Lenders could be forced to give people struggling with problem debt a six-week interest holiday to give them time to get their finances in order, the government announced today.
The government is considering evidence on whether to implement the policy, with a view to publishing draft legislation by the end of 2018 or 2019 at the latest. This morning it announced a call for evidence to the City in an announcement on the regulatory news service.
Under the plans, individuals in debt could receive “up to six weeks free from further interest, charges and enforcement action”, giving them “breathing space”.
The government also floated plans to "include legal protections that would shield individuals from further creditor action once a plan to repay their debts is in place."
The call for evidence issued by the Treasury also includes the possibility of a statutory repayment plan for problem debtors, who are defined as people for whom debt and arrears absorb an excessive proportion of income.
The move was announced in the Conservative party’s manifesto for the June 2017 election, but had not been followed up until now, although cross-party pressure to fulfil the promise had begun to build.
Debt charity Step Change says as many as 8.8m Britons face financial difficulties which could lead to hardship. Mike O’Connor, the charity's chief executive, welcomed the move, saying it would be "crucial to helping people who are overwhelmed by debt to recover control of their finances and move on with their lives."
He said: "The government is asking the right sort of questions, including noting the importance that their own debts could be within any scheme. But we know from the experiences of our clients that continuous protection between the initial breathing space period and any statutory repayment plan is vital. Any interruption would destabilise fragile family finances and risk putting people back to square one.”
Consumer debt has risen up the political agenda in recent months as rising inflation has added to a squeeze on real incomes, with strong evidence that households have run down their savings in order to fund consumption. At the same time, consumer debt is still growing at almost 10 per cent per year.
The Financial Conduct Authority last week warned that half of British adults display at last one characteristic signalling their potential vulnerability to financial harm.
The government said it will meet key industry representatives from charities, debt advice organisations, lenders and creditors, as well as hearing from members of the public.
City minister Stephen Barclay, said: “For many people in the UK problem debt seems impossible to escape. Its effects can be far-reaching, impacting all aspects of a person's life and leaving them feeling helpless.
“That is why we are working to give people who are overwhelmed by debt, more time to seek advice, find a workable solution, and help get their lives back on track.”