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Treasury confirms 60-day breathing space will become law

The government has confirmed it will bring in its plans for a 60-day breathing space for consumers in problem debt – along with the creditors that will have to provide it.

The Treasury has forecasted that creditors will receive more than £400m in extra repayments in the first year alone, once breathing space is introduced in early 2021.


The procedure will cover a wide range of debts such as credit cards, loans, council tax, utility debts, and personal debts owed to HMRC and the Department for Work and Pensions. It will not cover debts incurred from court fines, child maintenance payments, student loans and personal injury liabilities.


The Treasury’s confirmation on Thursday (February 6) means that creditors of the debts that are covered, will have to halt enforcement action and freeze interest for people with problem debt. These consumers will then receive professional debt advice.


The government forecasts that the breathing space initiative will help more than 700,000 people in the first year, increasing up to 1.2 million a year, a decade after its introduction. Whitehall also believes that between 25,000 and 50,000 people in mental health crisis treatment will benefit from breathing space every year.


Breathing space and the wider consumer debt landscape will be front and centre of a keynote debate at the Credit Summit in London on March 19.


Making the announcement on Time to Talk Day, an initiative that encourages the public to discuss mental health more openly, economic secretary John Glen, said: “Today’s figures underline just how critical it is that we roll out this policy. We should all work to reduce the stigma of mental health issues.”


The Treasury emphasised in its announcement that problem debt can have a clear detrimental effect on wellbeing, and that those receiving mental health crisis treatment will receive the same protections until their treatment is complete.


StepChange Debt Charity’s chief executive Phil Andrew said: “We know that debt is bad for your mental health, with the additional stress and anxiety that it can create. Around two in five people who turn to us have an additional vulnerability on top of their debt – and for half of them, that vulnerability is a mental health problem.”


Andrew added: “Breathing space will deliver much needed additional help in two important and connected ways. It will encourage more people to seek advice, and when they do, there will be better protections in place to stop further harm and help recovery.”


"Banks and other lenders eagerly await the final legislation so that they can begin to properly prepare"


Joanna Elson, chief executive of the Money Advice Trust, said: “We are particularly pleased that debts to local authorities and other government creditors will be included. Breathing space will make a real difference to people in problem debt.”


Fiona Hoyle, head of consumer and mortgage finance at the Finance and Leasing Association, said: “The challenge now is for the government, the Financial Conduct Authority (FCA) and the consumer credit industry to work out how this new scheme can coexist with the same protection that has been available to consumer credit customers for some years under the FCA.


"The test will be if the two can coexist without creating confusion for consumers or expensive duplication for lenders.”


Legal experts also highlighted a potential predicament for lenders, in examining the compatibility of the new legislation with existing regulatory requirements on arrears and forbearance.


Robin Penfold, partner at TLT Solicitors, said: “The announcement provides the financial services sector with certainty that the scheme will now be introduced by government in early 2021. With the legislation still to be passed and the implementation window closing by the day, banks and other lenders eagerly await the final legislation so that they can begin to properly prepare."


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