Industry Thoughts

Registry Trust has just published the latest data on the number of judgments registered against consumers and businesses in the UK. What stands out is the sharp rise in judgments taken out against incorporated businesses, typically limited companies, in England and Wales in Q3 2024 and throughout 2024. England and Wales is by far the largest jurisdiction covered by Registry Trust. Incorporated judgments more than doubled, by 107%, from 22,328 in Q3 2023 to 46,226 in Q3 2024. Incorporated judgments rose much faster than those taken out against consumers. The total value of debt against incorporated businesses also rose but by much less, up 24% from £103 million to £127 million over the same period. As a result, the average value of the judgments fell significantly by 40% from £4,585 to £2,743 over the period. Claimants have been taking out significantly greater numbers of, but smaller value, judgments. In contrast to judgments for incorporated businesses, the number of judgments against unincorporated businesses, typically partnerships and sole traders and therefore smaller, fell by 5%, from 6,613 to 6,291, over the same period. The total value of unincorporated judgments registered fell by 3%, from £22.7 million in Q3 2023 to £22 million in Q3 2024. The average value of debt saw a small increase from £3,429 to £3,508. Looking at consumer debt, we saw a different pattern from commercial judgments. The total number of judgments registered against consumers rose slightly by 4%, from 224,152 in Q3 2023 to 234,047 in Q3 2024. The value of debt registered against consumers increased by nearly one-fifth (19%), from £391 million to £463 million. This means the average value of debt against consumers rose by 13%, from £1,744 to £1,980. Medium to longer term picture To get a better picture, it is worth looking at medium-longer term data. It is notable that in the first three quarters of 2024, there were nearly 114,000 judgments registered against incorporated businesses. That is higher than the full year totals for each of the previous five calendar years 2019-2023. The number of incorporated business judgments in each quarter (Q1, Q2, and Q3 of 2024) was higher than in their equivalent quarters in each of the previous five years. Even if the growth slows down, we could be looking at incorporated business judgments reaching well over 140,000 for the full calendar year 2024. If the rising trend continues in the fourth quarter, the total could reach 150,000 for the full year. Of course, claimants may well have been playing ‘catch up’ after the pandemic and incorporated business judgments could fall back again. But, even if they do, as mentioned, the number of judgments in 2024 has already surpassed the full year calendar year figures for the previous five years. So, we are looking at full year results for 2024 significantly higher than any of the previous five years. Whatever happens, 2024 has been a bad year for incorporated business judgments, certainly over the recent period. The period 2019-24 incorporates the pandemic …

As we come to the close of the year and our final 2024 issue of CCTA Magazine, this is an ideal opportunity to reflect on the developments from the past year. Consumer Duty Any review of the year has to include the Consumer Duty. Everyone started the year with one eye on the mid-year anniversary. With so much uncertainty, the CCTA stepped in with guidance papers and events to draw on the insights we could bring back from our discussions with the FCA. It became clear that it was critical that firms share experience and make the best case possible when challenged by the regulator. Throughout this year, we have looked at the exchange of information between brokers and lenders. Lenders undertook reviews like fair value assessments. The writing of the Board report completed this first stage. However, we know this is a journey, not a destination. It is also a journey that will continue for the foreseeable future. Access to credit Access to credit has long been one of our core campaigns. It was why lenders founded our association over 130 years ago. We started the year by discussing the fall in the credit supply with the FCA. Later, the regulators reached out to many of our high-cost members. We were involved in independent research that showed the scale of the issue. As we come towards the year’s close, there is more focus on financial inclusion than ever. The FCA now must “have regard” for financial inclusion in everything it does. Recent Court of Appeal ruling Elsewhere, we all had an unpleasant surprise as the Court of Appeal altered our understanding of the relationship between lenders, brokers and consumers. Car finance providers have moved quickly to respond. However, we are now working on a solution that might involve a review by the Supreme Court. The FCA will most definitely need to get more involved to minimise disruption. As I write this, we still have a few weeks left in 2024. Maybe it is too early to draw a line under the year. Regulatory changes Recently, the Chancellor discussed some opportunities in her Mansion House speech. Earlier in the year, we received some positive indications when the Financial Ombudsman Service (FOS) proposed charging claims management companies (CMCs) and legal firms a case fee. For us, it was another step forward. We have been working on this change for several years. We are also in the early stages of a consultation on the reform of the FOS. If that is not enough, the Treasury has undertaken work to look at new regulatory changes. The long awaited regulation of Buy-Now Pay-Later is moving down the road. Consumer Credit Act reform The election had brought the conversation about reform of the Consumer Credit Act (CCA) to a close, but as the year ends, those talks have restarted. We have actively lobbied for changes that balance updating the system and regulatory certainty. Smaller lenders often find themselves disproportionately burdened by regulations designed with larger …

The FCA introduced changes to the Consumer Credit Source Book from 4 November 2024. For consumer credit firms, the important changes to review are: CONC 1.1 – Application and purpose CONC APP 1.2 – Total charge for credit rules for other agreements CONC 5.2A – Creditworthiness assessment CONC 6.7 – Post contract: business practices CONC 7.2 – Clear, effective and appropriate policies and procedures in respect of customers in or approaching arrears or in default CONC 7.3 – Treatment of customers in or approaching arrears or in default (including repossessions): lenders, owners, debt collectors CONC 7.6 – Exercise of continuous payment authority (CPA) CONC 7.7 – Application of interest and charges CONC 7.10 – Treatment of customers with mental capacity limitations The FCA is also careful to remind firms of the Principles for Business within the new updates. Key points to take away are that customers can now not be “particularly” vulnerable. The handbook details a more holistic approach for creditworthiness assessments which may indicate the customer has recently experienced or is likely to experience financial difficulties or whether the customer is vulnerable from mental health difficulties or mental capacity limitations shown in the assessment. Credit cards and retail revolving credit do not escape the update with further guidance in relation to financial difficulties. The FCA’s focus is once again on firms’ policies and procedures. Attention should be given to your policies, particularly how you deal with customers who are approaching arrears and default or vulnerable customers. Importantly, CONC 7.2.4R means that it is a rule that you review at appropriate intervals the effectiveness of your arrears and default policies and compliance with the same. You may want to review your training to ensure that there are no inadvertent rule breaches. The regulator wants more transparency on income and expenditure so customers can obtain this information and easily share it with other lenders and debt advice providers. CONC 7.3.13A encourages firms to consider the information provided to customers when approaching arrears or in ensuring it considers the individuals circumstances and their current situation in relation to that debt, options available to them and the impact of such forbearance. The definition of ‘approaching arrears’ asks firms to consider a customer in this status when they notify you that they are at risk of not meeting one or more repayments when they fall due. You should note that they may not have missed any payments at this stage. A priority should be given to review your collections and forbearance policies to ensure that you are up to date. The above is a taster of the regulatory changes implemented this month. Jane Blowers and Anneli Choyce are both Consultants at ALPH Legal who is an associate member of the CCTA.

The recent (and largely unsuccessful) increase in claims against motor finance lenders relating to a vehicle’s previous keeper history has brought into focus what checks (if any) lenders need to make before entering into a motor finance agreement. In this article, we consider whether there is a need to make enquiries about any outstanding recalls before supplying a vehicle. The General Product Safety Regulations The General Product Safety Regulations 2005 (the GPSR) sets out obligations on producers and distributors to only place ‘safe’ products onto the market. Producers are defined as the “manufacturer of the product”, so a motor finance lender is unlikely to fall into this definition. Distributors are defined as “a professional in the supply chain whose activity does not affect the safety properties of a product”. Could a motor finance lender be a distributor? The short answer is that it could. The GPSR does not give any examples. However, the Driver and Vehicle Standards Agency (the DVSA) issued a code on interpreting the GPSR entitled ‘Vehicle safety defects and recalls: Code of practice’ (the Code). Annex A says a distributor will “typically be an importer, a dealer, wholesaler or other seller of the product” (so could include a motor finance lender entering into credit or hire agreements). What obligations are imposed on distributors? Distributors do not have the same obligations as a producer under the GPSR. By Regulation 8(1)(a), distributors must act with “due care in order to help ensure compliance with the applicable safety requirements” and ensure that they do not supply a product to any person which they know, or should have presumed, is a “dangerous product”. A “dangerous product” is one which is not a “safe product”. A “safe product” is a product which under normal use does not present any risk, or only the minimum risks compatible with the product’s use. The sanction for failing to comply is a criminal one. If a motor finance lender is a distributor, how should it comply with the GPSR? In April 2014, the DVSA provided guidance entitled ‘A guide to safety recalls in the used vehicle industry’. The DVSA’s view is that “a product with an outstanding safety recall should not be passed to a consumer”. The guidance also said that if “you are selling a vehicle to a consumer, you will need to check for outstanding recalls and these safety recalls must be attended prior to the consumer purchasing the vehicle”. While motor finance lenders are likely to be distributors, it is far from clear whether they should be undertaking vehicle recall checks before entering into a finance agreement. The guidance was aimed at “any persons or company who is in the vehicle supply chain which results in the sale of a used vehicle or product to a consumer” (so could include a motor finance lender). However, and importantly, the guidance also states that if “you are passing vehicles within the trade you need to share information about any outstanding safety recalls” (an obligation found …

The Court of Appeal’s decision in Johnson v FirstRand Bank Limited (London Branch) [2024] EWCA Civ 1282 came as a considerable surprise to the motor finance industry (and many other financial services industries). This short article considers the decision and what will happen next. The facts Each claim involved a consumer visiting a dealer, selecting a vehicle and wanting finance. This table sets out the key facts. The Court of Appeal decided: The context of the relationship between the dealer and the customer is “important”. The position may therefore be different where either (a) the dealer is not making a profit from the vehicle’s sale or (b) the customer is sophisticated. The Court decided that the borrowers were owed a ‘disinterested duty’ because “it was part of the credit broker’s role to provide information to the lenders on the customer’s behalf, and to the customer about the available finance. The very nature of the duties which the credit broker undertook gave rise to a ‘disinterested duty’ unless the broker made it clear to the consumer that they could not act impartially”. The dealers also owed an “ad hoc fiduciary duty running in tandem with the disinterested duty, arising from the nature of the relationship, the tasks with which the brokers were entrusted, and the obligation of loyalty which is inherent in the disinterested duty”. The dealers were not carrying on a purely administrative role. Instead, the dealers “were in a position to take advantage of their vulnerable customers and there was a reasonable and understandable expectation that they would act in their best interests”, meaning they owed them fiduciary duties. Some problems of the decision This is the first time that the Court of Appeal had considered duties owed by dealers to their customers. Before then, the County Court regularly decided that dealers did not owe such duties. This was expected: no regulator had ever said that dealers were fiduciaries. In fact, the FCA’s own rules did not require any disclosure of the amount of commission and the basis of its calculation (which is what the Court thought was necessary in these appeals). The usual approach of regulation is to require firms to take additional steps. What happens next? Both lenders have made applications to the Supreme Court seeking permission to appeal. It is likely that a decision on permission will be made in early 2025. If permission is granted, there will be a hearing. But this is unlikely to happen before summer 2025 with a decision to follow. In the meantime, the FCA is consulting on whether to extend the pause to motor finance commission complaints to commissions which were not discretionary (but it seems likely it will). Many County Courts are already staying claims pending the Supreme Court’s decision. It seems there will be considerable focus on what happens at the Supreme Court which will hopefully reach a sensible place and restore order to the market.

Brandon Wallace, Senior Product Manager at financial data intelligence company Bud, explains why, contrary to misconceptions, use of open banking data in the affordability assessment process can help lenders increase approvals without taking on extra risk. It’s a common misconception in the lending industry that using open banking data in lending processes will lead to an increase in declines. This perspective comes from the idea that more data means discovering more reasons to reject borrowers. But the opposite is true: open banking data can help lenders discover reasons to approve customers they would have otherwise declined, all while maintaining or even reducing risk. It’s true that better data enables lenders to decline higher risk customers (leading to a better performing portfolio). However, the few extra declines are outweighed by the increase in approvals lenders achieve by using open banking data to take a second look at thin-file, poor credit, or credit-invisible customers. These applicants are almost always declined when assessed on credit reference agency data alone. At Bud, we’ve seen first-hand how open banking data, when combined with traditional credit reference data, opens up new lending opportunities. Our clients are reporting that they’re accepting more customers as a result of supplementing credit reference agency data with open banking data. One of our credit broker clients, TotallyMoney, saw a 22% increase in approval rates when lenders used enriched transaction data, compared to using credit reference agency data alone. One of our credit broker clients saw a 22% increase in approval rates when lenders used enriched transaction data, compared to using credit reference agency data alone. In terms of reducing risk, open banking data is proving equally valuable. One of our lending clients, Moneyboat, has seen a 20% reduction in missed payments since incorporating open banking data into their affordability assessments. This demonstrates how transactional data can identify risky behaviours—such as loan stacking, high Buy-Now Pay-Later use, or problematic gambling —before they result in defaults. Beyond increasing approvals and reducing risk, open banking also offers significant operational efficiencies for lenders. By streamlining the lending application process, open banking reduces the need for manual data entry and analysis, resulting in faster decision-making and lower operational costs. For instance, our client Blackbullion reduced application times from forty minutes to less than five minutes by incorporating open banking data into their application process. Moneyboat also saw impressive gains, achieving a 25% reduction in processing time for returning customers and a 16% reduction for new customers. With the right partner, integrating open banking into your existing systems and process is seamless, allowing lenders to reap the benefits of efficiency, speed, and reduced costs without overhauling their operations. The time for lenders to fully adopt open banking is now. Rather than being a barrier to lending, it is a powerful tool that can unlock lending opportunities while supporting customers who have been underserved by traditional credit assessment methods.

I had the pleasure of joining a panel on access to responsible credit at the recent CCTA Conference, alongside experts on this issue from government and industry. It was great to hear the views and suggestions of my fellow panellists, in particular the importance of collaboration and the potential for partnerships between mainstream and alternative lenders. As I said at the conference, the FCA recognises the importance of credit in people’s lives, to help people manage their finances and short-term or unexpected cash flow issues. We want to support access to credit for those who can afford it, as we set out in our Dear CEO letter on the ‘FCA Strategy for Consumer Lending’ issued earlier this year. Our goal is to maintain effective regulation and allow space for the credit market to grow and innovate. Let me set out what that looks like in practice. Financial inclusion is a priority At the FCA we’ve made financial inclusion a priority – this is something we are doing across the board, not just in credit but in access to cash, insurance and investment advice. As Nikhil, our Chief Executive, said at StepChange Connected recently, affordable credit helps consumers manage their finances and short-term or unexpected cash flow issues. If you are outside the financial system or cannot access credit, you’ll find it harder to get back on your feet when things go wrong – like the sudden expense of a car or appliance failing. Our goal is to maintain effective regulation and allow space for the credit market to grow and innovate. Contraction in the high-cost market may have made credit harder to access for some financially vulnerable groups. But we do not want people turning to illegal money lenders. So, we need to take a balanced and consistent approach when we engage with firms. We need to balance inclusion with ensuring that firms lend responsibly. We don’t want to see consumers being given credit that they cannot afford to repay. For some consumers, credit will not be the right answer. We care about financial inclusion and use our tools, powers and influence to improve access and the treatment of customers, prioritising our efforts in areas that have the greatest impact. Collaborating widely Access to affordable credit is not something that the FCA, or any other body, can solve alone – it requires a collaborative approach. All of us, including trade bodies and firms, have an important role to play in engaging on this topic and working together to find ways to tackle this issue. By using our convening power to foster collaboration and innovation, we have brought together government, industry, trade bodies, researchers and other stakeholders to encourage initiatives that support access to affordable credit. This has resulted in some tangible change. For example, we worked with government to make it easier for registered social landlords to direct tenants to affordable credit. The FCA sees an important role for innovation in developing solutions which tackle financial exclusion. We work closely …

In the UK collections industry, security, efficiency, and customer trust are essential. As digital payments become the norm, financial service companies face a unique set of challenges, including managing recurring payments securely, reducing operational costs, and minimising fraud risks. One technology proving highly valuable in this landscape is network tokenisation – the replacement of traditional card details with unique, merchant-specific digital tokens. But how exactly are network tokens helping UK collections? Enhancing secuirty and reducing fraud For a sector handling sensitive financial information daily, security is a non-negotiable priority. Network tokens allow lenders to store a secure token rather than the Primary Account Number (PAN) of a consumer’s card, reducing the risk of exposure in the event of a data breach. This system makes network tokens virtually useless to anyone outside of a specific merchant environment, providing an added layer of fraud protection. In 2023, UK Finance reported that £1.17 billion was stolen through unauthorised and authorised fraud, highlighting the critical need for enhanced security measures. Boosting authorisation rates & improving cash flow A primary challenge for lenders is maintaining high authorisation rates, especially with recurring payments. With traditional card-on-file payments, expired or reissued cards can lead to disruptions, resulting in payment failures and increased collections costs. Network tokens, however, can be dynamically updated. When a card is replaced, the associated token is automatically updated, reducing failed payments. In fact, Acquired.com has observed a notable improvement in success rates of recurring payments with the implementation of network tokens, with some customers seeing up to a 4% uplift in success rates (Source: Acquired.com Hub). In the UK, failed payments contribute to significant revenue losses annually, especially within industries reliant on recurring payments, such as lenders. By adopting network tokenisation, lenders can avoid disruptions, ensuring more payments go through on time. This boosts success rates, helping to stabilise cash flow and making the entire collection process more efficient. Reducing operational costs Another advantage of network tokens in collections is their cost-saving potential. Network tokens streamline payment processing, reducing the need for manual card detail updates and, consequently, lowering administrative burdens. This is especially beneficial for lenders handling large volumes of accounts, where the costs associated with payment processing and transaction management can be significant. Additionally, many card networks impose higher fees for non-tokenised transactions, meaning network tokenisation could reduce transaction fees over time. Simplifying customer experience A seamless experience is essential for reducing friction in the collections process. Network tokens enable smooth payment continuity without the need for customers to re-enter details if a card is lost or expires. This automatic update capability reduces churn, improves customer satisfaction, and allows lenders to maintain continuous payment schedules with minimal disruption. A future-forward solution for collections The utilisation of network tokens in the UK collections industry marks a key step forward. With better security, higher authorisation rates, reduced costs, and a frictionless customer experience, network tokens empower agencies to improve efficiency and meet increasing regulatory and consumer demands. As the industry moves towards digital-first …

Ensuring customers have an appropriate degree of protection is central to the FCAs mission. Under the Vulnerable Customer Guidance (FG21/1), the FCA expects vulnerable customers to receive outcomes equal to the treatment of other customers. Treatment must be consistent and fair across the end-to-end product and customer lifecycle. The FCA’s focus on vulnerability continues to sharpen. In March 2024, they commenced a two-stage review into how firms are supporting vulnerable customers. Last month Graeme Reynolds (Director of Consumers and Competition) outlined that some firms have failed to think about vulnerability proactively and need to act imminently. With findings from the review due to be shared by the end of 2024, this couldn’t be more clear. Under Consumer Duty, the FCA expects firms to: ensure colleagues have the right skills and capability to recognise and respond to the needs of vulnerable customers understand and respond to customer needs throughout product design, flexible customer service and communications monitor whether they are responding to the needs of customers with characteristics of vulnerability, making improvements where this is not happening. Challenges faced by firms Based on our research and working with firms across the market, firms face a number of challenges in supporting vulnerable customers, including: Identification difficulties: Vulnerable customers may not self-identify, and hidden vulnerabilities can be challenging to recognise. Communication barriers: Complex language, inaccessible formats, and digital exclusion can hinder communication and service access. Inadequate staff training: Lack of awareness and inconsistent handling can lead to inappropriate responses and missed signs of vulnerability. Insufficiently tailored products and services: Rigid processes, unsuitable products, and inflexible payment options can exacerbate customer difficulties. Data privacy concerns: Balancing requirements for customer information with data privacy. Operational challenges: Resource constraints, lack of coordination, and inadequate monitoring. Overcoming challenges To overcome these challenges, ensuring vulnerable customers receive meaningful support, and good outcomes, consideration should be given to: Robust Vulnerable Customer Operating Model: Encompassing identification, customer interaction, product design, governance, and continuous improvement. Staff training: Equipping colleagues with the skills to effectively recognise and respond to customer vulnerabilities. Inclusive products and services: Adapting products, services, and communication methods to meet the diverse needs of vulnerable customers. Technology: Utilising analytics, machine learning, AI, and digital accessibility tools to enhance identification, communication, and support delivery. Customer-centric approach: Prioritising fair treatment of vulnerable customers through dedicated support services, accessible communication channels, and tailored solutions. Effectively supporting vulnerable customers can enhance reputation, drive business growth and innovation, improve risk management and foster a purpose-driven culture. For more information, download our ‘Supporting Customers in Vulnerable Circumstances’ white paper.

Amid continued economic uncertainty and an unexpected inflation rise to 3.9% in January, many UK residents are turning to borrowing to help manage their money and make ends meet. In fact, our research found that one in five UK adults – approximately 11 million people – now consider themselves financially vulnerable and at risk of harm due to their personal circumstances, including poor health, life changes like new caring responsibilities, or difficulty handling financial or emotional stress. For the financially vulnerable, economic shocks, such as an unexpected bill or a small dip in income, can have a significant impact on not only their financial health, but also on their wellbeing. With nearly seven in ten financially vulnerable people feeling stressed when dealing with their finances, it can be harder for these consumers to make informed financial decisions, putting them at greater risk of fraud and scams. Credit is often a lifeline for vulnerable consumers to meet shortfalls in their finances. However, many can’t access the credit products they need – with low credit scores being cited as the most common reason that people had their credit application turned down. This is where fintechs and financial service providers have a critical role to play. The industry needs to shift from a one-size-fits-all approach to lending, to one that recognises and adapts to the challenges vulnerable consumers face. Lenders should harness data to offer financially vulnerable customers the care and support they need to make informed credit decisions and improve their financial wellbeing. We’re already seeing some innovation in this space, with fintechs developing tools that provide personalised financial insights, helping people take control of their money. Leveraging vulnerability and affordability insights can enable lenders to provide access to lower-cost credit and preventing borrowers from falling into problem debt. We are the first credit reference agency to partner with the Vulnerability Registration Service, giving our clients access to an independent register of vulnerable individuals. This enables them to identify vulnerabilities and make informed decisions in accordance with regulatory guidance. Ultimately, a fair and inclusive financial system is one that balances credit access with consumer care and protection. Through responsible lending and access to credit products tailored to the needs of financially vulnerable consumers, the industry can foster greater financial inclusion to ensure each consumer is reliably and safely represented in the marketplace. At the same time, businesses can empower consumers to avoid unmanageable debt and build financial resilience.

In the competitive landscape of alternative lending, trust is not merely an asset; it is a necessity. As consumers increasingly seek clarity and fairness, lenders must step up their game, creating a transparent environment where borrowers feel informed and secure in their decisions. The key to achieving this lies in the integration of effective decision systems that prioritise transparency, ultimately fostering stronger relationships between lenders and borrowers. Transparency in lending means more than just clear communication; it involves a commitment to openness about policies, decision-making criteria, and the inherent risks of borrowing. Transparency in lending … involves a commitment to openness about policies, decision-making criteria, and the inherent risks of borrowing. For consumers, understanding loan terms, approval factors, and potential costs is crucial for making informed financial choices. When lenders fail to communicate transparently, it can lead to confusion, dissatisfaction, and distrust, damaging customer relationships. Enter decision systems, which are significantly transforming how lenders interact with borrowers. By leveraging data analytics and automation, these systems establish clear, objective criteria for evaluating loan applications. Envision a world where consumers fully understand the factors that influence their loan approvals, providing them with clarity and confidence in their financial decisions. This transparency not only alleviates uncertainty but also fosters a sense of control throughout the lending process. 1. Standardised Criteria With decision systems, lenders can develop standardised criteria for assessing borrower eligibility. When borrowers understand the elements that influence their applications, they feel informed about their chances of approval and the rationale behind decisions, reducing anxiety and uncertainty. 2. Real-Time Feedback Decision systems also offer real-time feedback during the application process. This means borrowers receive immediate updates about their application status, required documentation, and potential hurdles. Such proactive communication instils a sense of involvement and reassurance, making borrowers feel valued and informed. 3. Data Transparency These systems also provide insights into how and what types of data are used for evaluations and the weight assigned to each factor. This transparency builds confidence in the system and demonstrates a commitment to ethical lending practices. But it’s not just about technology; it’s about ethics. Trust is built on a foundation of ethical behaviour and lenders must prioritise responsible practices to cultivate lasting relationships with borrowers. Decision systems that emphasise transparency align closely with these values, creating accountability within organisations. Clear documentation and decision-making processes help ensure fair treatment of applications, mitigating the risk of bias. Incorporating feedback mechanisms allows lenders to listen to their borrowers, fostering a culture of continuous improvement. This dialogue enables lenders to refine their processes based on real experiences, further enhancing trust. Call to action The call to action is clear: embrace transparency through effective decision systems. By committing to open communication, standardised criteria, and ethical practices, lenders can create an environment of trust that benefits everyone involved. Together we can build a lending market where consumers feel empowered to make informed financial choices, ensuring a brighter future for borrowers and lenders alike.

The Bankruptcy and Diligence (Scotland) Bill was passed by the Scottish Parliament on 6 June 2024. It is not yet known when it will come into force, but an important milestone has been passed. The Bill brings into force an important new measure in debt recovery in Scotland, namely the introduction of a Mental Health Moratorium. Separate regulations as to how the moratorium will work in practice were published in May 2024 and a public consultation will follow. Based on those regulations, we are able to gain some insight at this stage as to how the moratorium will work. Applications will be submitted to the Accountant in Bankruptcy (‘AIB’) in Scotland and can only be submitted by a money adviser. The person for whom the application is being made cannot be in any other form of debt solution at the time and must meet both the mental health and the debt criteria set out in the regulations. The bar has been set high in terms of the mental health criteria which must be satisfied to qualify for the moratorium. The individual has to either be subject to certain orders, certificates or directions under the Criminal Procedure (Scotland) Act 1995 and the Mental Health (Care and Treatment) (Scotland) Act 2003 or, if they are voluntarily or otherwise receiving equivalent emergency, crisis or acute care or treatment in the community from a specialist mental health service in relation to a mental illness of a serious nature, they will qualify. For the debt criteria to be satisfied, a mental health professional must confirm essentially that the individual is dealing with debts in such a way that they are causing or contributing to their mental illness or affecting the individual’s recovery. The mental health professional is required to sign the application for the moratorium and confirm the criteria have been met in writing. If the application is granted, the AIB will issue notification of the start date to relevant parties including all creditors known to the AIB. If creditor details have not been provided in the application, a credit check will be carried out on the individual. The individual’s name will also be added to the new Mental Health Moratorium Register. The moratorium will last for six months but the mental health professional who signed the application has a duty to notify the AIB if they become aware the individual no longer meets the criteria. The moratorium can be continued if the criteria are still met and the AIB must request confirmation from the mental health professional, before the end of the six months, whether the individual still meets the criteria and if so, the moratorium will continue. Once in place, the impact on creditors is as follows: No enforcement action can take place, and this includes trying to contact the individual No interest, fees or charges which may accrue during a moratorium period can be claimed The creditor must carry out a search of their records once notified of a moratorium to identify …