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Victory over debt threats as Government agrees to end distressing default letters

The Government has today agreed to change old laws which force lenders to send intimidating letters to people struggling with debt, in a key campaign victory for the Money and Mental Health Policy Institute charity set up by founder Martin Lewis.

Though the letters are intended to give fair notice to people who are behind on repayments before their lenders take further action, they use confusing legal terms, outdated advice and large amounts of intimidating capitalised text. 

The Money and Mental Health Policy Institute (MMHPI) has done research showing the "catastrophic" effects these letters can have on people who are struggling with debt, as part of its Stop the Debt Threats campaign. It's found that in England 100,000 people in problem debt attempt to take their own lives every year, and receiving these letters can be a key risk factor that contribute to people becoming suicidal. 

The Government's now announced it will change rules in the Consumer Credit Act 1974 – which requires lenders to send these letters – to make the letters more supportive and less intimidating. New legislation, which is expected to come into force in December 2020, will require legal language to be explained in plain English, stop the use of threatening capital letters and require firms to signpost borrowers to free debt advice.

If you're struggling with debt, our Debt Problems guide has info on what to do and where to get help.

Martin: 'This change could save lives'

You can watch Martin's rough-and-ready video reaction to the news here – then see below for his full response.

Martin said: "It's no exaggeration to say that this change could save lives. Over 100,000 in England attempt to take their lives each year due to debts, and four times that consider it.

"So we're delighted the Government has agreed to back this element of our campaign and change the default demand rules. The last thing people struggling with debt need is a bunch of thuggish letters dropping through the letterbox, in language they can't understand, written in shouty capitals alongside threats of court action.

"And the timing is crucial – with millions of people facing debt and distress due to the pandemic, the sooner we end these out-of-date laws which force lenders to send intimidating letters the better. Today's changes will make the most distressing debt letters much less intimidating, and crucially will also easily and calmly point people in serious debt to get the free, non-profit debt advice they need."

Why are debt threat letters so harmful?

At the moment, these "default notices" are sent to people struggling with many different types of debt, including overdrafts and payday loans.

Much of the content of the letters hasn't been updated in nearly 40 years, and often contains outdated advice to those in problem debt – such as telling people to consult a solicitor or Trading Standards board, when it would be more appropriate to signpost people to support such as free debt advice. And the way they're formatted – with blocks of capitalised text containing threatening and confusing language – can be extremely intimidating.

The MMHPI says receiving lots of these letters from multiple lenders can create huge distress and leave people feeling that there is no solution to their debt problems.

What changes has the Government agreed to?

The Government says it will legislate to change the language in debt letters, as well as the way information is presented. Specific changes include:

  • Letters will use language that's easier to understand and less threatening, with lenders able to explain complex legal terms and jargon in plain English. Firms will also be required to explain the term "surety" where it is used. (A surety is someone who takes responsibility for someone else's debts or promises, and guarantees that they will be paid or undertaken.)

  • Letters will no longer use intimidating capital letters, with firms required to use bold or underlined text rather than capitals.

  • Firms will need to signpost people to sources of free debt advice as part of the letters.

What does the Government say? 

John Glen, Economic Secretary to the Treasury, said: "Being behind on your credit repayments can be a really distressing experience, which is made worse by a confusing and intimidating letter from your lender.

"As part of our effort to help people struggling with their finances, it's right that we look again at the legislation around these letters. These new rules will help to take the fear out of finance, by ensuring that letters are easier to understand, less threatening and empower people to take control of their finances.

"Some vital work has been done by charities, the industry and the Money and Mental Health Policy Institute, and I am grateful for their support in tackling this important issue."

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