The Credit Services Association (CSA) has responded in full to the campaign, launched by Martin Lewis this week, for the government to change legislation around debt collection letters, while the FCA sought to clarify the law around sending them.
This week Martin Lewis, in his role as founder of the Money and Mental Health Policy Institute, instigated a campaign for changing the law that forces lenders to send debt collection letters to customers – even when those borrowers have been given payment holidays.
Lewis is demanding that the government make urgent changes to the 1974 Consumer Credit Act, which has no caveat to enable lenders to stop sending debt letters to people granted payment breaks.
The MoneySavingExpert founder claimed the letters “ruin lives”, but also acknowledged that many lenders don’t want to send them, while the law gives them no option.
The Financial Conduct Authority (FCA) did not go on record with a response, but sent information to issue clarity on the law around sending default notices. But the CSA, the trade body for collections and debt purchase firms, has given a detailed response. In a Q&A with Credit Strategy, Peter Wallwork, chief executive of the CSA, explained why a considered change is required – and that the CSA has been highlighting this issue for years.
CS: Are CSA members effectively forced to send letters to people, even if they’re on payment holidays or given breathing space, under the Consumer Credit Act?
PW: “Yes, though it tends to impact our debt purchasing members most. Take, for example, the statutory, written communication between a creditor (or debt purchaser) and the customer, required to be sent under the Consumer Credit Act.
“These formal communications – which include notices of default and notices of sums in arrears – are distinct communications that a company is obliged to send. Failure to do so could render the creditor or debt purchaser non-compliant, and the debt unenforceable. It means not only would it be in trouble with the regulator, it would also be open to complaints after the event that could prevent collecting what is legally owed.”
"We are on the same side as the campaigners in wanting change"
CS: Would members like to see the quick change to the CCA in this regard, that Martin is calling for?
PW: “We would like to see considered change, based on a proper understanding of the challenge. This is where our industry is caught between a rock and a very hard place. The majority of letters it sends are customer-oriented and clearly supportive – business as usual activities are subject to strict controls detailed in the CSA’s Code of Practice. Similar controls are also in place for letters authorised by the FCA within CONC, but the statutory letters have to use prescribed language, phrases and words that every company has to include.
“Now of course it could be argued that prescribed language should not be an excuse for poor letter writing – the focus should always be on helping the customer – but even the most finely crafted letter may appear intimidating to a confused consumer and do little to aid their understanding. The technical nature of the Consumer Credit Act 1974 sometimes means that there is an understandable nervousness in writing documentation that is clear, simple and concise.
“I think we all agree, also, that a letter that is intended to explain a customer’s situation is of little use when all it achieves is to drive the consumer to seek further explanation or to disengage, with all of the inherent worry that this brings.
“But at the same time, it is important to ensure that the purpose of each of these communications is fully understood, that changes are measured and appropriate, and that the risk of unintended consequences is properly managed. As much of the recent commentary shows, it is easy to confuse the facts, requirements and issues.”
Peter Wallwork, chief executive, CSA
CS: Would the CSA like the FCA, or government, to use this period to examine where the CCA needs changes?
PW: “Yes, but with the caveat above that it must not be a knee-jerk reaction. We and other parts of the financial services industry have highlighted this and similar issues for many years. It is perhaps a pity that it has to wait for a high-profile celebrity campaigner to pick up the mantle to try to make the regulator, and the government, finally take notice.
“That said, it doesn’t really matter who voices the issue as long as it is heard. We are on the same side as the campaigners in wanting change, but it is not a simple process to resolve. Greater flexibility in the treatment and presentation of prescribed content of statutory notices is needed to bring useful change.
“If the law and the regulator continue to oblige the creditor to follow a particular path, it would be a nonsense to criticise the industry for doing what it is told it has to do.”
“Current legislation simply does not allow for formal notices that are flexible or dynamic enough, despite CSA members’ attempts to manage the way they are read, to provide meaningful information to a customer and to address any vulnerabilities throughout the life cycle of a debt. It is pleasing to see the new campaign targeting the regulator and the government, because change will require primary legislation.
“We will happily support the debt advice sector and other stakeholders in seeking a reasoned approach to making the changes that are really needed.”
The FCA’s view
While not issuing a response from an executive, the FCA provided background information on the requirements for default notices, stating that they’re only required to be sent out when the relationship between the lender and customer has broken down, and when the lender intends to take any of the steps listed in section 87 of the CCA, such as enforcing the agreement or repossessing goods where there has been default.
According to the FCA, it follows that lenders can control when and if they send out a default notice. If customers require additional forbearance at the end of a deferred payment period, the FCA would not expect lenders to send out a default notice.
Therefore, according to the FCA’s information, it is not the case that lenders are forced by law to send a default notice to anyone they consider to be in arrears in this period, even if they have been granted a payment holiday.
Lenders will however still be required to send out arrears notices to provide information to customers as to their level of contractual arrears, which includes information about sources of debt advice. Firms can add additional text to give further context when payment arrangements are in place, according to the FCA.
The FCA explains what firms can do in this situation in paras 2.62-2.71 in FS20/3, which makes the point that these communications can be tailored to reduce the chance of confusion
As for the content of default notices and arrears notices, this is set out in legislation, “which is a matter for government”, according to the regulator.