You might be surprised to see who’s treating people in debt the most unfairly

By Henry Hall, Insight and Planning Officer

Over half a million people came to us for help in 2015, and most of these clients experienced a drop in income or some other sudden change in circumstances that led to their debt problem.

The way people are treated by their creditors when they start to experience financial difficulties can play a vital role in how the debt problem develops. If clients are treated badly it can lead to their debt problem being:

· More severe

· More harmful

· Harder to deal with

Bad practice from creditors causes genuine harm

Bad and unhelpful practices from creditors can both increase debts and make people in financial difficulty respond in ways that causes them more harm.

Aggressive demands for unaffordable payments can lead people to borrow more or fall behind on other bills in an effort to meet the creditor’s demands. Without understanding and patience from creditors it’s hard for those in difficulty to stabilise their situation.

The stress and hardship of dealing with unfair treatment from creditors can cause further problems like relationship breakdowns, stress and anxiety or problems in the workplace.

The cost to society

So bad practice, such as excessive bailiff fees and unaffordable repayment plans, don’t just cause harm to individuals. They also create a cost to society as a whole, one that we estimate to be around £2,800 for each person struggling with severe problem debt.

It’s therefore important that creditors get in right when dealing with people in problem debt.

However this isn’t always happening. Creditors in the public sector have been highlighted by our clients as among the organisations most likely to treat them unfairly. What’s more, public sector debts are often collected by bailiffs, our research showed that 51% of bailiff visits were to collect council tax debts.

Source: A survey of 1794 of our clients for the Creditor Conduct report

As a debt charity we pay out over £5 million per month to the public sector on behalf of our clients, so we understand the importance of repaying debts owed to the state. However, there’s a long way to go before the collection methods of public sector creditors are fair and effective at helping people to recover from problem debt.

What do we think should be done?

1. Bailiffs are currently less regulated than debt advisors. Regulation for bailiffs needs to better consider how people in financial difficulty are treated. Standards for protecting vulnerable customers must work in practice, for example having sustainable and affordable repayment ethics at every point of the debt collection process.

2. Firms regulated by the FCA, although not perfect, are felt to be treating people in financial difficulty far better than public sector creditors. The government needs to commit to binding good practice standards that prioritise supporting households towards financial recovery.

3. Finally, we’re calling for a new focus to ensure that debt recovery practice and policies have affordable and sustainable repayments at their heart.

Read more about this issue by downloading our Creditor Conduct report.

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