I am fully committed to ensuring that more households can manage unexpected costs through affordable credit.
In today's economic climate, many households find it difficult to manage unexpected costs. The burden of high-cost credit, such as payday loans, can exacerbate financial hardships and create a cycle of debt that is difficult to escape. Recognising this issue, the Government has taken steps to address the problems caused by high-cost credit while promoting the growth of social lending as a viable alternative. In this article, we will explore the measures in place to regulate the payday lending sector, the importance of affordable credit, and the support available for individuals facing problem debt.
The Financial Conduct Authority (FCA) plays a crucial role in safeguarding consumers' interests by establishing and enforcing rules governing lending. In 2015, the FCA introduced comprehensive reforms, including a cap on the total cost of payday loans. This cap ensures that no payday loan consumer should have to repay more than twice the amount they borrowed. These reforms were a significant step towards protecting vulnerable individuals from predatory lending practices. The FCA is currently consulting on additional regulatory reforms to further improve the high-cost credit market, demonstrating a commitment to ongoing progress in this area.
Help with Debt
Affordability is a central concern when it comes to managing the cost of living. Striking a balance between ensuring taxpayers’ money is spent correctly and meeting day-to-day needs is very importance. To address this, the Government has made efforts to increase the percentage of Universal Credit (UC) awards that claimants can retain. The standard deductions cap has been reduced three times, from 40% to 30% and then to 25%. This reduction has allowed hundreds of thousands of UC claimants to keep a more sizeable portion of their awards. However, lowering the cap below 25% would limit the range of debts that can be addressed, potentially risking essential obligations like Child Maintenance payments.
Problem debt can often be difficult to escape, whilst impacting not only financial stability but also family dynamics and mental health. It is crucial to assist those in debt to find sustainable, long-lasting solutions. The Government recognises the importance of this support and has allocated record levels of funding for debt advice through the Money and Pensions Service (MaPS). In 2022-23, over £90 million has been dedicated to providing free debt advice in England.
The Government has taken a significant step forward in addressing problem debt by creating the Breathing Space scheme. Launched on the 4th of May 2021, this provides access to advice to individuals experiencing debt-related difficulties and much needed engagement with professional support. The scheme consists of two components: a breathing space period and a statutory debt repayment plan. Together, these two aspects of the scheme protect people in debt from creditor action, help them get professional advice on their debt problems, and help them pay off their debts in a sustainable way. There is a 60-day breathing space period, where enforcement actions from creditors are halted, and interest on debts is frozen. Individuals receiving mental health crisis treatment also receive the same protections until their treatment is complete.
The initial impact of the Breathing Space scheme is considerable. Assessments indicate that it will help over 700,000 people across the country in its first year, before rising to 1.2 million a year by the tenth year of operation. Additionally, the scheme aims to benefit 25,000 to 50,000 people undergoing mental health crisis treatment each year. The scheme also builds on previous measures outlined by the Government to alleviate the impact of problem debt, including reforming regulation around consumer credit, widening access to professional debt advice, and helping build individual financial resilience.
Debt Collection
When individuals fall into debt, lenders may use debt collection companies to recover outstanding debts on their behalf. While debt collectors do not have any additional legal powers, they can be persistent in their efforts to collect debts. However, it is crucial to distinguish between persistent reminders and harassment. Debt collectors must adhere to rules and guidance set by the Financial Conduct Authority (FCA). Failure to comply can result in action being taken against the collectors, including fines, or revoking the offending firms’ authorisation.
Those who have been harassed by a debt collector can in the first instance complain directly to the creditor whose debt is being collected. If this does not solve the problem, a complaint can be made to organisations such as the FCA or the Citizens Advice Consumer Service.
If you are concerned that you have been harassed you can find out more information about what action you can take at www.citizensadvice.org.uk/debt-and-money/action-your-creditor-can-take/harassment-by-creditors/
Efforts to tackle high-cost credit, promote affordable credit alternatives, and support those facing problem debt are essential steps toward creating more financial stability. By regulating payday lending, reducing standard deductions, and implementing initiatives like the Breathing Space scheme, the Government is committed to addressing the challenges faced by households across the country. Additionally, holding debt collectors accountable ensures that individuals in debt are treated with fairness and respect throughout the collection process. These collective efforts bring us closer to a future where individuals can manage unexpected costs without falling into a cycle of unsustainable debt.
Free and impartial advice and support for debt and personal finance concerns: