Lenders need to give debtors more help

13 June 2008

No legal action before debt advice is given

Government proposals announced today will mean that lenders have to give borrowers more information on how to best handle their debt before they take them to court.

Under the current system, if borrowers start to fall behind with their repayments the lenders will write to them. However, lenders do not currently have to advise the borrowers on how they can avoid being taken to court.

This can eventually lead to the borrower having a county court judgement (CCJ) against their name, which will be recorded on their credit report and act as a deterrent for future lenders. In turn, this will make it harder, and more expensive, for the borrower to get future credit.

As part of today’s government proposals, lenders would have to write to the borrower to provide them with information on how to contact them to talk through their problems. They would also have to provide contact details of ‘independent free advice providers’ before they could take any legal action.

After the information has been sent out, the borrower would have to be given ‘reasonable time’ to act on the letter before the lender could start court action to get their money back.

Bridget Prentice, the justice minister, said: “Getting the right advice at the right time can make the difference between keeping your home or losing it.

“Being in debt can be frightening for most people and information given at the right time could reduce the number of people who get deeper and deeper into debt.

“Most creditors send letters to those not meeting repayments to encourage either direct contact with them or contact through a debt advice provider, but this new step will make it the norm for everyone,” she added.