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Debt Collection Letters

Volume 660: debated on Tuesday 21 May 2019

I beg to move,

That this House has considered the content of debt collection letters.

It is a pleasure to serve under your chairmanship, Sir Graham. I have been working with the charity the Money and Mental Health Policy Institute. I sit on its advisory board, along with hon. Members from other parties, including the hon. Members for Plymouth, Moor View (Johnny Mercer) and for Liverpool, Wavertree (Luciana Berger). It was set up in 2016 by Martin Lewis from Money Saving Expert. Money and Mental Health has been conducting valuable research into the link between financial difficulty and mental ill health, and leading campaigns to bring about reform where it identifies a problem.

The link between debt and mental ill health is striking. People with mental health problems are three times more likely to be in problem debt as those without mental health problems. Half of adults in problem debt have a mental health problem. Research by Money and Mental Health found that in England each year, more than 100,000 people in problem debt attempt to take their own life and more than 420,000 people in debt consider suicide. This is an incredibly serious issue.

Several factors contribute to that link between financial difficulty and mental ill health, but one important issue—the subject of this debate—is debt collection letters. They are written in a way that can make people feel that there is no way out of their financial problems, sometimes leading to disastrous and fatal consequences. I will give a couple of brief case studies.

Paul lives with bipolar. Throughout his life he has suffered from mental ill health, which has been compounded by debt problems. When he was on a high, he would go out on spending sprees funded by loans; during periods of depression, he would struggle to pay his bills and often spend money to make himself feel better—it was a sort of escape from the nightmare and trauma he was going through.

Paul said that being hounded by creditors left him feeling trapped and helpless. He tragically made attempts on his own life. Like so many others in debt, Paul received letters from lenders, which are intimidating, often written in complex language and can feature threats of court action right at the top, very prominently. Sometimes people receive such letters from multiple lenders on a daily basis, leaving them feeling trapped in the nightmare engulfing them. Paul says,

“the letters that you get from creditors are horrendous. They were like someone standing in front of me with a knife, so I wanted to get rid of them. I’d just put them straight in the bin or burn them…You feel trapped by your debt, and that you can’t get out—that’s what can drive people to feel suicidal”.

Thankfully, Paul is now in a much better place with support from his family.

I have witnessed people who, when confronted by letters demanding payment, hide away and do not confront the problem, because of the state of their mental health. Sometimes they put letters into cupboards, hoping that the problem will go away. Of course, it does not go away and in many cases the debt escalates, making the situation even worse.

Jerome Rogers sadly took his own life at the age of 20 after receiving two £65 traffic fines, which escalated to £1,000 of debt after the council passed on his debt to aggressive bailiffs. Jerome’s mother Tracey believes that a big factor in his death was a combination of the threatening bailiffs who came to the door and the intimidating letters he received from lenders. Tracey says that if the letters had not been so frightening and Jerome had been able to get the right support when he needed it, he would still be here today. That is one life tragically lost, but there will be many others.

The right hon. Gentleman gave two powerful examples. This is reality. This is life. People are getting these letters and thinking about committing suicide. After a decade of austerity, things are not improving. Does he agree that it is time that the Government gave new guidelines to stop these letters coming through the door and threatening people? We need to examine this more and I therefore welcome this debate.

The hon. Gentleman goes to the heart of what I am proposing. I will expand on the point he made.

Debt collection letters, like the ones received by Paul and Jerome, often include complex text, which is capitalised and put in bold. The language can be intimidating to someone experiencing mental ill health. The letters often start with threats of court action. They do contain advice—the purpose is well meaning in terms of the legislative requirements.

However, the wording they are required to use is inaccurate and out of date. It was devised before free debt advice was widely available. Recipients are told to get help from a solicitor, from their local trading standards department or a citizens advice bureau. However, trading standards can only help someone when a company’s behaviour is illegal, not in an ordinary civil situation. Therefore, that advice, in wording required by the Government, is inaccurate and should not be there.

The idea that someone in problem debt should be told in official advice to seek out a solicitor is outdated and frankly ridiculous for many people who would just assume that going to a solicitor is impossible, due to the cost involved. The advice is so out of date because, outrageously, the content of these letters is dictated by legislation that has not been updated for decades. Lenders are legally obliged to include certain pieces of prescribed content, as is laid out in the Consumer Credit Act 1974 and the Consumer Credit (Enforcement, Default and Termination Notices) Regulations 1983.

The Money and Mental Health Policy Institute’s “Stop the #DebtThreats” campaign calls on the Government to amend the Consumer Credit Act and the associated regulations, to put a stop to the threatening letters. First, the Government should change the prescribed content of lenders’ letters, exactly as the hon. Member for Coatbridge, Chryston and Bellshill (Hugh Gaffney) suggested. The Government should make these letters more accessible, easier to understand and clearer for people in problem debt.

If the Minister is tempted to say that he is supportive of the principle involved here, but it involves a comprehensive review of the Consumer Credit Act and the whole thing will take a long time, I do not buy it. There is clearly a case for a review of the primary legislation, but the wording of the letter, which is out of date and inappropriate, could be changed quickly through regulations. There is a real danger that we overcomplicate this. Those regulations could be made in a straightforward way quickly, pending a wider review of how we deal with these issues. One sensible idea is to refer the matter across to the Financial Conduct Authority. The step could be taken immediately to get rid of the inappropriate and inaccurate prescribed wording, which simply should not be there and makes things more difficult for people.

Does the right hon. Gentleman agree that putting the threat of court action first puts people off reading the rest of the letter? What should be first is the fact that help is available for people to get debt advice, and that it does not have to be face to face—advice is available online and on the telephone. There is a wide range of support that was not there before, which needs to be highlighted.

The hon. Lady is absolutely right. The guidance we had from organisations before the debate makes the point that the letters are often lengthy. People in a state of anxiety and distress will give up reading something complex before they reach the helpful advice, which might be right at the end. There needs to be clear information up front about seeking advice. It is in the interest of the creditor to refer people to that advice straightaway and put it up front, and the Government’s prescribed wording could require that, which is what we are calling for.

There is also a danger that the Minister might say, “People nowadays can just google it and get access to good advice online,” but when people google for debt advice, the options at the top of the list are for paid-for advice, which is inappropriate. The information that people need should be in the prescribed wording of the letters that creditors have to send. The Government could do something about that quickly.

The Government should stipulate that creditors should signpost people to sources of support, which is really important, as the hon. Member for Makerfield (Yvonne Fovargue) said. People should be directed to the free specialist debt advice provided by charities such as StepChange and Citizens Advice. Exactly as she said, that should be at the start of the letter and should take precedence over threats of court action. Jerome’s mother Tracey and Paul are backing the “Stop the #DebtThreats” campaign.

Last week, the Treasury Committee made a welcome intervention in its report “Consumers’ access to financial services”, which recommended that the Government amend the relevant legislation and reform the content of debt collection letters. It also recommended that debt collection letters contain

“a form of words that would be clear and understandable for an individual with a low level of literacy”,

and that the Government

“mandate the inclusion—with equal prominence to the demand for payment—of information within such requests of how an individual can seek help with their debts.”

The pressure on the Treasury is mounting and we hope that there will be a constructive response. We are calling on the Government to amend the legislation and regulations that govern the content of debt letters. As I said earlier, they should do what is necessary, which they can do quickly by making the wording on the letters more helpful and by getting rid of the inappropriate and inaccurate wording, and then look to wider reform later.

As I indicated, another way to achieve change in the longer run would be to delegate the control of debt letter content requirements to the Financial Conduct Authority. There is an opportunity here, as the FCA recently completed a statutory review of the Consumer Credit Act, which acknowledged several concerns about the rules on content. The review highlighted the possibility of the FCA taking control of and updating the rules. I will be interested to hear the Minister’s response to that suggestion.

Debt collection letters from lenders are just one of many problems that people in financial difficulties face. I also support an initiative that proposes bailiff regulation, which has been put together by the hon. Member for Leeds West (Rachel Reeves). We and other hon. Members have signed a joint letter to the Minister with responsibility for bailiffs to call for the behaviour of bailiffs to be regulated.

The behaviour of bailiffs is another key problem for people in debt, as Jerome Rogers experienced. According to Citizens Advice, more than 100,000 people have had bailiff-related problems in the last 12 months, which is an increase of 16% from the previous year. Some 40% of Citizens Advice clients with issues about bailiffs also had some sort of health condition, including mental ill health, but they often faced completely inappropriate behaviour by bailiffs. In its briefing for the debate, Citizens Advice highlights a number of highly inappropriate actions by bailiffs that have come to its attention.

The argument is that there needs to be a regulator for bailiffs, alongside reform to the wording of the letters. We believe that the Minister can act quickly and I hope that he will give a constructive response.

It is a pleasure to serve under your chairmanship, Sir Graham. I thank the right hon. Member for North Norfolk (Norman Lamb) for raising the important issue. I read his article in The Times Red Box today and I have looked into the matter in some depth. I hope that I will be able to respond to his core request.

The right hon. Gentleman is committed to helping to improve the lives of those with mental health problems. In particular, his efforts alongside those of my hon. Friend the Member for Plymouth, Moor View (Johnny Mercer) and the hon. Member for Liverpool, Wavertree (Luciana Berger) during the passage of the Financial Guidance and Claims Act 2018 have ensured that those in mental health crisis have an alternative access mechanism to enter breathing space, which is a policy I will touch on later.

I appreciate the right hon. Gentleman’s concerns about the content of debt collection letters. I have an example here, and he is right to draw attention to the language used and its intimidating nature. I share his concerns regarding the impact that such letters can have on vulnerable people, as he set out clearly. I understand that 6,000 individuals have signed a petition by the Money and Mental Health Policy Institute to call for the prescribed content in debt collection letters to be updated.

If hon. Members will permit me, I will set out the Government’s overarching objectives for the consumer credit market, then get to the core point. The Government’s vision is for a well-functioning and sustainable consumer credit market that can responsibly meet the needs of all consumers. Of course, that vision extends to how firms treat consumers when they encounter financial difficulties. That is why we fundamentally reformed the regulation of the consumer credit market by transferring regulatory responsibility from the Office of Fair Trading to the Financial Conduct Authority just over five years ago, on 1 April 2014. When that transfer took place, 82 sections of the Consumer Credit Act 1974 were repealed and replaced by FCA rules, but 167 sections could not be easily replicated and remained in the Act, including the sections that dictate the prescribed content of debt collection letters.

The information requirements in the 1974 Act aim to protect consumers by reducing the information asymmetry between firms and customers. Where there is a requirement for information to be reproduced using prescribed wording, that is intended to highlight important messages on a consistent basis and to ensure that firms give consumers the information that they need to make informed decisions, across the wide variety of consumer credit products.

The FCA had a statutory duty to review the retained sections of the Consumer Credit Act by 1 April 2019. Its review considered whether the remaining sections could be transferred to FCA rules, as the right hon. Gentleman suggested, without having an adverse impact on consumer protection, and whether those sections remained appropriate for today’s market. On 25 March 2019, the FCA’s final report was laid in Parliament. It is a substantial piece of work, as I am sure he knows. I welcome the report and the significant and extensive analysis undertaken by the FCA during the review.

The Government are undertaking a programme of work to review the FCA’s findings and consider whether further reform of the consumer regulatory regime is needed. Indeed, a few weeks ago, I had an extended session with officials to discuss the programme of work relating to the Consumer Credit Act and better understand the breadth and depth of the issues that are manifest in it.

I acknowledge the point that the right hon. Member for North Norfolk made about, essentially, a quick win with respect to the reform of the letter, leading to a more substantial and extensive piece of work, and I will examine carefully what he said and take that back with me, to try to understand what could be possible. As any financial services lawyer will attest, the Consumer Credit Act 1974 is a complex and technical beast, and we want to ensure that we take an holistic view of it, considering it in its entirety so that further complexity is not created and no adverse and unexpected outcomes arise. However, I recognise that changing the wording on a letter would not appear to be a significant issue with respect to the wider implications.

I appreciate the Minister’s constructive response. As an ex-lawyer, I think it is perfectly possible to address the real mischief here by adapting the letter using more constructive and up-to-date wording without undermining the broader objectives of the 1974 Act.

The right hon. Gentleman rightly reiterates the challenge, and I take it on. At this point, I should also mention the reference he made to the work of the hon. Member for Leeds West (Rachel Reeves) on bailiffs. There is absolutely no excuse for aggressive tactics from enforcement agents, and that is why the Ministry of Justice has launched a call for evidence, looking at the need for an independent regulator. The call closed in February 2019 and the Government will respond in the summer. I am meeting with the relevant Justice Minister just after the recess to press for robust action, so that is very much on my agenda as well. I recognise the right hon. Gentleman’s portrayal of how deeply wrong some of those behaviours are.

Sometimes a letter gets passed on to another debt collection agency and then another, so pressure is being put on individuals all the time. If I remember rightly, each time a letter is passed on more money is added on. I ask the Minister to have a look at that.

The hon. Gentleman makes a reasonable point, and that is something we need to examine carefully when we consider what needs to happen in this area. I thank the hon. Gentleman for his intervention.

Stakeholder views will be essential to inform the Government’s decision making, and I would welcome the opportunity to meet the right hon. Member for North Norfolk and any other interested colleagues across the House to better understand how this important issue should be addressed as our policy thinking progresses. During my time in office, I have encountered many individuals who have been in financially vulnerable circumstances and I have compassion for the unique challenges they face. Indeed, only last week I welcomed to the Treasury some individuals with lived experience of financial difficulty, to hear in more detail how they had got into those situations.

I would like to take this opportunity to assure the right hon. Member for North Norfolk that reviewing the mental health aspect of the prescribed content in debt collection letters will be top of my list of priorities during this programme of work. The issue requires continued dialogue to understand what the best outcome for these vulnerable individuals would be, and how best to deliver it. Given the letter’s rather terse words referring to a solicitor, which are really not appropriate and could have been written a long time ago, I will reflect on the right hon. Gentleman’s point about the changing nature of debt advice and about how best it can be presented.

That does not mean that those most at risk will not see benefit in the near future. I draw attention to the significant work that has been undertaken to meet the Government’s manifesto commitment of implementing a breathing space scheme, which I alluded to earlier. The scheme will give the most vulnerable consumers 60 days of respite from creditor action, to access debt advice and put their finances on a sustainable footing.

Can the Minister confirm that the breathing space would also apply to statutory authorities, for example local authorities, which are possibly the biggest users of bailiffs?

I will come on to that point in a few moments, but my instinct, as I think the hon. Lady knows from my visit to the all-party parliamentary group on debt and personal finance, is that if the breathing space does not contain the maximum amount of public sector debt it will not be meaningful. At this moment, however, I cannot formally confirm how the scheme will work, but I will say a few more things in a few minutes.

The Government set out the detailed policy for the breathing space scheme in a consultation launched in October 2018. As part of the scheme, firms will not be able to communicate directly with consumers to request repayment of debt. In particular, the consultation paper set out the design of an alternative access mechanism for those in mental health crisis. The mechanism would enable those individuals to enter breathing space without having directly accessed debt advice. I feel very strongly about the mechanism, as those suffering from a mental health crisis may find it particularly difficult to engage with debt advice services in the way that people without mental health challenges do.

The consultation closed in January 2019, and the Government will shortly publish a response to set out their approach to the whole scheme, before laying regulations to implement breathing space before the end of the year, which is when a comprehensive answer to the question asked by the hon. Member for Makerfield (Yvonne Fovargue) will be provided.

In conclusion, I share the concerns raised by the right hon. Member for North Norfolk and recognise that, in certain cases, the content of debt collection letters can increase consumer harm. I hope I have assured him that the issue will be at the top of my list of priorities when considering further reform in the consumer credit regulatory framework. I take the point about whether the letter issue can be expedited separately, and I look forward to working with the right hon. Gentleman to better understand the most timely and effective way of remedying the problem. I thank him very much for bringing the matter to the House.

Question put and agreed to.