Treasury announces changes to debt collection letters

Whitehall published proposed new rules today (October 7) that will see the Treasury legislate to change the language and presentation of information in debt letters.

The new rules will be delivered through secondary legislation and are expected to come into force in December 2020. All lenders will then be required to make the changes within six months.

Trade bodies including the Credit Services Association have been lobbying for years for the rules on default notices to change - much of the formatting and content has not been updated in nearly 40 years. More recently a campaign led by the Money and Mental Health Policy Institute for the rules to change prompted the Treasury to act.

The new rules will restrict the information that must be made prominent on letters. They also mean:

• Default notices will now use more accessible and less threatening language;
• Creditors will be able to replace legal terms with more widely understood terms;
• Letters will no longer contain capitalised text, and instead use bold or underlined text;
• Letters will signpost to sources of free debt advice.

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 to 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.”

The news follows the recent campaign led by the Money and Mental Health Policy Institute, with the support of the Money Advice Trust, other debt advice charities and financial firms, who have long been constrained by the previous rules.

The changes apply to consumer creditors including credit card, personal loan and hire purchase providers, but do not apply to other debts such as council tax, utility arrears, tax debts or benefit overpayments.

Martin Lewis, founder and chair of the Money and Mental Health Policy Institute charity, 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 amount 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.”

Eric Leenders, managing director, personal finance at UK Finance, said: “The banking and finance industry understands the impact that debt can have on a customer’s wellbeing and has been working closely with government to help support customers, especially those in vulnerable circumstances.

"Lenders have to send default notices and these important changes ensure customers receive more appropriate and supportive communications.”

The wider impact of the Treasury’s intervention on debt collection letters, as well as breathing space, will be explored at the Collections, Debt Sale & Purchase Conference, part of the Collections & Vulnerability Summit, in November.