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New 30-day breathing space on bad debts if families seek advice from credit counsellors
Householders struggling to pay their bills will be given a 30-day reprieve by debt collectors as of tomorrow.
A government ruling means they will be entitled to breathing space if they seek advice from a charity such as Citizens Advice or the Consumer Credit Counselling Service (CCCS).
Complaints about debt collection agencies have soared since the recession began hitting more families, according to the Office of Fair Trading. They are accused of using aggressive tactics to chase debts, threatening court action unfairly and persistently targeting the wrong people.
Debt collection agencies work on behalf of a range of creditors, including banks, utilities companies and the government, and chase debts ranging from credit card balances to council tax.
The ruling means that households will be allowed the one-month relief from the point at which they are first contacted by a debt collector. It follows a meeting between government officials and the Credit Services Association, which represents 98% of debt collection agencies. The ruling is thought to be the first of a number of initiatives designed to help people struggling with debt.
"This 30-day rule will give people a breathing space to help them take control of their finances as well as encourage them to seek help from debt advisers," said Gareth Thomas, the consumer minister. It will be written into the CSA's code of practice, but it is unclear yet whether it will be legally enforceable.
Citizens Advice welcomed the move but said that ministers should go further. "As the credit market has developed , we have seen continued evidence of people in financial difficulties suffering as a result of harsh and unfair debt collection practices," said Peter Tutton, Citizens Advice social policy officer. "Citizens Advice would like the government to change the law so that when people are offering to pay creditors the best that they can afford, on the basis of a widely accepted objective standard, then creditors should accept this and not continue to press for more."
A CSA spokesman said: "If we can ascertain who the 'won't pays' are, then that is who we are all interested in. The 'can't pays', those in genuine financial difficulty, will be given an opportunity to work with debt advice organisations to find a way around their problems."
The new rule comes as debt advice charities are now struggling to deal with a rising volume of enquiries. A survey by the benefits and grants advice service Turn2us found that almost 85% of debt advisers, working for charities including Age Concern and Citizens Advice, had seen an increase in the number of people in difficulty in the past six months.
An analysis of clients helped by the CCCS during the past three years found that debt problems are becoming more complex, harder to resolve and spreading to better-off sections of society. Half of those seeking help last year were homeowners and 12% of clients had a net household income of more than £30,000. In 2007, only 8.7% of clients had net household income of £30,000 or more and 43% were homeowners.
There is evidence that a growing number of companies are taking advantage of the economic climate to start up new businesses targeting those in debt.
The OFT said it has seen a higher number of applications for consumer credit licences in "high-risk" areas such as debt collection and debt management, which involves offering people advice while selling them plans to manage their debts. It has powers to issue reprimands and fines, and in serious cases to revoke the licences of agencies not complying with credit collection law.
In February the OFT took action against 1st Credit after it was found to be unjustly threatening debtors with bankruptcy and court proceedings. It has a number of similar cases in the pipeline.
People on low incomes with limited debts who could not previously afford to file for bankruptcy will from tomorrow be able to write off their debts and start again after a period of 12 months. Debt relief orders will allow those with debts of less than £15,000 and assets of less than £300 to declare themselves bankrupt for a fee of £90, rather than the usual £510.
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