CCR2 Technology Futures


Breathing Space and the law of unintended consequences


Providing a moratorium for consumers in debt to bring their affairs into order is an important facility, but there are practical considerations


Chris Leslie Chief executive, the Credit Services Association


After three months of the government’s ‘Breathing Space’ debt respite scheme regulations coming into effect, what are the lessons policy-makers can take away at this early stage? When the regulations were first approved


and as the covid pandemic cast a shadow of concern across the economy and consumer wellbeing, it was widely recognised that forbearance in debt repayments for customers in need would be crucial. As it happens, the credit and collections


sector have long used such moratoria as part of their forbearance measures before the government mandated such considerations – and so the notion of a 60- day breathing space for eligible individuals (accompanied by a mental health scheme offering a moratorium for the duration of a mental health crisis plus a further 30 days) was in harmony with existing practices and received without objection.


While the principle has not been an issue,


the operational nuts-and-bolts have not been straightforward. Eligibility is supposed to be triggered by debt advisers looking at each particular case, then informing creditors and collections agencies who must cease collections the day after receiving notice, something that has required significant administrative adaptations, especially as the online notifications ‘portal’ was delayed and has only just gone ‘live’. A paper-based approach was never going to be conducive to the smoothest of starts for the scheme. The biggest issue arising so far was not


one anyone anticipated; a very large online debt advice charity chose to facilitate the automatic self-referral for its clients onto a ‘breathing space’, resulting in a wave of moratoria triggered within days of the scheme’s commencement. As a trade body for the recoveries sector, the Credit Services Association was contacted by many of our member firms as they tried to figure out if the deluge was something particular to them or industry-wide. After raising concerns with the Insolvency


After raising concerns with the Insolvency Service, the Treasury Minister confirmed that each customer was supposed to have first obtained advice to establish eligibility and that non-compliance with the regulations would be of concern to the FCA


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Service, the Treasury Minister confirmed that each customer was supposed to have first obtained advice to establish eligibility and that non-compliance with the regulations would be of concern to the FCA. Automatic self-referral is not only outside


the scheme rules, it could be detrimental for a customer who uses up their once-every- 12-month entitlement to the breathing space prematurely. Thankfully, it appears that the debt advice charity in question is


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now pausing that process and reviewing their approach. American sociologist Robert Merton


argued that there are usually unexpected drawbacks or even perverse results contrary to an original policy prescription not foreseen at the outset, and its fair to say that this example illustrates Merton’s law of unintended consequences quite well. And it is not the only teething issue that has cropped up since the regulations came in. The tendency for top-down prescribed


interventions to generate new problems is nothing new. It is why the argument for devolution and decentralisation of Whitehall has been made for decades. In the case of financial services regulation, despite a robust framework of principles- based and outcome-oriented frameworks, policy-makers can still tend towards short- term ‘initiatives’ especially if they come under media pressure. At the Credit Services Association we


believe it is essential for regulators and ministers to stay strategic and reiterate the


August 2021


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