Draft Legislation: The Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020
Whilst the Regulations were not a consequence of the pandemic, there will inevitably be a large number of people facing personal financial difficulties as a result of it. Therefore, the Regulations will undoubtedly be a welcome relief for those who will want to work with professional debt advisers to take control of their finances and to find a workable solution rather than being plunged into bankruptcy.
The Draft Regulations have been designed to incentivise individuals to engage with professional debt advisers in order to take control of their finances. The Draft Regulations were published on 15 July 2020 and, if approved, they will come into force on 4 May 2021 and will apply in respect of debtors domiciled or ordinarily resident in England and Wales provided that they are not in an individual voluntary arrangement, have not obtained the benefit of a debt relief order, are not an undischarged bankrupt and have not had a breathing space moratorium in the previous 12 months.
A qualifying debt for the purposes of the regulation is widely defined. Secured debts are excluded but non-capitalised arrears are not, which means that a debtor who is in arrears on their mortgage will be entitled to the protection afforded under the regulations, but they will have to continue paying their ongoing liability.
The Regulations will give those people who are eligible, and who receive professional debt advice, access to a 60 day moratorium during which interest, fees, penalties and charges will be frozen and enforcement action will be paused. A creditor will be prohibited from treating non-payment of interest, fees, penalties and charges during the moratorium as a default by the debtor.
Creditors liable for losses if agent not informed of moratorium
A creditor who receives notification under the Regulations will be required to notify its agents of the existence of a moratorium and neither the creditor nor the creditor’s agent must contact a debtor in relation to the enforcement of a moratorium debt, including to demand payment as a precursor to issuing legal proceedings. If a creditor does not notify their agent then they will be liable for any losses incurred by the debtor or agent and action taken contrary to the Regulations will be null and void. If there are ongoing Court proceedings, then the debtor will need to notify the Court of the moratorium.
However, lenders will be still be able to contact borrowers where they are required to do so under the Consumer Credit Act 1974 and secured lenders will still be able to send documents required under FCA rules.
Those suffering from and receiving mental health crisis treatment, and who are able to evidence their treatment from an approved mental health professional, will be able to enter the moratorium for the duration of their treatment and then for a further thirty days. If eligible, the debtor will then have access to the 60 day breathing space moratorium and there is no limit on the number of times a person receiving mental health crisis treatment can enter the moratorium.
Creditors will therefore need to ensure that systems are put in place so that they or the agents do not take action against debtors who have obtained a moratorium and that those systems do not apply interest, charges and penalties during the moratorium.