasonable compromise to achieve its introduction and have it working properly.

Noble Lords asked specific questions about how the scheme will work. The noble Lord, Lord Tunnicliffe, asked how the Government will prevent stigma in the scheme. I am aware that stigma can cause people to delay seeking advice. I am assured that this is being considered in the scheme design, including in the approach to credit referencing, which I set out for noble Lords in my opening speech. The Government’s intention is that the scheme’s strong protections should incentivise more people to see the value of taking advice earlier.

The noble Lord, Lord Blunkett, asked about unscrupulous advisers. I assure him that the FCA requires the provision of sound, impartial debt advice that is in the best interests of consumers. Debt advice providers cannot charge a fee in connection with the moratorium. Fee-charging debt advice firms must also signpost clients to sources of free debt advice. They must be transparent about the fees and charges payable by their clients and must ensure that those fees and charges do not undermine their clients’ ability to make significant repayments to creditors. The FCA’s most recent thematic review of the sector, published in March 2019, found significant improvements in the standard of advice given. The FCA takes supervisory and, if necessary, enforcement action where it finds that harm is caused by firms providing inappropriate debt advice.

The right reverend Prelate the Bishop of Rochester asked about the inclusion of universal credit debts. Universal credit overpayments will be included in the breathing space scheme from day one. Universal credit advances and third-party deductions will be included in the breathing space scheme on a phased basis as early as possible after the policy starts. These two additional aspects require significant IT changes, which need to align with the requirements of the wider UC programme. The Government recognise the importance of including all universal credit debts in the scheme as soon as possible.

The noble Lord, Lord Kirkhope, asked about approved mental health professionals. They are qualified and experienced, approved by local authorities, and have specific expertise and training in mental health and mental capacity law. They are experienced in supporting people in crisis and usually based in community crisis or home treatment teams. The Government will provide guidance on the scheme and are working with MaPS to smooth the process for AMHPs to reach debt advice providers.

The noble Lord, Lord Kirkhope, and the noble Baroness, Lady Janke, asked whether debt advice providers would be able to navigate the definition of excluded debts in the regulations. This point will be covered in the guidance. The Money and Pensions Service is working in partnership with the Money Advice Trust to develop and deliver an online training module, which will inform and support debt advisors with the introduction of the scheme in May 2021. The intention is for the training to be accessible to all debt advisors across the sector. MaPS is also working to provide debt advice providers with access to support on technical questions.

It is a complex scheme, necessarily so, given the wide range of public and private debts included. I explained in my speech that the Government will publish scheme guidance by the end of the year to offer further explanation where possible. The noble Lord, Lord Kirkhope, asked for whom this guidance will be provided. I can confirm that it will be prepared for debt advice providers, creditors, AMHPs, and GOV.UK will include a high-level overview of the scheme.

The Government are fully committed to closely monitoring the impact of the breathing space scheme, and developing and monitoring an evaluation strategy to facilitate an effective post-implementation review. As in all such matters, financial services firms will need to take their own legal advice on their approach. In addition to the government scheme guidance, I understand that the FCA will publish a consultation on guidance for firms shortly.

The right reverend Prelate the Bishop of Rochester asked about training. Government support for debt advice has already seen an extra £37.8 million support package made available to debt advice providers this year. The Government are working closely with MaPS on training for debt advice providers to help ensure that they will be ready to offer the scheme.

The noble Baroness, Lady Janke, asked about demand for the scheme. Moratorium can be accessed only via professional debt advice, so the take-up rate of the scheme is constrained by the available supply of that debt advice. Covid-19 poses many uncertainties, and we will continue to monitor the evolving situation. The noble Lord, Lord Tunnicliffe, was also concerned about the impact of Covid-19 and the downturn of the economy. The Government recognise that people are struggling with their finances during this very difficult time and have put an unprecedented package of support in place to try to help people during the pandemic. We will keep this area under close consideration.

I believe that the breathing space scheme will encourage people to engage with professional debt advice and create the necessary space for them to make better decisions based on that advice. Importantly, it will protect people receiving mental health crisis treatment until they are more able to engage in this way. I hope we can agree that these regulations are a positive step forward in an area that has long been important to many in this Chamber, with the potential to change lives. I beg to move.

Motion agreed.