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THE LENDING CODE
This is a voluntary code of practice which sets standards for financial institutions to follow when they are dealing with their personal and small business customers in the United Kingdom. It provides valuable protection for customers and explains how firms are expected to deal with them day-to-day and in times of financial difficulties.
The Lending Code covers subscribers dealings with:
The Code covers:
The Code does not apply to non-business borrowing secured on land or to sales finance
Guide to the Code:
Short guides to the Lending Code are avaliable
Click here for a guide for personal customers
Click here for a guide for micro-enterprise customers
The Code is sponsored by:
Section 9: Financial difficulties
Introduction
178.
Subscribers should be sympathetic and positive when considering a customer’s financial difficulties. Although there is an onus on customers to try to help themselves, the first step, when a subscriber becomes aware of a customer’s financial difficulties, should be to try to contact the customer to discuss the matter. This applies to both personal and micro-enterprise customers.
179.
Personal customers should be considered to be in financial difficulty when income is insufficient to cover reasonable living expenses and meet financial commitments as they become due. This may result from a change in lifestyle, often accompanied by a fall in disposable income and/or increased expenditure, such as:
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loss of employment;
-
disability;
-
serious illness;
-
relationship breakdown;
-
death of a partner;
-
starting a lower paid job;
-
parental/carer leave;
-
starting full-time education; and
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imprisonment.
180.
Financial difficulties may become evident to a subscriber from one or more of the following events:
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Items repeatedly being returned unpaid due to lack of available funds;
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Failing to meet loan repayments or other commitments;
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Discontinuation of regular credits;
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Notification of some form of insolvency or court proceedings;
-
Regular requests for increased borrowing or repeated rescheduling of debts;
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Making frequent cash withdrawals on a credit card at a non-promotional rate of interest;
-
Repeatedly exceeding a credit card or overdraft limit without agreement; and
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The customer informing the subscriber that they are, or at risk of being in financial difficulties.
This list is illustrative and non-exhaustive.
181.
Additionally, for micro-enterprise customers, financial difficulties may also become evident to subscribers because:
-
the customer goes overdrawn without agreement;
-
the customer goes over their agreed overdraft limit, especially more than once;
-
there are large increases or decreases in the business’s turnover;
-
the business is trading at a loss;
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-
the business suddenly loses a key customer or employee;
-
a large part of the business is sold;
-
a facility is used for purposes other than those agreed with the subscriber;
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the customer does not keep to conditions set out in the loan agreement;
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the customer does not supply agreed monitoring information on time; and
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another creditor brings a winding-up petition or other legal action against the business.
Proactive contact
182.
If a subscriber becomes aware via their existing systems or from external data feeds (e.g. CRAs) or from information provided by the customer that the customer may be at risk of being in financial difficulties, the subscriber should contact the customer in order to:
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outline their approach to financial difficulties;
-
encourage the customer to contact the subscriber if the customer is worried about their position;
-
offer the customer appropriate and timely options where possible to help reduce the risk of deterioration in the customer’s financial well- being; and
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provide signposts to sources of free, independent money advice.
The subscriber’s contact with a customer identified as being at risk of being in financial difficulties should be through the normal channel of communication with the customer concerned, such as letter, telephone, email or text.
183.
Signs or indicators that a personal customer may be at risk of being in financial difficulties may include:
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regular unarranged overdrafts or excesses on agreed overdraft facilities;
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high or increasing numbers of unarranged overdraft charges being incurred by the customer, particularly where the total charges are high compared to the customer’s monthly income (where known);
-
regular returned items or refused authorisations in respect of Point of Sale or ATM transactions;
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frequent requests for increased overdraft limits;
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hardcore borrowing or increasing dependence on unauthorised overdrafts developing;
-
change in account behaviour such as significantly reduced credit turnover;
-
missed or overdue payments in respect of products held by the customer; and
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deteriorating trend in third party data e.g. CRA data.
This list is not intended to be exhaustive, nor are the above necessarily indicators that a customer may be at risk of being in financial difficulties. Subscribers should consider what other information they have available that might indicate that a customer is or is not at risk of experiencing financial difficulties.
184.
Once a personal customer has been identified as being in or at risk of being in financial difficulties, the subscriber should determine the appropriate level of intervention required dependent on the individual customer’s position.
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185.
Subscribers should consider a range of solutions to assist personal customers who are identified as being at risk of being in financial difficulties, which may include:
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Account management guidance:
Changing the date of regular payments so that for instance a mortgage or rent payment is made immediately after receipt of a salary;
Set up text/email alerts (if available).
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Changes to account functionality:
Promotion of availability of opt out from unarranged overdrafts (where offered – see Section 5)
Downgrade account and facilities, e.g. to a Basic Bank Account, if the reduced functionality of such an account is appropriate for the customer’s needs.
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Intervention:
Cancellation of regular payments, with customer making alternative arrangements to meet essential bills;
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Restructuring:
Re-schedule borrowing, possibly moving hardcore borrowing to a loan account with regular payments, subject to affordability assessment;
Agreement to a formal arranged overdraft, subject to affordability assessment.
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Concessions/forbearance
Charges and interest concessions (see paragraphs 224-227).
-
Referral to third party debt adviser
Breathing space (see paragraphs 201-203).
Any arrangements agreed and made between the subscriber and a customer or their adviser must be confirmed in writing.
186.
In cases where the subscriber’s internal review and/or discussions with a personal customer establish that the customer is not at risk of being in financial difficulties, the subscriber need take no further action, subject always to paragraph 182 (pro-active contact) above.
PROVISIONS FOR PERSONAL CUSTOMERS
Communicating with personal customers and their advisers
187.
Subscribers should make available to customers straightforward information in plain English on their procedures and systems for dealing with customers in financial difficulty. This might explain, for example, the main rights and responsibilities of customers and subscribers, and what is involved in legal demands or a referral to a debt recovery unit. The BBA publishes a leaflet, Dealing with Debt, which is available on the BBA and The UK Cards Association websites.
188.
Where a customer requests that the subscriber deals with them in writing or email (providing that facility is available) rather than by telephone, they should do so as long as the customer remains co-operative and in regular dialogue.
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189.
Communications with customers and/or their advisers should, wherever possible, acknowledge and reflect any previous discussions that have taken place. Subscribers should be willing to communicate with customers and/or their advisers by phone, post, secure email or fax. Normally, the subscriber will communicate through the adviser, if an authority has been received. This does not preclude subscribers from copying correspondence to customers if they choose. In certain circumstances it may be beneficial for discussions (either face-to-face or over the telephone) between the adviser and subscriber to take place with the customer present.
190.
On occasions the subscriber may need to contact the customer directly, even when an authority is in place. These occasions may be the result of the adviser not being available, failing to provide requested information within a reasonable period of time, or other similar circumstances. If a subscriber does contact a customer directly when an authority is in place, it will explain to the customer why it is doing so.
191.
Subscribers should give a phone number on all communications that will put the customer in contact with a named person or a team dedicated to dealing with cases of financial difficulty.
Consolidation loans
192.
Where a consolidation loan is being provided to a personal customer and the subscriber considers the customer to be in financial difficulties, the subscriber should reduce or pay off the existing in-house borrowing that it is aware is being consolidated. This applies only where the existence of such in-house borrowing is apparent to subscribers via their existing in-house systems.
193.
Exceptionally there may be circumstances in which it is appropriate not to reduce or pay off existing borrowing.
194.
Other than in exceptional circumstances, where a consolidation loan is being provided to a personal customer and the subscriber considers the customer to be in financial difficulties, the monthly repayments on the consolidation loan should not exceed the total monthly repayments of the debts being consolidated. Exceptional circumstances may for example include where the customer has a repayment holiday or an interest-free period under their existing arrangement, which is shortly to end.9
Use of the right of set-off
195.
Before set-off is used, a subscriber should contact the customer to inform them in clear and simple language the generic circumstances in which set-off would be used and when e.g. if the customer does not contact the subscriber and/or address the missed payment. This contact should be made at a time when the lender is actively considering or is likely to exercise set-off and not so far in advance of the event that the customer may no longer be aware that it may be undertaken. This information should be as prominent in written communications and telephone scripts as other information.
196.
Before applying set-off a subscriber should take account of information that they have available to them to identify whether the customer may be or may be heading towards financial difficulties. In all cases where set-off is to be applied and the subscriber has established that the customer is in financial difficulties, the customer must be left with sufficient money to meet their reasonable day-to-day living expenses and priority debts, where these have been identified. There are a number of ways that subscribers can make this assessment. Where more than one payment has been missed, the assessment could include reviewing income and expenditure statements (if the subscriber has these), and/or account turnover and behaviour, and/or analysis of the type and frequency of credits to the account. Particular care is required where it can be identified that a customer’s balance is made up wholly or in part of state benefits.
197.
If the customer does not respond to contact or is not co-operative and there is no evidence available to the subscriber that using set-off will cause or exacerbate the customer’s financial difficulties, then set-off may be exercised.
198.
Set-off should normally only be used to make up the most recent missed payment. However if the subscriber has contacted the customer about missed payments, told the customer that set-off is an option, and used the information available to them to assess whether the customer will be able to meet reasonable living expenses and pay priority
9 This paragraph is effective from 1 July 2011.
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debts, it may be used to make up earlier missed payments. A subscriber may also take more than one missed payment where the customer is not cooperating with the subscriber, for example by not responding to repeated attempts to make contact.
199.
At least on the first occasion after set-off has been used, a subscriber should contact the customer to advise them and the customer should be encouraged to take appropriate action in the future to avoid missed payments.
200.
If it is evident from subsequent contact with the customer that they are in financial difficulty either as a result of the use of set-off or otherwise, appropriate action should be taken promptly to ensure that they are treated fairly, sympathetically and positively as required by the Code.
Breathing space for personal customers
201.
Where a customer can demonstrate to a subscriber that they are making a genuine effort to develop a repayment plan, using either a debt advice agency or a self-help tool10, the subscriber should suspend collections activity related to the customer’s current account, credit card and/or unsecured personal loan while discussions continue, for a period of 30 days.
202.
The subscriber should confirm with the customer and/or their adviser that collections calls and letters will be suspended during the ‘breathing space’ period (except where required under Consumer Credit legislation) and should discuss with the customer and/or their adviser how the account will continue to operate during the 30 day period.
203.
Where the customer and/or their adviser provides clear evidence of demonstrable progress being made in developing a genuine repayment plan, but work has not yet concluded, subscribers should extend the breathing space for up to an additional 30 days.
Common Financial Statement
204.
Money advisers may use the BBA/MAT/FLA Common Financial Statement format and principles when submitting information to subscribers11.
205.
Subscribers should accept the CFS (and other similar statements such as that used by the Consumer Credit Counselling Service (CCCS)). The CFS - or equivalent details of the customer’s income, expenditure and assets - is necessary to enable the subscriber to gather information to assess if an ‘offer to pay’ will enable the customer to be accepted onto a formal debt management plan (DMP), or enable the subscriber to reduce or suppress interest and fees.
206.
If a customer works with a debt-counselling organisation to complete a CFS, in support of a debt management plan, the subscriber should accept the CFS as the basis for pro-rata distribution amongst creditors covered by the plan. Repayment offers based upon expenditure falling within the trigger figures of the CFS should only be challenged by the subscriber if it has reasonable cause to believe that the customer’s income and expenditure figures may be incomplete or inaccurate. This provision is designed to help people in or at risk of being in financial difficulties, and subscribers should use the provision when accounts have gone into default or at an earlier stage if it benefits both them and the customer.
207.
The third party money adviser should ensure that their authority to act on behalf of the customer is promptly sent to all creditors identified by the customer. It is also the responsibility of the adviser to ensure that a CFS or equivalent is sent to the creditors shortly after the authority. In these circumstances, where a money adviser has been appointed and there are debts with many creditors subscribers will not normally be able to work with the customer until a CFS or equivalent has been received.
208.
In general, subscribers should then be prepared to accept an offer of repayment which is based on the principle of equitable distribution of available income (after priority payments), in line with the amount outstanding to each creditor.
10 The extension of paragraph 201 to self-help customers is effective from 1 July 2011.
11 More information on the BBA/MAT/FLA statement is available from the British Bankers’ Association or Money Advice Trust as well as the agencies supported by MAT, e.g. the National Associations of Citizens Advice Bureau Service, Advice UK, Money Advice Association, Money Advice Scotland and National Debtline.
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Alternative means of calculating the distribution of available income by the customer or their adviser may be agreed on a case-by-case basis. A subscriber may accept an offer of payment, even though the offer is not sufficient to enable the customer to be accepted onto a formal DMP.
209.
There is no reason why the content of the income and expenditure statement should not be challenged but if the figures appear to be reasonable and in line with trigger figures where a CFS is used, then these principles should apply.
210.
Subscribers should follow the CFS Creditor Good Practice checklist which promotes clear communications between creditors and customers12. The CFS checklist is available at http://www.cfs.moneyadvicetrust.org/...asp?page_id=42
211.
Subscribers should also comply with the Code’s standards for CFS-based negotiations when considering debt repayment proposals made using other repayment models that are endorsed by the Lending Code sponsors. Currently, the CCCS Debt Remedy service and self-help tool CASHflow developed by the MAT are recognised and others will be reviewed from time to time.13
212.
Personal customers may choose a self-help approach to negotiating debt repayment. Subscribers should ensure that such proposals are given equal consideration as those presented through a debt adviser.
Token offers and write-offs
213.
Token offers should be accepted where the customer has demonstrated they have no surplus income available for their ‘non-priority’ creditors and there is a realistic prospect of the customer's circumstances improving14. A token offer will not necessarily be regarded as an agreed repayment plan and will not prevent the debt from being registered as in default with a CRA, or sold to a third party debt recovery agent.
214.
Where the subscriber considers the customer’s personal and financial circumstances to be exceptional and unlikely to improve, the subscriber may, among other options, consider writing off or not pursuing part or all of the customer’s debt(s). Where write-off is requested by a customer or adviser but is not considered appropriate by the subscriber, the subscriber must give their reasons in writing. If the subscriber agrees to a write-off, then the debt may be registered as a default with the credit reference agencies.
Debt recovery procedures
215.
If the customer does not co-operate with the subscriber, a plan cannot be developed and the subscriber may proceed with normal debt recovery procedures. Lack of co-operation would include not responding to the subscriber’s attempts at contact and unreasonable demands by the customer (for example, a request that the debt be written off or repaid over a very long period, even though the customer could afford to make reasonable repayments).
216.
A subscriber should ensure that any enforcement action initiated by them or on their behalf by another party to recover debt is carried out within the appropriate legal jurisdiction.
217.
If a customer has assets which could reasonably be expected to be sold to reduce outstanding debts, the subscriber may request that the customer, and if appropriate, their adviser, considers this option. Thereafter, the subscriber should acknowledge that income should only be used to repay ‘non-priority’ debts once provision has been made for any ‘priority’ debts. The subscriber should leave the customer with sufficient money for reasonable day-to-day expenses, taking into account individual circumstances.
218.
A debt is considered ‘priority’ where the customer’s failure to pay could lead directly to the loss of one or more of the following:
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The customer’s home (e.g., rent, mortgage, secured loans);
12 This paragraph is effective from 1 July 2011.
13 This paragraph is effective from 1 July 2011.
14 This paragraph is effective from 1 July 2011.
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The customer’s liberty (e.g., council tax, child support maintenance, income tax, court fines);
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The customer’s utility supplies (e.g. water, gas, electricity); or
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The customer’s essential goods or services (e.g., a cooker, a fridge, or the means to travel to work).
219.
Subscribers will not subject customers to harassment or undue pressure when discussing their problems.
PROVISIONS APPLICABLE TO BOTH PERSONAL AND MICRO-ENTERPRISE CUSTOMERS
Repayment plans
220.
The subscriber should explore a range of options with the customer. Usually this will require the customer to disclose to the subscriber details of their income, expenditure, assets and liabilities, including amounts (if any) owed to other creditors. This information will be used to develop a plan for dealing with the liabilities. In cases where there are liabilities to multiple creditors, subscribers should recommend a free money advice service.
221.
The initial arrangements for repaying the debt should be in writing or other durable medium. This will not always be treated as a formal debt management plan, and there may be departures from this plan, if it is in the interests of subscribers and customers. There is no need for every small departure from the basic plan to be in writing (for example an agreement to accept a lower repayment for one week), but any amendments that change the fundamental nature of the plan should be in writing. If, at the subscriber’s discretion, the plan includes an agreement to accept smaller repayments, the subscriber should tell the customer whether this is regarded as ‘falling behind with repayments’ and whether information will be passed to Credit Reference Agencies.
222.
Repayment plans between subscribers and customers may be subject to regular review but a subscriber should not expect a customer to increase their repayment at the review stage unless the customer’s financial position has improved. Any review period will be agreed with the customer or their adviser, and subscribers should seek to revise contributions only at the end of the review period or if a customer’s personal circumstances change. (Customers and/or their advisers should inform the subscriber if the customer’s personal situation changes.)
223.
Where a customer is unable to make repayments that are sufficient to meet a lender’s minimum requirements for a repayment plan, the customer must be given clear information on the effect this will have on his position and the options open to him. However this should never be in a way that is designed to encourage a customer to pay more than they can afford as demonstrated by an income and expenditure statement.
Interest and charges concessions
224.
Subscribers should consider reducing or stopping interest and charges when a customer evidences that they are in financial difficulties. Such reduction/suspension decision should be based upon an income and expenditure statement indicating that they are unable to make repayments sufficient to meet contractual terms. Where a customer is able to make only token payments, their debt should not increase as a result of interest and charges levied. The assessment should reflect the customer’s lack of ability to pay rather than the stage an account has reached in the arrears cycle or whether they are using free sources of debt advice. Where a firm declines to allow concessions, they should be prepared to explain why to the customer or their adviser if requested to do so.
225.
It is inappropriate for interest and charges to continue to be taken where the result would be that the repayment period for the customer becomes excessive. In forming a judgement on what might be excessive, a subscriber should take into account the type of product and the individual circumstances of the borrower.
226.
Concessions should not be arbitrarily withdrawn irrespective of a customer’s ability to pay or without any evidence of a change in the customer’s circumstances. Expiry of a repayment arrangement should not automatically lead to the
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withdrawal of concessions. This does not rule out regular reviews and if a customer’s position has improved then interest and charges can be reintroduced.
227.
Where possible, subscribers should have consistent policies for customers holding more than one product type in terms of charges and interest concessions.
Debt collection agencies and debt sales
228.
Subscribers should follow a due diligence process when selecting third parties for debt management, which should include third party compliance with data protection legislation, consumer credit legislation, Office of Fair Trading guidance on debt collection and debt management, and the code of the Credit Services Association.
229.
Subscribers should ensure that the Code standards for handling financial difficulties are applied by such agents, through due diligence and periodic audit and review. Code compliance standards should form part of all third party contracts.
230.
Subscribers should ensure that all relevant available information held by the subscriber relating to the debt is passed to any DCA or any debt purchaser.
231.
Subscribers should inform the third party of any relevant arrangements currently being complied with by the customer. The provisions in paragraph 222 relating to repayment plans continue to apply where a debt has been passed to a DCA or sold. Existing repayment plans which have been agreed with the customer and which are being met must be respected until the scheduled review date.
232.
Subscribers should follow a due diligence process when selecting any third party for debt sale. Any new contract should ensure that the third party will comply with data protection legislation, consumer credit legislation, Office of Fair Trading guidance on debt collection and debt management, the code of the Credit Services Association and the Lending Code’s standards for handling financial difficulties even if the debt purchaser is not a subscriber.
233.
Additional care needs to be taken when dealing with certain types of debt. Where a customer or his agent has provided appropriate and relevant evidence of an ongoing mental health problem that affects the customer’s ability to repay their debts, the debt should not be sold.
234.
Subscribers should undertake appropriate monitoring in order to satisfy themselves that debt purchasers to whom they have sold customers’ debts continue to deal with such customers in a manner that is consistent with the relevant requirements of the Code and the relevant contractual terms. Such monitoring should be conducted at least annually where subscribers continue to sell debt to a purchaser, and for a further two years after they have stopped selling debt to that purchaser.
235.
The results of the monitoring referred to above should be used to satisfy the subscriber and the LSB that all of the relevant Lending Code requirements in respect of the debts sold are being adhered to. Where instances of non-compliance are identified through monitoring, subscribers must be able to evidence that appropriate action has been taken to remedy any breakdown of control or customer detriment
236.
Where a subscriber agrees to a subsequent sale of the debt, they must satisfy themselves that appropriate arrangements are in place to ensure that following the sale of the debt, the subsequent debt purchaser will continue to deal with customers in a manner that is consistent with the requirements set out in the Code for the treatment of customers in financial difficulties.
237.
Customers should be advised before or at the time their debt is passed or sold to a third party by a subscriber. The intended outcome of this provision is that a customer should not experience collections activity from the party to whom the debt has been passed or sold without having received prior notification from the subscriber of the transfer15.
238.
It is common practice for third parties taking on a debt to request a new statement of income, expenditure and assets to understand the customer’s most up-to-date position. However, if a statement has only recently been completed or a repayment plan is being maintained and the review date has not yet been reached, it would be inappropriate to request an updated statement.
15 This paragraph is effective from 1 July 2011
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Specialist assistance
239.
Subscribers are encouraged to have a specialist team or staff trained to provide specialist advice, to deal with customers in financial difficulty who have specialist needs. These may for example include customers with a mental health condition.
240.
If it becomes clear to the subscriber that the customer needs specialist assistance, the customer should be referred promptly to a specialist team that deals with customers in financial difficulties, if one exists. In some cases, referral to a debt recovery unit may also be necessary.
Debt and mental health
241.
The impacts of financial difficulty can be especially acute for customers with mental health problems. Subscribers should ensure that their processes and systems are responsive to a customer in financial difficulties, from the point at which they are made aware of a mental health problem.
242.
The appropriate response will differ in each case and could involve a range of approaches, including:
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working positively with an advice agency;
-
promptly carrying out agreed actions;
-
being flexible in responding to offers or schedules of repayment;
-
sensitively managing communications with the customer (for example preventing unnecessary and unwelcome mailings);
-
asking customers how their mental health problem impacts on their ability to repay their debt;
-
suggesting the customer obtain support from a family member or carer; and
-
signposting to a free, independent money advice agency.
243.
Where it is appropriate and with a customer’s consent, subscribers should work with advice agencies and health and social care professionals in a joined-up way to exchange information and ensure an effective dialogue.
244.
With a customer’s explicit consent and in line with requirements of the Data Protection Act, where it is possible and appropriate subscribers should record relevant information about the customer on their account so that staff can deal appropriately with the customer. Subscribers should inform customers how their information will be used and for what purposes.16
245.
If a subscriber has specialist staff to deal with cases of debt and mental health problems, they should ensure that appropriate mechanisms exist to refer the customer to the appropriate support.
246.
If a customer informs a subscriber that they have a mental health problem that is impacting on their ability to manage their financial difficulties, the subscriber should allow the customer a reasonable period (e.g. 28 days) of time to collect and submit relevant evidence to the subscriber. This evidence will help the subscriber to work with the customer, advice agencies and health/social professionals where appropriate to determine the most appropriate action to deal with the customer’s financial difficulties.
247.
The Money Advice Liaison Group (MALG) has produced a Debt and Mental Health Evidence Form (DMHEF) which provides a standardised methodology for advisors and creditors to share relevant information about the customer’s condition from health and social care professionals.
16 The obligation to provide information to customers is effective from 1 July 2011.
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248.
Subscribers should consider the DMHEF if it is presented by the customer or (with the customer’s consent) their adviser or medical practitioner.
249.
If a subscriber has received appropriate and relevant evidence of a customer’s mental health problems that affect the customer’s ability to repay their debts, the debt should not be sold. In these circumstances subscribers should also consider whether it is appropriate to pass the customer’s debt to a DCA.
250.
Where subscribers pass a debt to a DCA, the DCA should (subject to compliance with paragraph 244) be provided with relevant and appropriate information about the customer’s condition to enable them to deal sympathetically and positively with a customer with ongoing mental health problems.
251.
The subscriber should also only initiate court action to pursue the debt as a last resort and when it is appropriate and fair to do so.
252.
Further and more detailed good practice guidelines have been produced by MALG and are available at: http://www.moneyadvicetrust.org/download.asp. The MALG guidelines will not be monitored and enforced by the Lending Standards Board.
ADDITIONAL PROVISIONS FOR MICRO-ENTERPRISE CUSTOMERS
253.
Subscibers may ask a micro-enterprise customer for more financial information to help it to work with the customer to understand any problems.
254.
Subscribers may suggest that an independent review of the customer’s business is undertaken in order to provide an independent view of the future prospects of the business. In these circumstances, the subscriber should explain the reasons for the review, what they think should be done and how the review will take place, including who should carry out the review and the costs the customer will have to pay.
A review will usually cover all the options, including assessing:
-
opportunities for improving cash flow and profitability;
-
the main business activities or new markets;
-
investment needs and refinancing options; and
-
recommendations for the future.
255.
If a customer’s business is reviewed, the subscriber should discuss with the customer (and their advisers) the information provided before reaching any conclusions or taking any action.
256.
If an agreement to continue to support the business cannot be reached the subscriber should make it clear why. Subscribers should advise the customer when they will withdraw their support and will communicate these changes personally.
257.
A subscriber will support a rescue plan if it believes it will succeed. If the subscriber does not believe that the rescue plan will succeed, they should explain the reasons why and help the customer and their advisers to consider other options.
258.
If the customer makes the agreed changes early enough to save the main business, the subscriber will not, other than in exceptional circumstances, start action to recover the amount borrowed.
259.
A subscriber will work positively with a customer to support a lasting solution for a successful running of the customer’s business, provided the customer:
-
acts in good faith;
-
keeps the subscriber informed about developments;
-
keeps to its agreement with the subscriber;
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-
carefully considers what their own and any independent advisers say; and
-
is prepared to make the necessary changes early enough.
260.
If, after reviewing all the options with the customer, appointing an administrator or an administrative receiver (receiver, in Scotland) is considered to be the most appropriate action to take, the decision to appoint the receiver will be confirmed within the subscriber at a senior level.
In most cases, the customer invites the lender to appoint an administrator or administrative receiver after accepting that it is the most appropriate insolvency process based on very careful consideration of all the options available to protect the interests of the business, including the employees and creditors.
Insolvency practitioners will decide whether to accept a formal appointment after considering guidance on ethical standards. As a result of the Enterprise Act, an administrative receiver can only be appointed under security taken before 15 September 2003.
If the customer gives good reasons why a member of the firm that has carried out an independent review should not be appointed as administrator, the subscriber should appoint a different administrator (unless there are exceptional circumstances). The same principle applies for administrative receivers and receivers in Scotland.
This is a voluntary code of practice which sets standards for financial institutions to follow when they are dealing with their personal and small business customers in the United Kingdom. It provides valuable protection for customers and explains how firms are expected to deal with them day-to-day and in times of financial difficulties.
The Lending Code covers subscribers dealings with:
- Consumers
- Micro-enterprises (enterprises that employ fewer than 10 persons and have a turnover or annual balance sheet that does not exceed €2 million
- Charities with an income of less than £1 million
The Code covers:
- Current account overdrafts
- Loans
- Credit cards
- Lending to micro-enterprises and charities
The Code does not apply to non-business borrowing secured on land or to sales finance
Guide to the Code:
Short guides to the Lending Code are avaliable
Click here for a guide for personal customers
Click here for a guide for micro-enterprise customers
The Code is sponsored by:
- The British Bankers’ Association
- The Building Societies Association
- The UK Cards Association
Section 9: Financial difficulties
Introduction
178.
Subscribers should be sympathetic and positive when considering a customer’s financial difficulties. Although there is an onus on customers to try to help themselves, the first step, when a subscriber becomes aware of a customer’s financial difficulties, should be to try to contact the customer to discuss the matter. This applies to both personal and micro-enterprise customers.
179.
Personal customers should be considered to be in financial difficulty when income is insufficient to cover reasonable living expenses and meet financial commitments as they become due. This may result from a change in lifestyle, often accompanied by a fall in disposable income and/or increased expenditure, such as:
-
loss of employment;
-
disability;
-
serious illness;
-
relationship breakdown;
-
death of a partner;
-
starting a lower paid job;
-
parental/carer leave;
-
starting full-time education; and
-
imprisonment.
180.
Financial difficulties may become evident to a subscriber from one or more of the following events:
-
Items repeatedly being returned unpaid due to lack of available funds;
-
Failing to meet loan repayments or other commitments;
-
Discontinuation of regular credits;
-
Notification of some form of insolvency or court proceedings;
-
Regular requests for increased borrowing or repeated rescheduling of debts;
-
Making frequent cash withdrawals on a credit card at a non-promotional rate of interest;
-
Repeatedly exceeding a credit card or overdraft limit without agreement; and
-
The customer informing the subscriber that they are, or at risk of being in financial difficulties.
This list is illustrative and non-exhaustive.
181.
Additionally, for micro-enterprise customers, financial difficulties may also become evident to subscribers because:
-
the customer goes overdrawn without agreement;
-
the customer goes over their agreed overdraft limit, especially more than once;
-
there are large increases or decreases in the business’s turnover;
-
the business is trading at a loss;
29
-
the business suddenly loses a key customer or employee;
-
a large part of the business is sold;
-
a facility is used for purposes other than those agreed with the subscriber;
-
the customer does not keep to conditions set out in the loan agreement;
-
the customer does not supply agreed monitoring information on time; and
-
another creditor brings a winding-up petition or other legal action against the business.
Proactive contact
182.
If a subscriber becomes aware via their existing systems or from external data feeds (e.g. CRAs) or from information provided by the customer that the customer may be at risk of being in financial difficulties, the subscriber should contact the customer in order to:
-
outline their approach to financial difficulties;
-
encourage the customer to contact the subscriber if the customer is worried about their position;
-
offer the customer appropriate and timely options where possible to help reduce the risk of deterioration in the customer’s financial well- being; and
-
provide signposts to sources of free, independent money advice.
The subscriber’s contact with a customer identified as being at risk of being in financial difficulties should be through the normal channel of communication with the customer concerned, such as letter, telephone, email or text.
183.
Signs or indicators that a personal customer may be at risk of being in financial difficulties may include:
-
regular unarranged overdrafts or excesses on agreed overdraft facilities;
-
high or increasing numbers of unarranged overdraft charges being incurred by the customer, particularly where the total charges are high compared to the customer’s monthly income (where known);
-
regular returned items or refused authorisations in respect of Point of Sale or ATM transactions;
-
frequent requests for increased overdraft limits;
-
hardcore borrowing or increasing dependence on unauthorised overdrafts developing;
-
change in account behaviour such as significantly reduced credit turnover;
-
missed or overdue payments in respect of products held by the customer; and
-
deteriorating trend in third party data e.g. CRA data.
This list is not intended to be exhaustive, nor are the above necessarily indicators that a customer may be at risk of being in financial difficulties. Subscribers should consider what other information they have available that might indicate that a customer is or is not at risk of experiencing financial difficulties.
184.
Once a personal customer has been identified as being in or at risk of being in financial difficulties, the subscriber should determine the appropriate level of intervention required dependent on the individual customer’s position.
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185.
Subscribers should consider a range of solutions to assist personal customers who are identified as being at risk of being in financial difficulties, which may include:
-
Account management guidance:
Changing the date of regular payments so that for instance a mortgage or rent payment is made immediately after receipt of a salary;
Set up text/email alerts (if available).
-
Changes to account functionality:
Promotion of availability of opt out from unarranged overdrafts (where offered – see Section 5)
Downgrade account and facilities, e.g. to a Basic Bank Account, if the reduced functionality of such an account is appropriate for the customer’s needs.
-
Intervention:
Cancellation of regular payments, with customer making alternative arrangements to meet essential bills;
-
Restructuring:
Re-schedule borrowing, possibly moving hardcore borrowing to a loan account with regular payments, subject to affordability assessment;
Agreement to a formal arranged overdraft, subject to affordability assessment.
-
Concessions/forbearance
Charges and interest concessions (see paragraphs 224-227).
-
Referral to third party debt adviser
Breathing space (see paragraphs 201-203).
Any arrangements agreed and made between the subscriber and a customer or their adviser must be confirmed in writing.
186.
In cases where the subscriber’s internal review and/or discussions with a personal customer establish that the customer is not at risk of being in financial difficulties, the subscriber need take no further action, subject always to paragraph 182 (pro-active contact) above.
PROVISIONS FOR PERSONAL CUSTOMERS
Communicating with personal customers and their advisers
187.
Subscribers should make available to customers straightforward information in plain English on their procedures and systems for dealing with customers in financial difficulty. This might explain, for example, the main rights and responsibilities of customers and subscribers, and what is involved in legal demands or a referral to a debt recovery unit. The BBA publishes a leaflet, Dealing with Debt, which is available on the BBA and The UK Cards Association websites.
188.
Where a customer requests that the subscriber deals with them in writing or email (providing that facility is available) rather than by telephone, they should do so as long as the customer remains co-operative and in regular dialogue.
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189.
Communications with customers and/or their advisers should, wherever possible, acknowledge and reflect any previous discussions that have taken place. Subscribers should be willing to communicate with customers and/or their advisers by phone, post, secure email or fax. Normally, the subscriber will communicate through the adviser, if an authority has been received. This does not preclude subscribers from copying correspondence to customers if they choose. In certain circumstances it may be beneficial for discussions (either face-to-face or over the telephone) between the adviser and subscriber to take place with the customer present.
190.
On occasions the subscriber may need to contact the customer directly, even when an authority is in place. These occasions may be the result of the adviser not being available, failing to provide requested information within a reasonable period of time, or other similar circumstances. If a subscriber does contact a customer directly when an authority is in place, it will explain to the customer why it is doing so.
191.
Subscribers should give a phone number on all communications that will put the customer in contact with a named person or a team dedicated to dealing with cases of financial difficulty.
Consolidation loans
192.
Where a consolidation loan is being provided to a personal customer and the subscriber considers the customer to be in financial difficulties, the subscriber should reduce or pay off the existing in-house borrowing that it is aware is being consolidated. This applies only where the existence of such in-house borrowing is apparent to subscribers via their existing in-house systems.
193.
Exceptionally there may be circumstances in which it is appropriate not to reduce or pay off existing borrowing.
194.
Other than in exceptional circumstances, where a consolidation loan is being provided to a personal customer and the subscriber considers the customer to be in financial difficulties, the monthly repayments on the consolidation loan should not exceed the total monthly repayments of the debts being consolidated. Exceptional circumstances may for example include where the customer has a repayment holiday or an interest-free period under their existing arrangement, which is shortly to end.9
Use of the right of set-off
195.
Before set-off is used, a subscriber should contact the customer to inform them in clear and simple language the generic circumstances in which set-off would be used and when e.g. if the customer does not contact the subscriber and/or address the missed payment. This contact should be made at a time when the lender is actively considering or is likely to exercise set-off and not so far in advance of the event that the customer may no longer be aware that it may be undertaken. This information should be as prominent in written communications and telephone scripts as other information.
196.
Before applying set-off a subscriber should take account of information that they have available to them to identify whether the customer may be or may be heading towards financial difficulties. In all cases where set-off is to be applied and the subscriber has established that the customer is in financial difficulties, the customer must be left with sufficient money to meet their reasonable day-to-day living expenses and priority debts, where these have been identified. There are a number of ways that subscribers can make this assessment. Where more than one payment has been missed, the assessment could include reviewing income and expenditure statements (if the subscriber has these), and/or account turnover and behaviour, and/or analysis of the type and frequency of credits to the account. Particular care is required where it can be identified that a customer’s balance is made up wholly or in part of state benefits.
197.
If the customer does not respond to contact or is not co-operative and there is no evidence available to the subscriber that using set-off will cause or exacerbate the customer’s financial difficulties, then set-off may be exercised.
198.
Set-off should normally only be used to make up the most recent missed payment. However if the subscriber has contacted the customer about missed payments, told the customer that set-off is an option, and used the information available to them to assess whether the customer will be able to meet reasonable living expenses and pay priority
9 This paragraph is effective from 1 July 2011.
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debts, it may be used to make up earlier missed payments. A subscriber may also take more than one missed payment where the customer is not cooperating with the subscriber, for example by not responding to repeated attempts to make contact.
199.
At least on the first occasion after set-off has been used, a subscriber should contact the customer to advise them and the customer should be encouraged to take appropriate action in the future to avoid missed payments.
200.
If it is evident from subsequent contact with the customer that they are in financial difficulty either as a result of the use of set-off or otherwise, appropriate action should be taken promptly to ensure that they are treated fairly, sympathetically and positively as required by the Code.
Breathing space for personal customers
201.
Where a customer can demonstrate to a subscriber that they are making a genuine effort to develop a repayment plan, using either a debt advice agency or a self-help tool10, the subscriber should suspend collections activity related to the customer’s current account, credit card and/or unsecured personal loan while discussions continue, for a period of 30 days.
202.
The subscriber should confirm with the customer and/or their adviser that collections calls and letters will be suspended during the ‘breathing space’ period (except where required under Consumer Credit legislation) and should discuss with the customer and/or their adviser how the account will continue to operate during the 30 day period.
203.
Where the customer and/or their adviser provides clear evidence of demonstrable progress being made in developing a genuine repayment plan, but work has not yet concluded, subscribers should extend the breathing space for up to an additional 30 days.
Common Financial Statement
204.
Money advisers may use the BBA/MAT/FLA Common Financial Statement format and principles when submitting information to subscribers11.
205.
Subscribers should accept the CFS (and other similar statements such as that used by the Consumer Credit Counselling Service (CCCS)). The CFS - or equivalent details of the customer’s income, expenditure and assets - is necessary to enable the subscriber to gather information to assess if an ‘offer to pay’ will enable the customer to be accepted onto a formal debt management plan (DMP), or enable the subscriber to reduce or suppress interest and fees.
206.
If a customer works with a debt-counselling organisation to complete a CFS, in support of a debt management plan, the subscriber should accept the CFS as the basis for pro-rata distribution amongst creditors covered by the plan. Repayment offers based upon expenditure falling within the trigger figures of the CFS should only be challenged by the subscriber if it has reasonable cause to believe that the customer’s income and expenditure figures may be incomplete or inaccurate. This provision is designed to help people in or at risk of being in financial difficulties, and subscribers should use the provision when accounts have gone into default or at an earlier stage if it benefits both them and the customer.
207.
The third party money adviser should ensure that their authority to act on behalf of the customer is promptly sent to all creditors identified by the customer. It is also the responsibility of the adviser to ensure that a CFS or equivalent is sent to the creditors shortly after the authority. In these circumstances, where a money adviser has been appointed and there are debts with many creditors subscribers will not normally be able to work with the customer until a CFS or equivalent has been received.
208.
In general, subscribers should then be prepared to accept an offer of repayment which is based on the principle of equitable distribution of available income (after priority payments), in line with the amount outstanding to each creditor.
10 The extension of paragraph 201 to self-help customers is effective from 1 July 2011.
11 More information on the BBA/MAT/FLA statement is available from the British Bankers’ Association or Money Advice Trust as well as the agencies supported by MAT, e.g. the National Associations of Citizens Advice Bureau Service, Advice UK, Money Advice Association, Money Advice Scotland and National Debtline.
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Alternative means of calculating the distribution of available income by the customer or their adviser may be agreed on a case-by-case basis. A subscriber may accept an offer of payment, even though the offer is not sufficient to enable the customer to be accepted onto a formal DMP.
209.
There is no reason why the content of the income and expenditure statement should not be challenged but if the figures appear to be reasonable and in line with trigger figures where a CFS is used, then these principles should apply.
210.
Subscribers should follow the CFS Creditor Good Practice checklist which promotes clear communications between creditors and customers12. The CFS checklist is available at http://www.cfs.moneyadvicetrust.org/...asp?page_id=42
211.
Subscribers should also comply with the Code’s standards for CFS-based negotiations when considering debt repayment proposals made using other repayment models that are endorsed by the Lending Code sponsors. Currently, the CCCS Debt Remedy service and self-help tool CASHflow developed by the MAT are recognised and others will be reviewed from time to time.13
212.
Personal customers may choose a self-help approach to negotiating debt repayment. Subscribers should ensure that such proposals are given equal consideration as those presented through a debt adviser.
Token offers and write-offs
213.
Token offers should be accepted where the customer has demonstrated they have no surplus income available for their ‘non-priority’ creditors and there is a realistic prospect of the customer's circumstances improving14. A token offer will not necessarily be regarded as an agreed repayment plan and will not prevent the debt from being registered as in default with a CRA, or sold to a third party debt recovery agent.
214.
Where the subscriber considers the customer’s personal and financial circumstances to be exceptional and unlikely to improve, the subscriber may, among other options, consider writing off or not pursuing part or all of the customer’s debt(s). Where write-off is requested by a customer or adviser but is not considered appropriate by the subscriber, the subscriber must give their reasons in writing. If the subscriber agrees to a write-off, then the debt may be registered as a default with the credit reference agencies.
Debt recovery procedures
215.
If the customer does not co-operate with the subscriber, a plan cannot be developed and the subscriber may proceed with normal debt recovery procedures. Lack of co-operation would include not responding to the subscriber’s attempts at contact and unreasonable demands by the customer (for example, a request that the debt be written off or repaid over a very long period, even though the customer could afford to make reasonable repayments).
216.
A subscriber should ensure that any enforcement action initiated by them or on their behalf by another party to recover debt is carried out within the appropriate legal jurisdiction.
217.
If a customer has assets which could reasonably be expected to be sold to reduce outstanding debts, the subscriber may request that the customer, and if appropriate, their adviser, considers this option. Thereafter, the subscriber should acknowledge that income should only be used to repay ‘non-priority’ debts once provision has been made for any ‘priority’ debts. The subscriber should leave the customer with sufficient money for reasonable day-to-day expenses, taking into account individual circumstances.
218.
A debt is considered ‘priority’ where the customer’s failure to pay could lead directly to the loss of one or more of the following:
-
The customer’s home (e.g., rent, mortgage, secured loans);
12 This paragraph is effective from 1 July 2011.
13 This paragraph is effective from 1 July 2011.
14 This paragraph is effective from 1 July 2011.
34
-
The customer’s liberty (e.g., council tax, child support maintenance, income tax, court fines);
-
The customer’s utility supplies (e.g. water, gas, electricity); or
-
The customer’s essential goods or services (e.g., a cooker, a fridge, or the means to travel to work).
219.
Subscribers will not subject customers to harassment or undue pressure when discussing their problems.
PROVISIONS APPLICABLE TO BOTH PERSONAL AND MICRO-ENTERPRISE CUSTOMERS
Repayment plans
220.
The subscriber should explore a range of options with the customer. Usually this will require the customer to disclose to the subscriber details of their income, expenditure, assets and liabilities, including amounts (if any) owed to other creditors. This information will be used to develop a plan for dealing with the liabilities. In cases where there are liabilities to multiple creditors, subscribers should recommend a free money advice service.
221.
The initial arrangements for repaying the debt should be in writing or other durable medium. This will not always be treated as a formal debt management plan, and there may be departures from this plan, if it is in the interests of subscribers and customers. There is no need for every small departure from the basic plan to be in writing (for example an agreement to accept a lower repayment for one week), but any amendments that change the fundamental nature of the plan should be in writing. If, at the subscriber’s discretion, the plan includes an agreement to accept smaller repayments, the subscriber should tell the customer whether this is regarded as ‘falling behind with repayments’ and whether information will be passed to Credit Reference Agencies.
222.
Repayment plans between subscribers and customers may be subject to regular review but a subscriber should not expect a customer to increase their repayment at the review stage unless the customer’s financial position has improved. Any review period will be agreed with the customer or their adviser, and subscribers should seek to revise contributions only at the end of the review period or if a customer’s personal circumstances change. (Customers and/or their advisers should inform the subscriber if the customer’s personal situation changes.)
223.
Where a customer is unable to make repayments that are sufficient to meet a lender’s minimum requirements for a repayment plan, the customer must be given clear information on the effect this will have on his position and the options open to him. However this should never be in a way that is designed to encourage a customer to pay more than they can afford as demonstrated by an income and expenditure statement.
Interest and charges concessions
224.
Subscribers should consider reducing or stopping interest and charges when a customer evidences that they are in financial difficulties. Such reduction/suspension decision should be based upon an income and expenditure statement indicating that they are unable to make repayments sufficient to meet contractual terms. Where a customer is able to make only token payments, their debt should not increase as a result of interest and charges levied. The assessment should reflect the customer’s lack of ability to pay rather than the stage an account has reached in the arrears cycle or whether they are using free sources of debt advice. Where a firm declines to allow concessions, they should be prepared to explain why to the customer or their adviser if requested to do so.
225.
It is inappropriate for interest and charges to continue to be taken where the result would be that the repayment period for the customer becomes excessive. In forming a judgement on what might be excessive, a subscriber should take into account the type of product and the individual circumstances of the borrower.
226.
Concessions should not be arbitrarily withdrawn irrespective of a customer’s ability to pay or without any evidence of a change in the customer’s circumstances. Expiry of a repayment arrangement should not automatically lead to the
35
withdrawal of concessions. This does not rule out regular reviews and if a customer’s position has improved then interest and charges can be reintroduced.
227.
Where possible, subscribers should have consistent policies for customers holding more than one product type in terms of charges and interest concessions.
Debt collection agencies and debt sales
228.
Subscribers should follow a due diligence process when selecting third parties for debt management, which should include third party compliance with data protection legislation, consumer credit legislation, Office of Fair Trading guidance on debt collection and debt management, and the code of the Credit Services Association.
229.
Subscribers should ensure that the Code standards for handling financial difficulties are applied by such agents, through due diligence and periodic audit and review. Code compliance standards should form part of all third party contracts.
230.
Subscribers should ensure that all relevant available information held by the subscriber relating to the debt is passed to any DCA or any debt purchaser.
231.
Subscribers should inform the third party of any relevant arrangements currently being complied with by the customer. The provisions in paragraph 222 relating to repayment plans continue to apply where a debt has been passed to a DCA or sold. Existing repayment plans which have been agreed with the customer and which are being met must be respected until the scheduled review date.
232.
Subscribers should follow a due diligence process when selecting any third party for debt sale. Any new contract should ensure that the third party will comply with data protection legislation, consumer credit legislation, Office of Fair Trading guidance on debt collection and debt management, the code of the Credit Services Association and the Lending Code’s standards for handling financial difficulties even if the debt purchaser is not a subscriber.
233.
Additional care needs to be taken when dealing with certain types of debt. Where a customer or his agent has provided appropriate and relevant evidence of an ongoing mental health problem that affects the customer’s ability to repay their debts, the debt should not be sold.
234.
Subscribers should undertake appropriate monitoring in order to satisfy themselves that debt purchasers to whom they have sold customers’ debts continue to deal with such customers in a manner that is consistent with the relevant requirements of the Code and the relevant contractual terms. Such monitoring should be conducted at least annually where subscribers continue to sell debt to a purchaser, and for a further two years after they have stopped selling debt to that purchaser.
235.
The results of the monitoring referred to above should be used to satisfy the subscriber and the LSB that all of the relevant Lending Code requirements in respect of the debts sold are being adhered to. Where instances of non-compliance are identified through monitoring, subscribers must be able to evidence that appropriate action has been taken to remedy any breakdown of control or customer detriment
236.
Where a subscriber agrees to a subsequent sale of the debt, they must satisfy themselves that appropriate arrangements are in place to ensure that following the sale of the debt, the subsequent debt purchaser will continue to deal with customers in a manner that is consistent with the requirements set out in the Code for the treatment of customers in financial difficulties.
237.
Customers should be advised before or at the time their debt is passed or sold to a third party by a subscriber. The intended outcome of this provision is that a customer should not experience collections activity from the party to whom the debt has been passed or sold without having received prior notification from the subscriber of the transfer15.
238.
It is common practice for third parties taking on a debt to request a new statement of income, expenditure and assets to understand the customer’s most up-to-date position. However, if a statement has only recently been completed or a repayment plan is being maintained and the review date has not yet been reached, it would be inappropriate to request an updated statement.
15 This paragraph is effective from 1 July 2011
36
Specialist assistance
239.
Subscribers are encouraged to have a specialist team or staff trained to provide specialist advice, to deal with customers in financial difficulty who have specialist needs. These may for example include customers with a mental health condition.
240.
If it becomes clear to the subscriber that the customer needs specialist assistance, the customer should be referred promptly to a specialist team that deals with customers in financial difficulties, if one exists. In some cases, referral to a debt recovery unit may also be necessary.
Debt and mental health
241.
The impacts of financial difficulty can be especially acute for customers with mental health problems. Subscribers should ensure that their processes and systems are responsive to a customer in financial difficulties, from the point at which they are made aware of a mental health problem.
242.
The appropriate response will differ in each case and could involve a range of approaches, including:
-
working positively with an advice agency;
-
promptly carrying out agreed actions;
-
being flexible in responding to offers or schedules of repayment;
-
sensitively managing communications with the customer (for example preventing unnecessary and unwelcome mailings);
-
asking customers how their mental health problem impacts on their ability to repay their debt;
-
suggesting the customer obtain support from a family member or carer; and
-
signposting to a free, independent money advice agency.
243.
Where it is appropriate and with a customer’s consent, subscribers should work with advice agencies and health and social care professionals in a joined-up way to exchange information and ensure an effective dialogue.
244.
With a customer’s explicit consent and in line with requirements of the Data Protection Act, where it is possible and appropriate subscribers should record relevant information about the customer on their account so that staff can deal appropriately with the customer. Subscribers should inform customers how their information will be used and for what purposes.16
245.
If a subscriber has specialist staff to deal with cases of debt and mental health problems, they should ensure that appropriate mechanisms exist to refer the customer to the appropriate support.
246.
If a customer informs a subscriber that they have a mental health problem that is impacting on their ability to manage their financial difficulties, the subscriber should allow the customer a reasonable period (e.g. 28 days) of time to collect and submit relevant evidence to the subscriber. This evidence will help the subscriber to work with the customer, advice agencies and health/social professionals where appropriate to determine the most appropriate action to deal with the customer’s financial difficulties.
247.
The Money Advice Liaison Group (MALG) has produced a Debt and Mental Health Evidence Form (DMHEF) which provides a standardised methodology for advisors and creditors to share relevant information about the customer’s condition from health and social care professionals.
16 The obligation to provide information to customers is effective from 1 July 2011.
37
248.
Subscribers should consider the DMHEF if it is presented by the customer or (with the customer’s consent) their adviser or medical practitioner.
249.
If a subscriber has received appropriate and relevant evidence of a customer’s mental health problems that affect the customer’s ability to repay their debts, the debt should not be sold. In these circumstances subscribers should also consider whether it is appropriate to pass the customer’s debt to a DCA.
250.
Where subscribers pass a debt to a DCA, the DCA should (subject to compliance with paragraph 244) be provided with relevant and appropriate information about the customer’s condition to enable them to deal sympathetically and positively with a customer with ongoing mental health problems.
251.
The subscriber should also only initiate court action to pursue the debt as a last resort and when it is appropriate and fair to do so.
252.
Further and more detailed good practice guidelines have been produced by MALG and are available at: http://www.moneyadvicetrust.org/download.asp. The MALG guidelines will not be monitored and enforced by the Lending Standards Board.
ADDITIONAL PROVISIONS FOR MICRO-ENTERPRISE CUSTOMERS
253.
Subscibers may ask a micro-enterprise customer for more financial information to help it to work with the customer to understand any problems.
254.
Subscribers may suggest that an independent review of the customer’s business is undertaken in order to provide an independent view of the future prospects of the business. In these circumstances, the subscriber should explain the reasons for the review, what they think should be done and how the review will take place, including who should carry out the review and the costs the customer will have to pay.
A review will usually cover all the options, including assessing:
-
opportunities for improving cash flow and profitability;
-
the main business activities or new markets;
-
investment needs and refinancing options; and
-
recommendations for the future.
255.
If a customer’s business is reviewed, the subscriber should discuss with the customer (and their advisers) the information provided before reaching any conclusions or taking any action.
256.
If an agreement to continue to support the business cannot be reached the subscriber should make it clear why. Subscribers should advise the customer when they will withdraw their support and will communicate these changes personally.
257.
A subscriber will support a rescue plan if it believes it will succeed. If the subscriber does not believe that the rescue plan will succeed, they should explain the reasons why and help the customer and their advisers to consider other options.
258.
If the customer makes the agreed changes early enough to save the main business, the subscriber will not, other than in exceptional circumstances, start action to recover the amount borrowed.
259.
A subscriber will work positively with a customer to support a lasting solution for a successful running of the customer’s business, provided the customer:
-
acts in good faith;
-
keeps the subscriber informed about developments;
-
keeps to its agreement with the subscriber;
38
-
carefully considers what their own and any independent advisers say; and
-
is prepared to make the necessary changes early enough.
260.
If, after reviewing all the options with the customer, appointing an administrator or an administrative receiver (receiver, in Scotland) is considered to be the most appropriate action to take, the decision to appoint the receiver will be confirmed within the subscriber at a senior level.
In most cases, the customer invites the lender to appoint an administrator or administrative receiver after accepting that it is the most appropriate insolvency process based on very careful consideration of all the options available to protect the interests of the business, including the employees and creditors.
Insolvency practitioners will decide whether to accept a formal appointment after considering guidance on ethical standards. As a result of the Enterprise Act, an administrative receiver can only be appointed under security taken before 15 September 2003.
If the customer gives good reasons why a member of the firm that has carried out an independent review should not be appointed as administrator, the subscriber should appoint a different administrator (unless there are exceptional circumstances). The same principle applies for administrative receivers and receivers in Scotland.
