Introduction
In the introduction to the first edition of this Handbook in 1993, its author, Mike Wolfe wrote: ‘Debt has always been an inevitable consequence of borrowing and is recognised by the credit industry as a necessary corollary of its lending.’ This remains true, although it seems that – proportionately – clients are increasingly reporting problems relating to debts owed to government departments, local authorities and utility providers compared to problems relating to consumer debt.
While the causes of debt may not be individual, the effects are: these include the threat of action by bailiffs (also known as enforcement agents or officers) and repossession of homes. Money worries are a significant cause of relationship problems, depression, anxiety and stress, with many of those in debt receiving treatment from their GP. Many people have reported the positive impact that debt advice has had on their lives generally.
Mental health problems are both a cause and effect of debt and so it is good to see that the money advice sector and the credit industry are continuing to work together under the auspices of the Money Advice Liaison Group to produce good practice guidelines for dealing with this particular situation.
Since the last edition of this Handbook, the Financial Conduct Authority has issued new rules to address the problems of persistent credit card debt and excessive overdraft charges, along with new rules on creditworthiness and affordability in the consumer credit market. It has been estimated that about nine million people in the UK are affected by problem debts – that is the inability to pay debts or household bills. Advisers increasingly report that they are seeing more clients who do not have enough money coming in to meet essential household bills. Personal insolvencies are at their highest level since 2010, mainly due to the increase in individual voluntary arrangements. There has been a steady increase in total household debt since 2012 and this has now reached record levels.
The most significant change in the debt advice landscape going forward is likely to be the government’s debt respite scheme, comprising both a 60-day ‘breathing space’ and a statutory debt repayment plan, expected to be introduced in 2021.
The number of people struggling with unmanageable debt seems likely to remain high for the foreseeable future and may even increase further, given that we have yet to feel the full impact of the UK’s decision to exit the European Union.
What is debt advice?
Debt advice is defined by the Financial Conduct Authority as:1Financial Conduct Authority, PERG 17.5 giving an opinion as a guide to action to be taken, in this case the liquidation of debts. It either explicitly or implicitly steers the customer to a particular course of action… In the Financial Conduct Authority’s view, advice requires an element of opinion on the part of the adviser or something that might be taken by the debtor, expressly or by implication, to suggest or influence a course of action. Information, on the other hand, involves statements of facts or figures.
Debt advice is one component of what is now called money advice, which also comprises financial capability (the skills, knowledge and understanding to manage money). Virtually everyone has debts. But when debt becomes unmanageable, the need for debt advice arises.
Debt advice should be distinguished from ’money management’ and ’financial capability’. While debt advice does include a comprehensive check of a person’s entitlement to state benefits, it goes much further than welfare rights. Debt advice is, essentially, crisis management, and the other components can hopefully prevent the need for debt advice recurring or even occurring in the first place. An ideal money advice model integrates all the various components.
In the past, the words ’debt counselling’ and ’money advice’ have been used almost interchangeably to describe what we shall call ’debt advice’. We prefer this term to ’money advice’ because of the issues discussed above. ’Debt counselling’, on the other hand, can appear to suggest that debt is a problem about which individuals merely need counselling. Counselling may sometimes be important in the early stages of debt advice, but is not a substitute for the work of the debt adviser. Financial capability interventions alone cannot resolve problem debt. Debt advice is not just about making offers (token or otherwise) to the client’s creditors. The processes described in this Handbook are not set in stone and advisers should not be afraid to step outside them in order to help their clients. Advisers should not assume that creditors and courts always get it right, but should examine their practices and their paperwork to protect their clients from inappropriate recovery and enforcement action.
And finally, adieu Adviser magazine. The Adviser first appeared in December 1986 and over the years many of its articles have featured in the footnotes of this Handbook. The final print version of the magazine was published in July 2019 (issue 189). The Adviser survives as Adviser online and can be accessed at: https://medium.com/adviser.