CM September 2021

NEWS SPECIAL
Drawing Breath
Breathing Space and the law of
unintended consequences.
AUTHOR – Sean Feast FCICM
IT is now the better part of three
months since the Government’s
‘Breathing Space’ debt respite
scheme regulations came into
effect. When the regulations
were first approved and as
the COVID pandemic cast a shadow
of concern across the economy and
consumer wellbeing, it was widely
recognised that forbearance in debt
repayments for customers in need would
be crucial.
As it happens, the credit and
collections sector have long used such
moratoria as part of their forbearance
measures before the Government
mandated such considerations – and so
the notion of a 60-day breathing space
for eligible individuals (accompanied
by a mental health scheme offering a
moratorium for the duration of a mental
health crisis plus a further thirty days)
was in harmony with existing practices
and received without objection.
But while the principle hasn’t been an
issue, Chris Leslie, Chief Executive of
the Credit Services Association (CSA),
says the operational nuts-and-bolts
haven’t been straightforward: “Eligibility
is supposed to be triggered by debt
advisers looking at each particular case,
then informing creditors and collections
agencies who must cease collections the
day after receiving notice,” he explains,
:but this is something that has required
significant administrative adaptations,
especially as the online notifications
‘portal’ was delayed and has only just
gone ‘live’. A paper-based approach
was never going to be conducive to the
smoothest of starts for the scheme.”
The biggest issue arising so far, Chris
says, was not one anyone anticipated;
a very large online debt advice charity
chose to facilitate the automatic selfreferral
for its clients onto a ‘breathing
space’, resulting in a wave of moratoria
triggered within days of the scheme’s
commencement: “As a trade body for the
recoveries sector, we were contacted by
many of our member firms as they tried
to figure out if the deluge was something
particular to them or industry-wide,” he
continues.
“After raising concerns with the
Insolvency Service, the Treasury Minister
confirmed that each customer was
supposed to have first obtained advice
to establish eligibility and that noncompliance
with the regulations would
be of concern to the FCA. Automatic
self-referral is not only outside the
scheme rules, it could be detrimental
for a customer who uses up their onceevery-twelve-month
entitlement to the
breathing space prematurely. Thankfully,
it appears that the debt advice charity in
question is now pausing that process and
reviewing their approach.”
CSA’s new policy paper ‘Tailored Support
and The Need for Flexibility In Forbearance’
Chris says that the tendency for
top-down prescribed interventions to
generate new problems is nothing new:
“American sociologist Robert Merton
argued that there are usually unexpected
drawbacks or even perverse results
contrary to an original policy prescription
not foreseen at the outset, and it’s fair to
say that this example illustrates Merton’s
law of unintended consequences quite
well,” he explains. “And it is not the only
teething issue that has cropped up since
the regulations came in.
“It’s why the argument for devolution
and decentralisation of Whitehall has
been made for decades. In the case of
financial services regulation, despite a
robust framework of principles-based
and outcome-oriented frameworks,
policy-makers can still tend towards
short-term ‘initiatives’ especially if they
come under media pressure.”
The CSA believe it is essential for
regulators and Ministers to stay strategic
and reiterate the core principles guiding
the current framework; namely that
firms should understand their customers
and find mutually agreeable solutions
responsive to individual circumstances:
“Both of these principles, by their nature,
require engagement and a willingness
to vary approaches by acting flexibly,
responsively and reasonably,” Chris
continues. “Top-down prescriptive
approaches can undermine the tailored
forbearance and support that usually
works best for customers.”
As the CSA’s new policy paper ‘Tailored
Support & The Need for Flexibility In
Forbearance’ points out, there are several
examples of policies in recent years
which have taken a rigid operational
approach. This isn’t just something
the industry has seen in the ‘Breathing
Space’ scheme. An early draft of 2017’s
Pre-Action Protocol for Debt Claims
– covered extensively in the pages of
Credit Management at the time – initially
required bundles of terms and conditions
and other technical documents to be
sent on paper to customers in sometimes
vulnerable circumstances, unwittingly
complicating and confusing recipients.
Fortunately a better solution was found,
offering the option for the bundle to
be received if requested, rather than
mandating it.
Another example is the Consumer
Credit Act framed nearly half a century
ago in 1974, prescribing a range of
statutory notices which don’t always fit
modern circumstances – and, despite
language moderation recently, there
remain concerns about the lack of
flexibility around provision, content
and format. For example, some notices
must continue to be sent to a last-known
address, even where the firm is aware the
customer no longer resides there.
“It would be a shame if the short-term
pursuit of often laudable interventions
sees decision-makers forget the core
principle of encouraging tailored
solutions based on an assessment
of individual circumstances,” Chris
concludes.
“It may not be ‘new’, but the principle
is strong, effective and works well. As
the Government designs its next wave of
reforms – the Statutory Debt Repayment
Plans and their requirement for the FCA
to consult on a ‘duty of care’ – we must
hope that they don’t fall into the trap of
prescribing actions and tripping over that
law of unintended consequences again.”
Advancing the credit profession / www.cicm.com / September 2021 / PAGE 8