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The Lending Code Is To Be Reviewed

The Lending Code is a voluntary set of rules which many well-known lenders (including the well-known high street banks) and some debt collection agencies sign up to. It has been announced by the Lending Standards Board that this code will now be independently reviewed.

The reviewof the Lending Code appears, at least in part, to be connected to the recent transfer of regulatory responsibility for consumer lending, debt advice and debt collection to the Financial Conduct Authority. Lenders and debt collectors are very aware that the new regulator has high expectations about how they’ll treat the financially vulnerable.Banks and debt collectors need to find new ways to demonstrate that they’re treating their indebted customers fairly.

Of particular interest to newer Trust-Deed.co.uk visitors might be the Lending Code rules section that relates to financial difficulties. This section is especially important for anyone who is acknowledging their debt problem for the first time, being subject to debt recovery action for the first time, or seeking help from a debt adviser for the first time.

This might be applicable before, or in the early stages of, first considering whether to enter a Scottish trust deed, sequestration (bankruptcy) or the Debt Arrangement Scheme (DAS). There are steps that you can take which will help to buy you some time and protection from creditors who are Lending Code subscribers.

Two key themes from this “financial difficulties” section of the Lending Code include:

Attempts to contact you to discussmissed repayments often don’t feel “sympathetic”. Understandably many people find debt collection letters, calls or texts to be threatening and stressful. However lenders are obligated under the Lending Code to try and get in touch with you to work out a solutionif you’re falling behind on your debt repayments.

Why are lenders obligated to contact you like this? They cannot confirm that you meet the above definition of “financial difficulty” unless they are able to talk through your circumstances with you (or unless a debt adviser does that with your creditors for you). If they don’t know your circumstances, then they don’t know whether you should be treated sympathetically and positively (due to financial difficulties). They might simply assume that you’re avoiding repayment of debts that you can afford and therefore continue to ramp up the pressure on you.

So what are the benefits of communicating with creditors if you’re struggling to make your debt payments? What should you expect from subscriber firms to the Lending Code if you communicate with them and they agree that you’re in financial difficulty? Some key elements of the rules that might be valuable to you include:

  • You can request that all dealings are handled in writing (email or letter) if you’re finding other types of contact stressful. Provided that you remain responsive the creditor should continue to abide by such a request.

  • If you can demonstrate genuine effort to come up with a repayment plan the lender (or debt collection agency) should give you thirty days of “breathing space” to get your proposals drawn up and sent to them.

  • If you fairly share out the money you can truly afford to pay in total towards your debts (for example, a larger payment to a larger debt) your offer should be considered positively.

  • If you cannot truly afford to pay anything more than “token payments” towards your debts (for example £1 per month per debt) your creditors should accept this offer provided that there is a prospect that your circumstances will improve in the future. This might apply if you’re suffering a temporary loss of income for example.

  • You don’t have to use a third party adviser to deal with your creditors (though getting some professional help will be a good idea for most people). Creditors should still deal with your repayment proposals fairly if you make them on behalf of yourself.

  • If you can provide sufficient evidence of your financial difficulties the cessation of interest and charges should be considered by the lender or debt collection agency that has signed up to the Lending Code.

  • If a lender will not cease charging you interest or charges while in financial difficulty you can demand an explanation as to why.

  • Interest and charges should not continue to be added if that will result in your repayment term becoming “excessive”.

  • If you’re suffering from mental health or mental capacity problems we strongly advise that you inform the lender or debt collector. Doing so obligates them to take these issues into account when establishing how to treat you fairly. Sympathetically, and to secure a fair outcome for all parties. Many larger lenders now have specially trained teams to work closely and sympathetically with those experiencing mental health and mental capacity difficulties.

Essentially, the Lending Code is a template for creditor behaviour which should reward those struggling financially who engage with their creditors and actively look to establish solutions. It’s not a replacement for good professional debt advice. It should still be remembered that your interests might be quite different to those companies that you owe money to. However, it provides a potential platform upon which you should be able to build fair treatment while you begin the process to identify long-term solutions for your finances.

You can read the current version of the Lending Code here.

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