Stark survey results showing some creditors and debt collectors continue to add charges despite knowing those repaying are in financial difficulty have sparked renewed calls for a 'breathing space' scheme for people struggling with debt.
StepChange Debt Charity surveyed 1,800 of its users and found that poor and inconsistent treatment of those struggling with debt is making many people's financial problems worse.
The survey-results further reinforced the fact that people with debt problems are routinely hit with interest and charges, which make recovering from their financial difficulties harder.
The findings also highlighted how aggressive enforcement and demands for sky-high repayments can lead to a vicious cycle of deepening debt.
This comes four months after MoneySavingExpert.com founder Martin Lewis and StepChange Debt Charity chief executive Mike O'Connor issued a joint statement calling for the Government to use its review of the rules surrounding debt administration to consult on proposals for a 'breathing space' scheme.
The scheme would see people who seek advice for debt problems given a period of six months to a year in which interest and charges are frozen and enforcement action halted, to give them time to get advice to sort their finances.
Where people can repay their debts at an affordable rate and within a reasonable time, this 'breathing space' would then be extended. But the protections would only be accessible when recommended by a regulated debt advice agency.
If you're struggling with debt and in financial difficulty, see our Debt Problems guide for what to do and where to get help, and Debt Solutions for info on formal debt resolution tools.
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What did the debt survey find?
The StepChange Debt Charity survey, which was conducted in May, showed that:
- 68% felt default charges made their debt problems harder to deal with.
- 62% said creditors and debt collectors continued to add fees and charges despite knowing the person was in financial difficulty.
- 52% said creditors and debt collectors continued to add fees and charges after they knew the person was seeking debt advice.
The survey also shed light on the aggressive pursuit of debts via threatening phone calls, bailiffs and other strategies that can cause anxiety and stress.
The research found that:
- 65% of clients have experienced some level of bad debt-collection practice in the past two years.
- 17% of people have experienced an intimidating or threatening visit from a doorstep collector in the past two years.
- 41% have received intimidating or threatening phone calls in the past two years.
- 16% of clients have been contacted by bailiffs in the last year.
- 53% of those contacted by bailiffs said it had made their debt problems harder to deal with; while 15% said they'd felt forced to take out more credit.
Meanwhile, it's often argued that pressure to repay unaffordable amounts can deepen existing financial problems and unnecessarily prolong the period it takes a person to get back on their feet.
The charity's evidence highlights a number of problems relating to demands for unaffordable repayments:
- 26% said that debt collectors had taken repayments respondents could not afford.
- 14% of respondents said creditors had taken repayments that they could not afford directly from their wages or benefits.
- 20% of respondents said they'd found utility providers' repayment rates unaffordable.
Research reignites calls for a breathing space scheme
Martin Lewis and StepChange Debt Charity have renewed calls for the Government to fix the rules for people struggling with temporary debt and allow breathing space.
Past research by StepChange Debt Charity has highlighted the gap in existing options available to people whose financial difficulties may be temporary.
The current patchwork of voluntary schemes and proposals means that some people will get help from their creditors in the form of a freeze on interest and charges or halt on enforcement action, but others will not.
'Lenders and debt collectors pile on charges and pressure'
Martin Lewis says: "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 opportunity to help those in financial difficulty.
He adds: "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."