Breathing space regulations are important – but tackling problem debt requires us all to come together
New rules to help those in need.
Last week saw the launch of the new Debt Respite Scheme regulations (‘Breathing space’) across England and Wales, a huge step which has involved lenders, the government and debt advice organisations coming together to help those struggling with debt. The scheme will give people in financial difficulty who are receiving debt advice up to sixty days where interest, fees and charges are frozen. In addition, enforcement action from all creditors will be paused, and for those who are undergoing mental health treatment protections are enhanced. Crucially, this will not just apply to financial services debt, but also other forms of debt such as utilities, telecoms and certain forms of public debt.
This cross-industry action could not be more timely. Just recently, StepChange Debt Charity revealed that over 11 million people are still struggling to meet essential costs following hits to their income during the pandemic. While government and other support schemes have helped make calls to debt advice organisations lower than expected during pandemic, StepChange predicts that as these start to unwind there is likely to be an increase in the number of people needing to access debt advice.
11 million people
are still struggling to meet essential costs following hits to their income during the pandemic.
We welcome the rules and are doing more to help
Here at Lloyds Banking Group, we are strongly supportive both of the rules themselves and the intent behind them. Firstly, its vitally important that when customers get into financial difficulty they are treated fairly and consistently and the scope of these new rules will help achieve that.
Secondly, this new legislation will help to encourage more people to seek debt advice at an earlier stage. Our own research shows that seven in ten people would not contact their bank if they fell into financial difficulty. And it’s not just their bank, with many people saying they find it stressful or embarrassing to talk to their friends or family about money.
Of course this is just one of the ways we are helping our customers when they face financial difficulty, and builds on support measures we already offer. For instance, with increased demand due to the pandemic, we have worked to make our tools and support available online. Practically, this can include:
- Support with budgeting and managing everyday spending to help get finances back under control
- A range of payment plans to help people get back on their feet, including the option to pay less for an agreed time
- Bringing existing debts together in one place with a debt consolidation loan
- Customers can get free independent help and advice with money worries from many organisations, such as PayPlan, StepChange and Turn2us.
We have also trained 6,500 colleagues to support people with building their financial resilience. Helping households get their finances back on track is a core part of our commitment to helping Britain recover.
Our own research shows that seven in ten people would not contact their bank if they fell into financial difficulty.
Debt advice is vital, the industry and government needs to work to ensure access
The new regulations are a really important step for people facing financial difficulty, but there are still some areas where, as an industry, we need to do more.
We know there is a potential stigma associated with being in financial difficulty and in seeking advice about it, meaning many people don’t talk about debt problems. Almost half of people avoid conversations about money and around a quarter have lied to a family member about it, frequently about levels of debt. Many people are also confused about the impact support can have, with around a third wrongly believing that help from their bank would automatically have an adverse impact on credit ratings. Fundamentally, this means potentially millions of people will be missing out on the support that is available to them.
To help address these issues, our Lloyds Bank M-Word campaign has sought to encourage people to have these money related conversations and provided resources to help them do so. A similar idea could be a sustained and co-ordinated national awareness campaign, supported across the industry, on the topic of problem debt. Beyond simply marketing and awareness raising, this could seek to change behaviours and reduce the stigma around debt advice by focussing on three key areas:
- The warning signs of financial difficulty and when people should seek advice
- How important it is to start those conversations early to avoid things getting worse than they need to
- The range of support options available to help customers, depending on their specific circumstances
Secondly, the changes are likely to increase demand for advice, with debt advice organisations predicting an increased volume of calls as a result of the pandemic. The issue is clearly front of mind for the government, with an extra £37.5m provided to the sector last year. Over the longer term, as an industry we need to make sure that the funding model for independent debt advice is fair, transparent and sustainable, ensuring that everyone who needs support is able to access it. A key element of this will be expanding the scope of organisations that fund debt advice beyond financial services to all firms whose customers benefit from it (e.g. utilities and telecoms providers or gambling operators).
In the current climate, it is sadly too easy for anyone to fall into financial difficulty and for debt to become a problem. But by working together across the industry, as the new regulations show, we can encourage more people to get advice early and to help those in difficulty get back on their feet. Doing so will be vitally important in helping people build better financial resilience over the longer term and in helping the economy get back on its feet following the pandemic.
Managing Director, Customer Financial Assistance, Lloyds Banking Group
Chris Gowland is Managing Director of Lloyds Banking Group’s Customer Financial Assistance team, who help customers in financial difficulty back to financial health. Throughout the course of the pandemic the team has helped thousands of customers to get back on track, providing empathetic and compassionate support.
The pandemic has exacerbated the financial challenges that many people face, and brought new vulnerabilities to many more. We know that for many, these challenges are just beginning and we’re here to help those who experience financial difficulties.
Helping Britain recover by supporting financial resilience and wellbeing
Vim Maru explores the part the pandemic has played putting one in four UK adults at risk of financial harm.
How fraudsters trick you out of your money
Paul Davis, Group Director for Fraud and Financial Crime Prevention, speaks about how fraudsters trick you out of your money.
Popular topics that you might be interested in
Sustainability Diversity Supporting business Housing Pensions Investment
Financial wellbeing ESG Fraud Digital skills Our people Group news