Breathing space for those struggling with debt?

Debt Charity Step Change has called for ‘breathing space’ as a recent survey has found that some creditors and lenders continue adding charges, even though the individual is in extreme financial difficulty. 1800 people were surveyed, and it concluded that inconsistent and poor treatment of those struggling with debt is adding to peoples financial woes.  The survey also found that people struggling with debt are often hit harder with charges, making it even more difficult for people to get out of financial difficulty.

The survey also highlighted how on-going and aggressive demands for already unaffordable repayments, create vicious cycles of debt. However, with unsecured loans rates at record low levels, are the lenders doing enough to help people?

The Survey found that 68% felt default charges made their debt problems much harder to deal with. A further 62% said creditors and debt collectors continued to add fees and charges despite knowing the person was in financial difficulty, and 52% said creditors and debt collectors continued to add fees and charges after they knew the person was seeking debt advice and guidance.

Perhaps even more alarmingly, the survey also concluded that those in the pursuit of debts often use threatening phone calls, and aggressive tactics which lead to additional anxiety and stress levels. Indeed, 65% of clients have experienced some level of bad debt-collection practice within the past two years, with 17% of people claiming to have experienced a threatening or aggressive visit from a doorstep collector.  41% have received intimidating or threatening phone calls, and 16% of clients have been contacted by bailiffs in the last year.  A whopping 53% of those contacted by bailiffs said it had made their debt problems harder to deal with and 15% said they’d actually felt forced into taking out more credit.

Extra pressure to repay unaffordable amounts can lead to additional stress and anxiety in an already pressurised situation, and the charity’s survey highlighted a number of further issues. 26% said that debt collectors had taken repayments that they could not afford; 14% of respondents said creditors had taken repayments that they could not afford directly from their wages or benefits and, 20% of respondents said they’d found utility providers’ repayment rates unaffordable.

Only four months ago, founder Martin Lewis and Step Change Debt Charity chief executive Mike O’Connor issued a joint statement asking for the government to reassess the rules relating to debt administration, and consult on a new proposed ‘breathing space’ scheme.  The proposed scheme would aim to help those in debt problems that have asked for help and guidance.  A proposed 6-12 month breathing space period would be granted to allow people time to get their finances sorted, during which time all interest and charges would be frozen and any enforcement action postponed. This would only be available through regulated debt advice agencies and the aim is to get people to repay at an affordable rate within a reasonable time.

Martin Lewis stated: “Instead of helping keep people afloat, which would result in the long run in people being in a better position to repay what they owe – these findings show that lenders and debt collectors are piling on charges and pressure. We need to do more to help people struggling with mounting debt, and protect people from unaffordable high interest rates and charges coupled with heavy-handed tactics.

“Bringing in a widespread breathing space scheme won’t just help people financially, but will also reduce the damaging mental-health consequences that are often a symptom of serious debt pressures. While some creditors already freeze interest and charges for people who are struggling, it only takes one creditor to not provide breathing space to stop those in financial difficulty sorting their finances. It’s time for the Government to step in.  By freezing the costs for people who are trying to repay, and allowing them time to get their finances back on track, it could also help lenders increase the amount they actually recover in the long run.”

Mike O’Connor believes the Treasury and Insolvency Service’s review of the legal framework for debt administration provides an ideal opportunity to help those in financial difficulty, and to assess the proposed ‘breathing space’ scheme. With unsecured loan rates at record lows, now could be the perfect time to make a difference.

He commented “Helping people get back on their feet is good for the individual, their families and their communities. These findings are yet further evidence of the need for action at a time when consumer debt is growing at its fastest rate in 10 years.”