Legal News | 22/07/21

Over the last two years we have seen the government make a huge shift towards helping debtors manage their finances and their mental wellbeing.  While this is fantastic for debtors, creditors are forced to jump through more hoops and over more hurdles to bring the cash in. Below are a few of the changes and what creditors must do to stay compliant:

One of the first changes was to Default Notices sent to customers under a regulated agreement (set out in the Consumer Credit (Enforcement, Default and Termination Notices) (Coronavirus) (Amendment) Regulations 2020) effective from 2 December 2020.

For over 40 years a default notice followed a prescribed form required by the Consumer Credit Act 1974 but it was felt this had a negative impact on a debtor’s wellbeing and thus changed to be more user friendly.  The changes were predominantly in relation to font and not using SHOUTY CAPITALS.  It did, however, double the period before a creditor can take action and highlighted the use of the 1/3 rule.

We then saw the new Debt Respite Scheme, known as a Breathing Space, come into force on 4 May 2021 whereby The Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020 gives an individual in debt the right to legal protection from creditors.  It does not apply to businesses.

There are two types: ‘Standard’ and ‘Mental Health Crisis’. For both, the creditor must pause contact, enforcement and freeze interest and charges on debts.  A debtor is allowed one Breathing Space in each 12-month period so it is likely that several Breathing Spaces could be granted over the life of an agreement.

Whilst most debts fall into a Breathing Space there are some exceptions i.e. secured debts, child maintenance and student loans.  A full list of exceptions can be found on the government website.  Any new debts incurred during a Breathing Space are not qualifying debts, neither are new arrears on a secured debt.

In a recent case of Axnoller Events Ltd v Brake and another (Costs) [2021] the High Court dealt with a point relating to costs and Breathing Space.

The Court had ordered the Brakes to pay costs on an indemnity basis, to be assessed if not agreed.  When it came to assessment, Mrs Brake alleged that Mr Brake had entered a Mental Health Crisis Moratorium and making an order for costs would affect his mental health.

The Judge reviewed the regulations and found the word “Debt” was not defined in the regulations. The costs order was made several days before the moratorium but did not create a debt, only an unliquidated, contingent liability.  The Judge decided that any costs order made now ordering a sum to be paid on account would create a qualifying debt, but not a moratorium debt.  It therefore made a costs order against the Brakes.

Remember, when a Breathing Space ends, a creditor can commence recovery unless a DRO, IVA or Bankruptcy are in place and include interest, fees, penalties, and charges added from the date it ends.

The latest update is to Information Sheets sent to customers in arrears or default (required by the Consumer Credit Act 1974 (s86A)) and comes into force on 25 October 2021.

The Information Sheets inform consumers about their rights and responsibilities, and where they can get help.  Whilst the old style Information Sheet was very factual, brief and to the point, the new Information Sheet is colourful, friendly and provides much more information on how a debtor can manage this and their wellbeing.

Copies of the new Information Sheets can be found on the FCA website.


  1. Undertake extensive underwriting before entering agreements;
  2. Make sure notices and letters are compliant. Errors can lead to unnecessary delays;
  3. Don’t delay on recovery action. Early action often promotes early settlement.

James Baird