As part of the update, published as part of the UK Regulators Network (UKRN), there is a renewed focus on supporting customers when they owe firms money.
The four regulators issued their expectations for regulated firms. They are:
- Appropriate frequency of collection communications
- Communication has a supportive tone
- Clear and prominent information about debt advice
- Firms make it “as easy as possible” for debt advice organisations to contact creditors
The organisations warned in their letter that “where we find firms are falling short and delivering poor outcomes leading to consumer harm, we may take robust action.”
It follows a joint letter published in June 2023, which outlined the UKRN’s approach to tackling bad practices among debt collection firms. The rules will remain under review and further action may be implemented in the future if firms do not conduct themselves according to the new guidelines.
Customers ‘inundated’ by collections communications
As part of the process, the regulators for energy, telecommunications, water and finance firms identified areas where customers are particularly at risk of harm.
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Its study found customers were “inundated by collections communications” and were victims of intimidating or threatening tones in letters, emails and phone calls to those in debt.
There were also barriers faced by advisers working for free debt advice organisations when they were trying to engage with debt collection companies on behalf of their clients.
These issues when prevalent in the process of collecting overdue money had a negative impact on customers’ mental and physical health. In 2020, the FCA alone fined firms guilty of treating customers unfairly a total of £90m and also enforced the compensation of over £570m to customers.
It follows the Government’s Budget pledge to remove the £90 administration fee for a Debt Relief Order (DRO), which is a personal insolvency debt solution for people who can’t pay their debts.
That fee will be removed next month from 6 April.
Cost-of-living crisis spiked utility arrears
Following the fresh guidance, Richard Lane, chief client officer at the debt charity StepChange, said it was pleased to see help being given and that it’s time for those in debt “to receive support and empathy, rather than punitive action.”
Lane said: “Since the cost-of-living crisis, we’ve seen the amount of utility arrears spike among our clients, with those on the lowest incomes struggling to cover steep rises in their essential costs.
“We know from previous research that the language used in collections communications can exacerbate problems for those facing financial difficulty, and lead to further harm rather than to greater debt recovery. For someone experiencing mental health issues or another vulnerability, threatening communications can cause them to disengage.”
The regulators’ letter coincides with the tenth anniversary of Debt Awareness Week too, an initiative that aims to highlight the causes of problem debt and the issues related to it.
Lane added: “This Debt Awareness Week, we’re focusing on some of the barriers that can stand in the way of people getting help with debt.
“It’s vital that firms do everything in their power to make it easier for customers to access support when they’re facing debt collection. This includes reviewing the tone of their communications and effectively signposting to free debt advice, in a way that is clear for the consumer.”
