Description
The “Debts and Despair” report explores the severe psychological impact of debt collection practices on individuals, particularly those experiencing mental health challenges. It provides data-driven insights into how rising living costs, coupled with aggressive and frequent debt collection tactics, are affecting the well-being of UK citizens. The report focuses on the mental health consequences of debt, including anxiety, depression, and suicidal thoughts, and offers recommendations for how financial institutions, regulators, and the government can reform debt collection practices to mitigate harm.
Key Take Aways
- Rising arrears in consumer credit: The number of people behind on consumer credit payments has increased by 1.5 million since last year, with 5.2 million people currently in arrears.
- Psychological impact: Half of people behind on consumer credit payments have experienced suicidal thoughts or feelings due to rising costs and debt-related stress.
- Ineffective creditor communication: Only 27% of people found their creditor’s communication helpful, highlighting the need for improved support systems.
- Frequency of creditor contact: Nearly 49% of people in arrears felt harassed by the high frequency of communications from creditors, receiving an average of seven contacts per month.
- Harassment by creditors: Contact from creditors can feel threatening to 43% of respondents, with many describing the tone as aggressive or frightening.
- Stigma exacerbates mental distress: The social stigma associated with being in debt prevents people from seeking help, worsening both mental health and financial difficulties.
- Cumulative stress of multiple creditors: 83% of people in arrears are behind on multiple credit products, intensifying the psychological burden of constant communications from various creditors.
- Tipping point in communications: People receiving more than five communications per month from creditors are significantly more likely to feel harassed.
- Consumer Duty compliance: Many financial services firms are not yet fully meeting the requirements of the Consumer Duty, especially in protecting the mental well-being of customers.
- Urgent regulatory reform needed: The report calls for the FCA to urgently review and update debt collection practices to reduce psychological harm caused by the high volume of arrears communications.
- Support for vulnerable customers: Financial institutions should expand specialist support teams to better serve customers with mental health issues, ensuring personalised and compassionate debt collection strategies.
- Recommendations for change: The report outlines quick wins, such as reducing the frequency of communications and improving staff training on mental health, to alleviate the psychological impact of debt collection.
Innovation
- Proactive customer engagement: Firms should collect information on customers’ preferred communication channels and reduce contact frequency, ensuring a more supportive approach to debt collection.
- Training for debt collection staff: Improved training for staff on how mental health affects financial management can lead to more empathetic and effective communication with distressed customers.
- Direct referrals to debt advice: Moving beyond signposting to offering direct referrals to debt advice services would provide faster and more meaningful support for individuals in financial difficulty.
Key Statistics
- 5.2 million people in the UK are currently behind on consumer credit payments.
- 49% of people in arrears felt harassed by frequent creditor contact.
- 50% of people in arrears have experienced suicidal thoughts in the past 20 months.
- 43% of respondents found creditor communication threatening.
- 83% of people in arrears are behind on multiple credit products.
- 27% of people found creditor communication helpful.
- 69% of people recently behind on payments reported feeling anxious due to debt-related communications.
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