NEW HELP FOR PEOPLE IN DEBT

 Lenders and a debt advice provider are to introduce additional help to consumers facing struggling to meet their loan repayments.15-03-2010

The Ministry of Justice has been working with the British Bankers’ Association (BBA) and the Consumer Credit Counselling Service (CCCS), with input from Citizens Advice (CitA) to develop a new way to help people who suffer an unexpected ‘income shock’ such as redundancy, reduced hours or illness. This initiative will allow debtors to make minimal token payments until their financial situation has recovered, where this is the best option available to them.
 
Under the new initiatives:
 
•    Banks, building societies and credit card lenders who follow the Lending Code will provide additional protection to people who find themselves in financial difficulties. Under guidance issued by the Lending Standards Board, lenders will consider reducing or freezing interest and charges. Lenders will also accept token payments where appropriate.
•    In April the CCCS will introduce a new payment arrangement for consumers with at least two unsecured debts, who are unable to meet their debt repayments, allowing them to make token payments of as little as £1 per debt a month – provided they take responsibility for their debts, engage with their creditors, and pay what they can. This will show the customer’s creditors that, although they currently cannot meet their debt repayments, they are keen to repay when they can. The customer can benefit from this scheme for an initial six month period, after which they will hopefully be back on their feet financially and able to resume their debt repayments, or an alternative form of debt remedy may have to be considered.
 
 
 
Justice Minister Bridget Prentice said:
 
“We’ve already been working with lenders on a variety of schemes to reduce the rates of repossessions among homeowners and allow flexibility when it comes to repaying consumer debt. These new practices by lenders will strengthen the protections offered to people who may have been making regular debt repayments but, through no fault of their own, are temporarily unable to continue to do so.
 
“At the same time, this initiative introduced by the CCCS will help those debtors who have multiple debts, providing much-needed relief until they are back on their feet financially and able to resume normal repayments.
 
“We will continue to work with lenders and the debt advice industry to get the best possible results for those homeowners, consumers and families experiencing tough times financially.”
 
Consumer Minister Kevin Brennan added:
 
“If people in debt genuinely can’t pay for a short period, they should be offered this important relief and the chance to make token payments while they sort out their problems. Lenders recognise that there are sensible alternatives to taking court action, for them as well as for their customers.“
 
The package of measures is expected to include fairer rights for credit card users, low-cost access to online credit histories and other reforms designed to make the financial services industry work in the interests of consumers.
 
Eric Leenders, Executive Director of the BBA said:
“When customers are struggling with their finances, it is absolutely critical that they speak to their creditors as soon as possible to discuss their circumstances.
 
Through the Lending Code, the BBA’s members have long committed to treating customers in financial difficulty sympathetically and positively and this is a pragmatic response to the consequences of the present economic climate.
 
We welcome this new initiative for “can’t pays”, and are happy to continue to work with the Ministry of Justice and CCCS, providing real assistance to customers who find themselves in financial difficulty.”
 
CCCS Chairman Malcolm Hurlston said:
 
“Currently about a third of the people we counsel have no capacity for repayment. Our new token payment arrangement aims to help them give the right signals to their creditors and develop the discipline of making a monthly payment averaging £7. This is the first time anywhere in the world that people who effectively can't pay have been offered a free repayment channel to reassure their lenders.”