| Link(s): https://www.gov.uk/government/news/new-debt-letters-rules-will-support-people-in-problem-debt |
Context
New rules have been proposed for debt letters which will help people to better understand and manage their debts, reducing distress and supporting mental health.
The new rules will be delivered through secondary legislation and are expected to come into force in December 2020. All lenders will then be required to make the changes within six months.
Key points to note
- The new rules on debt letters (Default Notices) are designed to make letters issued by lenders when borrowers are seriously behind on repayments easier to understand and less intimidating.
- Content of Default Notices have not been updated in almost 40 years and research conducted by debt charities has indicated that the formatting and legal terminology used in these letters have made them difficult to understand, often unintentionally causing confusion and distress. This then impacts on mental health and the ability to effectively manage the debt.
- The new rules will make debt letters less threatening by restricting the amount of information that must be made prominent and require the use of bold or underlined text as an alternative to capital letters.
- Lenders will be able to replace legal terms with more understandable language.
- Letters will provide clear signposts to the best sources of free debt advice.
- The new rules build on the support that has been put into place to help people struggling with their finances, particularly through the coronavirus pandemic.
- The Government has also given the FCA strong powers to protect consumers who borrow money, including cracking down on payday lenders, capping the cost of rent-to-own and taking action on overdraft fees.