It has been a long time coming, but finally, and after months of hard lobbying by financial institutions and their representative bodies, the government has published its revised draft regulations giving certain banking customers ‘breathing space’ from certain debt-related enforcement action.
With the previous draft having caused alarm and confusion across the industry, the regulations – or to give them their full name, the Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020 – have brought about some relief and a lot more clarity about how and when they apply, and their impact on systems and procedures.
The regulations, which are currently laid before parliament, establish the first part of a debt respite scheme for individuals in problem debt.
They give eligible people in problem debt, who receive professional debt advice, access to a sixty-day period in which interest, fees and charges are frozen and enforcement action is paused – referred to as “breathing space”.
For individuals receiving mental health crisis treatment, the regulations establish an alternate route to access the protections of a moratorium and ensure that the protections are in place for the duration of the customer’s crisis treatment.
With the exception of certain limited provisions, the regulations come into force on 4 May 2021, with some aspects having retrospective effect.
The immediacy of the changes mean that lenders need to act now to ensure they can implement the regulations in the limited time available.
The objective of the scheme is to incentivise more people in problem debt to access professional debt advice, to do so sooner, and to enable them to enter the debt solution that is most appropriate for their circumstances.
The government’s view is that breathing space will give debtors time to fully engage with professional advice, and that this will ultimately reduce the number of people struggling with problem debt in the country – staving off the sort of crisis we have seen in previous decades.
Debtors will have access to the sixty-day breathing space moratorium once in a twelve-month period.
People receiving mental health crisis treatment will be able to enter the moratorium without engaging with debt advice for the duration of their crisis treatment, and then for a further thirty days.
If eligible, debtors will then have access to the sixty-day breathing space moratorium. There is no limit on how many times people receiving mental health crisis treatment can enter a moratorium via this mechanism.
New draft, new provisions
The financial services industry has worked incredibly hard to support vulnerable customers in recent years, and firms recognised the importance of designing an effective and sustainable scheme that appropriately supports customers in financial difficulty.
With that in mind, firms responded in force to the initial draft regulations, highlighting that to effectively implement the scheme they would need:
• Clear guidance on exactly which debts are included
• Clear notification of when a customer has applied for the scheme (and the start date)
• Clear notification of when a customer exits the scheme