Vic Jan

Breathing space: An open letter to intermediaries

Earlier this year, when the enforcement moratorium was lifted, the government provided a safety net for struggling borrowers with the introduction of a new piece of legislation: The Debt Respite Scheme (Breathing Space).

Breathing space was introduced to give borrowers in problem debt the right to legal protections from creditor action for up to 60 days, including pausing most enforcement action and contact from creditors, as well as freezing most interest and charges on their debts. It works on the basis that borrowers should maintain interest payments on the principal in secured debt throughout, but that this will at least provide them with time to identify a solution without their financial position worsening.

On bridging loans, of course, there are rarely any ongoing interest payments to be made, but this hasn’t prevented breathing space being used in the bridging sector. And, I’m afraid, it’s also being abused.

Breathing space can only be applied for on behalf of a borrower by an FCA-registered debt adviser. However, we have been made aware that there are firms with both debt advice and finance capabilities that are using the legislation as a means of blocking enforcement action and suppressing charges on bridging finance while they attempt to refinance the borrower. What’s more, they are using this as a selling tool. 

Not only is this against the spirit of the legislation, but it’s also ultimately detrimental to the customer. Brokers, who do not do the necessary spadework — forensically investigating the asset, debt and circumstances — before applying on the debtor’s behalf will invariably be likely to be unsuccessful in refinancing the loan. This will likely add to the emotional distress of the customer and leave the debtor in a far worse position. Breathing space, misused in this way, prolongs an issue without really addressing the problem — it’s bad for customers and lenders.

We have been alerted to this by Jonathan Newman, a member of the ASTL executive and a senior partner at Brightstone Law, who has already seen a handful of examples of breathing space being abused.

On behalf of the ASTL, our request is this: please make use of legislation, like breathing space, in the spirit within which it was intended. Where a borrower is in genuine difficulty, I know that any of our members will be open to engage with the customer to reach a satisfactory outcome through the usual open and direct channels. Our lenders are committed to treating customers fairly and look to find sensible resolution; breathing space prohibits lender contact at a time when the best outcome is more often than not found through dialogue. 

Examples of misuse — in whole or in part — for one’s own business benefit at the costs of others is reputation damaging in the very marketplace in which an intermediary operates. So, look after your clients and do what’s best for them. Put the customer first. Make use of legislation and government schemes when they are genuinely required. The relationship between lenders and debt advisers/ intermediaries works best when it’s based on trust. It can be destroyed if that trust is broken.

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