Debt Collection Letters

Yvonne Fovargue Excerpts

Tuesday 21st May 2019 Westminster Hall

[Norman Lamb]

The hon. Gentleman goes to the heart of what I am proposing. I will expand on the point he made.

Debt collection letters, like the ones received by Paul and Jerome, often include complex text, which is capitalised and put in bold. The language can be intimidating to someone experiencing mental ill health. The letters often start with threats of court action. They do contain advice—the purpose is well meaning in terms of the legislative requirements.

However, the wording they are required to use is inaccurate and out of date. It was devised before free debt advice was widely available. Recipients are told to get help from a solicitor, from their local trading standards department or a citizens advice bureau. However, trading standards can only help someone when a company’s behaviour is illegal, not in an ordinary civil situation. Therefore, that advice, in wording required by the Government, is inaccurate and should not be there.

The idea that someone in problem debt should be told in official advice to seek out a solicitor is outdated and frankly ridiculous for many people who would just assume that going to a solicitor is impossible, due to the cost involved. The advice is so out of date because, outrageously, the content of these letters is dictated by legislation that has not been updated for decades. Lenders are legally obliged to include certain pieces of prescribed content, as is laid out in the Consumer Credit Act 1974 and the Consumer Credit (Enforcement, Default and Termination Notices) Regulations 1983.

The Money and Mental Health Policy Institute’s “Stop the #DebtThreats” campaign calls on the Government to amend the Consumer Credit Act and the associated regulations, to put a stop to the threatening letters. First, the Government should change the prescribed content of lenders’ letters, exactly as the hon. Member for Coatbridge, Chryston and Bellshill (Hugh Gaffney) suggested. The Government should make these letters more accessible, easier to understand and clearer for people in problem debt.

If the Minister is tempted to say that he is supportive of the principle involved here, but it involves a comprehensive review of the Consumer Credit Act and the whole thing will take a long time, I do not buy it. There is clearly a case for a review of the primary legislation, but the wording of the letter, which is out of date and inappropriate, could be changed quickly through regulations. There is a real danger that we overcomplicate this. Those regulations could be made in a straightforward way quickly, pending a wider review of how we deal with these issues. One sensible idea is to refer the matter across to the Financial Conduct Authority. The step could be taken immediately to get rid of the inappropriate and inaccurate prescribed wording, which simply should not be there and makes things more difficult for people.

[Yvonne Fovargue (Makerfield) (Lab)]

Does the right hon. Gentleman agree that putting the threat of court action first puts people off reading the rest of the letter? What should be first is the fact that help is available for people to get debt advice, and that it does not have to be face to face—advice is available online and on the telephone. There is a wide range of support that was not there before, which needs to be highlighted.

[Norman Lamb]

The hon. Lady is absolutely right. The guidance we had from organisations before the debate makes the point that the letters are often lengthy. People in a state of anxiety and distress will give up reading something complex before they reach the helpful advice, which might be right at the end. There needs to be clear information up front about seeking advice. It is in the interest of the creditor to refer people to that advice straightaway and put it up front, and the Government’s prescribed wording could require that, which is what we are calling for.

There is also a danger that the Minister might say, “People nowadays can just google it and get access to good advice online,” but when people google for debt advice, the options at the top of the list are for paid-for advice, which is inappropriate. The information that people need should be in the prescribed wording of the letters that creditors have to send. The Government could do something about that quickly.

The Government should stipulate that creditors should signpost people to sources of support, which is really important, as the hon. Member for Makerfield (Yvonne Fovargue) said. People should be directed to the free specialist debt advice provided by charities such as StepChange and Citizens Advice. Exactly as she said, that should be at the start of the letter and should take precedence over threats of court action. Jerome’s mother Tracey and Paul are backing the “Stop the #DebtThreats” campaign.

Last week, the Treasury Committee made a welcome intervention in its report “Consumers’ access to financial services”, which recommended that the Government amend the relevant legislation and reform the content of debt collection letters. It also recommended that debt collection letters contain

“a form of words that would be clear and understandable for an individual with a low level of literacy”,

and that the Government

“mandate the inclusion—with equal prominence to the demand for payment—of information within such requests of how an individual can seek help with their debts.”

The pressure on the Treasury is mounting and we hope that there will be a constructive response. We are calling on the Government to amend the legislation and regulations that govern the content of debt letters. As I said earlier, they should do what is necessary, which they can do quickly by making the wording on the letters more helpful and by getting rid of the inappropriate and inaccurate wording, and then look to wider reform later.

As I indicated, another way to achieve change in the longer run would be to delegate the control of debt letter content requirements to the Financial Conduct Authority. There is an opportunity here, as the FCA recently completed a statutory review of the Consumer Credit Act, which acknowledged several concerns about the rules on content. The review highlighted the possibility of the FCA taking control of and updating the rules. I will be interested to hear the Minister’s response to that suggestion.

Debt collection letters from lenders are just one of many problems that people in financial difficulties face. I also support an initiative that proposes bailiff regulation, which has been put together by the hon. Member for Leeds West (Rachel Reeves). We and other hon. Members have signed a joint letter to the Minister with responsibility for bailiffs to call for the behaviour of bailiffs to be regulated.

The behaviour of bailiffs is another key problem for people in debt, as Jerome Rogers experienced. According to Citizens Advice, more than 100,000 people have had bailiff-related problems in the last 12 months, which is an increase of 16% from the previous year. Some 40% of Citizens Advice clients with issues about bailiffs also had some sort of health condition, including mental ill health, but they often faced completely inappropriate behaviour by bailiffs. In its briefing for the debate, Citizens Advice highlights a number of highly inappropriate actions by bailiffs that have come to its attention.

The argument is that there needs to be a regulator for bailiffs, alongside reform to the wording of the letters. We believe that the Minister can act quickly and I hope that he will give a constructive response.

--- Later in debate ---

[John Glen]

The hon. Gentleman makes a reasonable point, and that is something we need to examine carefully when we consider what needs to happen in this area. I thank the hon. Gentleman for his intervention.

Stakeholder views will be essential to inform the Government’s decision making, and I would welcome the opportunity to meet the right hon. Member for North Norfolk and any other interested colleagues across the House to better understand how this important issue should be addressed as our policy thinking progresses. During my time in office, I have encountered many individuals who have been in financially vulnerable circumstances and I have compassion for the unique challenges they face. Indeed, only last week I welcomed to the Treasury some individuals with lived experience of financial difficulty, to hear in more detail how they had got into those situations.

I would like to take this opportunity to assure the right hon. Member for North Norfolk that reviewing the mental health aspect of the prescribed content in debt collection letters will be top of my list of priorities during this programme of work. The issue requires continued dialogue to understand what the best outcome for these vulnerable individuals would be, and how best to deliver it. Given the letter’s rather terse words referring to a solicitor, which are really not appropriate and could have been written a long time ago, I will reflect on the right hon. Gentleman’s point about the changing nature of debt advice and about how best it can be presented.

That does not mean that those most at risk will not see benefit in the near future. I draw attention to the significant work that has been undertaken to meet the Government’s manifesto commitment of implementing a breathing space scheme, which I alluded to earlier. The scheme will give the most vulnerable consumers 60 days of respite from creditor action, to access debt advice and put their finances on a sustainable footing.

[Yvonne Fovargue]

Can the Minister confirm that the breathing space would also apply to statutory authorities, for example local authorities, which are possibly the biggest users of bailiffs?

[John Glen]

I will come on to that point in a few moments, but my instinct, as I think the hon. Lady knows from my visit to the all-party parliamentary group on debt and personal finance, is that if the breathing space does not contain the maximum amount of public sector debt it will not be meaningful. At this moment, however, I cannot formally confirm how the scheme will work, but I will say a few more things in a few minutes.

The Government set out the detailed policy for the breathing space scheme in a consultation launched in October 2018. As part of the scheme, firms will not be able to communicate directly with consumers to request repayment of debt. In particular, the consultation paper set out the design of an alternative access mechanism for those in mental health crisis. The mechanism would enable those individuals to enter breathing space without having directly accessed debt advice. I feel very strongly about the mechanism, as those suffering from a mental health crisis may find it particularly difficult to engage with debt advice services in the way that people without mental health challenges do.

The consultation closed in January 2019, and the Government will shortly publish a response to set out their approach to the whole scheme, before laying regulations to implement breathing space before the end of the year, which is when a comprehensive answer to the question asked by the hon. Member for Makerfield (Yvonne Fovargue) will be provided.

In conclusion, I share the concerns raised by the right hon. Member for North Norfolk and recognise that, in certain cases, the content of debt collection letters can increase consumer harm. I hope I have assured him that the issue will be at the top of my list of priorities when considering further reform in the consumer credit regulatory framework. I take the point about whether the letter issue can be expedited separately, and I look forward to working with the right hon. Gentleman to better understand the most timely and effective way of remedying the problem. I thank him very much for bringing the matter to the House.

Question put and agreed to.