National advice charity Citizens Advice (CitA) has expressed concern after its research suggested many consumers were choosing to prioritise repayment of debts such as credit card bills, personal loans and overdrafts, in preference to mortgages and essential household bills.
CitA surveyed 2,109 people and found that 15% of people would choose to pay off a credit card in preference to making their rent or mortgage payments. Taking this course of action could put people at increased risk of being evicted from their homes, or from receiving a visit from a bailiff seeking to collect unpaid rent.
27% would choose to pay off a credit card over paying a council tax bill, leaving them vulnerable to prosecution, which can lead to prison sentences of up to three months.
5% would prioritise their gas bill over a credit card repayment, thus risking having their gas supply disconnected.
CitA suggests two possible reasons as to why consumers might give credit card and other consumer credit debts this level of priority. Firstly, people might not realise the consequences of failing to fulfil other commitments; and secondly consumer credit firms might pressurise them into repaying their debt, or ‘shouting the loudest’ as the CitA press release put it.
Gillian Guy, Chief Executive of Citizens Advice, said:
“Falling behind on household bills can have serious consequences.
“From getting the power cut off to bailiffs knocking at your door, to losing your home or even prison – failing to pay household bills can put people in vulnerable situations.
“Huge numbers of people are unsure of what debts they should prioritise when they get into difficulties which underlines how important it is for people to be able to access free, independent help to manage their finances.
“Similarly being offered money advice at key moments in life could also help people make the most of their money, avoid debt and plan for the future.”
Consumer credit firms are subject to detailed rules regarding debt collection under the Financial Conduct Authority (FCA) regime.
Firms should have documented procedures for dealing with customers in arrears. These procedures should include specific arrangements for dealing with customers in arrears who might meet the definition of a ‘vulnerable customer’. The procedures should be written with the need to treat customers fairly in mind.
Firms must ensure they consider the needs of customers in arrears, and try and reach an amicable solution to the customer’s difficulties wherever possible. Forbearance, when applied to a customer in default or arrears, might mean:
• Suspending, waiving, reducing or cancelling interest and charges
• Allowing payments to be deferred, provided this will not make the repayments unsustainable or make the term of the agreement unduly long
• Accepting reduced payments for a period of time
Customers who have been in arrears for more than a short period of time, or who show real signs of financial difficulty, should be made aware of organisations who can supply free debt advice. Note that this rule requires them to be made aware of sources of ‘free’ advice, so it is not acceptable to refer them to another commercial organisation.
The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.