Lenders to help those experiencing income shock
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A new scheme has been launched which will allow debtors to make minimal token payments until their financial situation has recovered.
The package was agreed in the context of a Ministry of Justice, Department of Business, Innovation and Skills and Insolvency Service consultation on Debt Management Schemes, published in September 2009, and ongoing work by the Lending Standards Board to monitor and enforce the recently established Lending Code.
The Ministry of Justice has been working with the British Bankers’ Association and the Consumer Credit Counselling Services, with input from Citizens Advice to develop a new way to help people who suffer an unexpected income shock such as redundancy, reduced hours or illness.
Under the new initiative banks, building societies and credit card lenders who follow the Lending Code will provide additional protections to people who find themselves in financial difficulties.
Under guidance issued by the Lending Standards Board, lenders will consider reducing or freezing interest and charges. Lenders will also accept token payments where appropriate.
The CCCS will after Easter, introduce a new payment arrangement for consumers with at least two unsecured debts, who are unable to meet their debt repayments, allowing them to make token payments of as little as £1 per debt a month – provided they take responsibility for their debts, engage with their creditors, and pay what they can.
Bridget Prentice, justice minister, says: “We’ve already been working with lenders on a variety of schemes to reduce the rates of repossessions among homeowners and allow flexibility when it comes to repaying consumer debt.
“These new practices by lenders will strengthen the protections offered to people who may have been making regular debt repayments but, through no fault of their own, are temporarily unable to continue to do so.
“At the same time, this initiative introduced by the CCCS will help those debtors who have multiple debts, providing much-needed relief until they are back on their feet financially and able to resume normal repayments.
“We will continue to work with lenders and the debt advice industry to get the best possible results for those homeowners, consumers and families experiencing tough times financially.”
