Business, Innovation & SkillsWritten evidence submitted by Mind

About Mind

Our vision is of a society that promotes and protects good mental health for all, and that treats people with experience of mental distress fairly, positively, and with respect.

The needs and experiences of people with mental distress drive our work and we make sure their voice is heard by those who influence change.

Our independence gives us the freedom to stand up and speak out on the real issues that affect daily lives.

We provide information and support, campaign to improve policy and attitudes and, in partnership with independent local Mind associations, develop local services.

We do all this to make it possible for people who experience mental distress to live full lives, and play their full part in society.

General Comments

1. Mind welcomes the opportunity to contribute to the Business, Innovation and Skill Committee inquiry. The ways in which people are encouraged, empowered or assisted to manage their borrowing and deal with their debts can play a vital role in how these issues impact on their mental health.

2. Access to credit and financial services is increasingly a core component of modern life and can actively enhance people’s lives. The majority of people with mental health problems have the skills and ability to manage their finances. We do not want people with experience of mental distress to be excluded from accessing credit, however there is a need for adequate safeguards to protect people’s finances when they are unwell.

3. Mind’s campaign “In the red: debt and mental health” has been calling for improved creditor policy and practice towards debtors with mental health problems since 2008. Mind would caution against regarding mental health as a niche issue affecting only a small number of consumers who require separate, more sensitive treatment. Given the circular relationship between debt and mental health1 and the common nature of mental health problems—which ranges from anxiety and depression through to more severe conditions like schizophrenia—this is very much a mainstream issue and creditors should ensure the way they treat all consumers will not trigger or exacerbate mental distress.

4. Measures to discourage irresponsible lending and borrowing and to make dealing with debt more manageable are important in terms of reducing the risk of people getting into debt that may be detrimental to their mental health, or getting into excessive debt as a result of their mental health.

Specific Areas of Concern

5. These comments cover many of the areas examined as part of the Government’s consultation on Managing, Borrowing and Dealing with Debt (the Consumer Credit and Personal Insolvency Review) as well as some other key areas of concern.

6. Mental capacity

6.1 Earlier this year, Mind repeated the survey which informed our “In the red” report2 Although the data from this survey have not yet been released, we believe it is important to flag up one area of results around mental capacity.3

6.2 Only about 50 people from almost 500 respondents to a question on this issue reported that creditors were aware of their mental health problem at the time of taking out credit, although our data do not indicate whether this is because the borrower told the creditor this, or whether the borrower felt their creditor had assumed this without it being said.

6.3 Very few respondents reported creditors asking questions about their mental health at the time of lending. Only 3% of all respondents reported creditors expressing concerns about their ability to manage the loan or credit as a result of their mental health problem(s).

6.4 However, this lack of awareness, enquiry and concern about the mental health of applicants for credit was not reflective of how respondents felt their mental health impacted on their ability to make an informed decision about borrowing. This was an even greater issue for those respondents in problem debt, as might be expected.

6.5 Three in ten respondents said they were not able to make a reasonable decision about whether to take out the loan or not. This increased to four in ten among respondents in problem debt (defined as being two or more consecutive payments behind with a bill).

6.6 A quarter of all respondents said they were not able to understand the terms and conditions of the loan. Among respondents in problem debt, this figure increased to a third.

6.7 Over a third of all respondents and almost half of those in problem debt reported not being able to ask questions or discuss the loan with their potential creditor.

6.8 While none of the above statements give a definitive indication of an individual’s mental capacity to take out credit, mental capacity is certainly a pertinent concern flowing from these findings on individuals’ self-reported ability to make an informed decision about borrowing. The Office of Fair Trading has recently published draft guidance to creditors on mental capacity and irresponsible lending. This guidance tells creditors what to do if they might reasonably suspect a prospective borrower lacks the capacity to borrow.

6.9 Importantly, it is not simply a case that creditors should withhold credit from anybody who has difficulties understanding the terms of the credit they wish to take out. Rather, creditors are expected to provide support to anybody experiencing such difficulties, so that they acquire the capacity to make a reasonable decision. If an individual then still appears to lack capacity, the creditor is expected to ascertain whether this is the case.

6.10 Given this regulation, the above survey data suggest that there is much for creditors to do in terms of supporting customers—including but not limited to those with mental health problems—who may not have the capacity to make an informed, reasonable decision about whether to take out credit. A key part of this process is ensuring that adequate explanation of the terms of credit are provided, taking into account the difficulties that the customer may face in understanding these.

7. Advertising of credit

7.1 Mind would support moves to ensure that advertising of credit makes clear the risks of taking on debt. People may well get into debt as a result of a mental health issue, for example when seeking relief from low moods by spending, or as a result of disinhibited spending during a manic phase of their bipolar disorder. As such, it is important that credit is not advertised as an “easy option” for those facing complex or difficult circumstances.

7.2 Many people have reported to Mind that their problems with debt started because it was simply too easy to find credit. It was often the case that people were not even looking to borrow money but they were enticed into borrowing through advertising which presented credit as being highly accessible to anyone. Irresponsible borrowing could not happen without irresponsible lending.

7.3 “Apart from a couple of the bank loans all the debt came though the post, you know ‘Apply today for our credit card’. So I did. I didn’t go out and actively seek the credit, it was just too easy to fill out the form and then post it.”

8. Information on credit

8.1 Mind would welcome steps to ensure that consumers have access to as much information as possible about potential sources of credit, particularly when those available to them are not mainstream sources. Our research suggests that people with mental health problems can be particularly vulnerable to high cost lenders, often because these sources of credit seem most accessible rather than because they are necessarily the only available options. As discussed above, people will often just take credit that is offered to them, without knowing whether the terms and rates that they are taking on represent a fair and competitive deal.

8.2 The option to directly compare creditors would allow consumers to make a more informed decision which should help them avoid getting into debt that will be detrimental to their mental health or taking on damaging debt as a result of impairment caused by their mental health problems.

9. Code of practice for lenders

9.1 Mind would welcome a code of practice for home credit suppliers, payday lenders and pawnbrokers and would be keen that it included reference for dealing with customers with mental health problems in terms of avoiding causing problem debt for such customers; knowing how to deal with disclosure of mental health problems by indebted customers; and having appropriate policies in place to recognise the additional difficulties those with mental health problems may have in accumulating and paying back debts.

9.2 We would suggest that any such code of practice was in line with the Money Advice Liaison Group’s guidance on debt and mental health;4 and the Royal College of Psychiatrists’ research into debt collection and mental health.5

9.3 We would also be keen that that any such code of practice was enforceable and that meaningful action could be taken against lenders/creditors/pawnbrokers who contravened it.

10. Sharing of data

10.1 We recognise that many people with mental health problems have debt difficulties relating to utility companies and local authorities. We believe that the way in which these problems are managed by these companies and authorities could be vastly improved. However, we would be wary about the sharing of information regarding a customer’s mental health between companies, organisations and bodies due to the negative impact that this could have on the customer’s ability to secure credit and other services. Any such sharing would need to involve the customers consent and full explanation of what the implications might be for the customer.

11. Penalty charges and interest

11.1 Many people have reported to us that debt can become hard to manage due to factors such as penalty charges and excessive interest. Such measures by creditors can make it virtually impossible for people to manage their debt, which in turn can lead to the triggering or exacerbating of a mental health problem. This scenario is often described as a “debt spiral”.

11.2 “Several companies have been quite obstructive and obviously delayed dealing with our communications to heap on charges and higher interest to our outstanding debt to recoup the ‘interest and charges free’ period of repayment plans in advance. It has been an extremely stressful time—there have been several times when we have questioned whether it has been worth carrying on.”

11.3 We would welcome the introduction of measures to both limit such charges and interest, and require banks and other creditors to respond quickly and effectively when it is clear that someone’s debt has become problematic as a result of such factors. Since this is not simply and issue with mainstream creditors, we would also be keen to see credit caps for all forms of credit and not just for credit and store cards.

12. Regulating bailiffs

12.1 Mind has been calling for effective regulation of bailiffs since our “In the red” report in 2008. Our report suggested that bailiffs can cause immense distress to people in debt, often through behaviour that is illegal or in breach of industry codes but there is insufficient regulation to challenge such behaviour.

12.2 “An analysis of 500 case reports from Citizens Advice Bureaux in England and Wales found that 64% of bailiffs were felt to have been exhibiting behaviour of harassment or intimidation, 40% misrepresented their powers of entry, 25% threatened debtors with imprisonment and 42% charged excessive fees.”6

12.3 We also carried out some additional research on people’s experience of dealing with bailiffs which yielded more than 450 responses.7 Below is a summary of the findings.

Bailiffs’ behaviour

12.4 Respondents reported inappropriate, heavy-handed and in some cases unlawful behaviour by bailiffs, including:

Threatening behaviour such as intimidating children while the debtor was not at home.

Forcing their way into debtors’ homes.

Almost a third of respondents had been threatened with prison.

Being dismissive when people tried to disclose mental health problems.

Being reluctant to discuss options for repaying the debt with the debtor.

12.5 A mere 10% of debtors felt bailiffs listened to them, while almost 80% felt bailiffs exhibited threatening behaviour.

Impact on mental health

12.6 Overall, 94% of respondents said contact with bailiffs had a negative impact on their mental health. When asked about what kind of impact this had:

95% reported an increased level of anxiety;

63% felt less able to manage their mental health;

87% reported increased levels of depression; and

50% experienced suicidal feelings.

12.7 We would be in favour of regulatory powers with genuine capacity for discouraging such behaviour and effectively challenging it where it occurs. Efforts to regulate this industry should also involve limiting current powers allowing bailiffs to force entry into a debtor’s property and to tackle where bailiffs are misusing their powers or misrepresenting the legitimate scope of their powers. We also encourage the Government to work with Mind to ensure regulation is appropriate to the needs of people with mental health problems give our findings.

12.8 Specifically, we believe any regulation needs to include:

A fair and proportionate fees structure, which does not penalise people with mental health problems who may be unable to engage with the earlier stages of debt recovery due to their condition, rather than unwillingness, but therefore automatically fall into higher fee bands.

Mental health awareness training as a licensing requirement for all enforcement agents, to equip them with the necessary awareness and skills to ensure debt recovery tactics do not worsen debtors’ mental health (and ultimately make recovery more unlikely)

Revised National Standards for Enforcement Agents which explicitly address the links between debt and mental health and the responsibility of enforcement agents not to cause harm to the public—including causing further mental distress

A referral mechanism for vulnerable debtors, so enforcement agents can pass debts back to creditors where debt recovery by bailiffs is inappropriate—but without enforcement agents being penalised by losing their anticipated collection fees

Clear and easily accessible information on the rules—those who come into contact with enforcement agents are entitled to know their rights and how they can complain if these rights are breached

An industry-wide code of practice and complaints procedure, which is sufficiently robust to improve practice throughout the industry, and is fully accessible to people with mental health problems to enable people to report poor practice

13. Debt advice

13.1 For debtors with mental health problems, it is important that advice and support is carefully targeted so that they are aware both that such support and advice is available and would be of help to them, and where they can find it. We have suggested providing more access to debt advice and support within primary healthcare settings but we would also welcome more emphasis from banks and other creditors on targeting support at vulnerable customers.

13.2 Debtors with mental health problems need to feel that their circumstances will be recognised and by creditors and that advice and support will help them to manage their debt more effectively. Ideally, certified sources of advice and support would have adequate profile for most people to be aware of the services on offer. This would also help ensure that debtors are getting the “right” advice.

14. Temporary relief

14.1 We would greatly welcome the opportunity for people to receive temporary relief from creditors when they get into difficulties, either because of deterioration in their condition or because of some kind of income “shock”. Often, as a result of creditor action or an unexpected expense, people’s debt can snowball and this can be hugely damaging for their mental health. Such scenarios can lead to people feeling that things are out of control which can cause significant anxiety and could trigger more severe mental health problems.

14.2 Having the time to understand their circumstances and seek appropriate advice and support at times of difficulty could help to prevent people’s debt becoming a serious problem, which could help avoid repercussions in terms of mental health problems.

Supporting Information

Relevant findings from Mind’s “In the red” report (2008)

Creditors often threaten or use legal action to put pressure on those in debt. Mind found that of those respondents who had missed two or more consecutive payments:

78% had been threatened with legal or court action;

51% had been contacted by bailiffs or debt collectors; and

25% had received a County Court Judgement.

Mind’s report shows that for many respondents who had slipped into problem debt, the fear of legal action against them had a significant and negative impact on their mental health. However, more than two thirds of people did not tell creditors about their mental health problems, because they feared they would not be believed, understood, or because it would not make any difference to how their debt was handled. Our findings show these fears are not unfounded—of those who did disclose their mental health problems:

83% were still harassed by creditors;

79% felt their mental health problems were not taken into account when a decision was made about their financial difficulties; and

74% felt they were treated unsympathetically and insensitively by staff.

“The worry of the debts and not being able to pay bills just makes everything seem worse and you feel as if things will never change and you will never be able to pay or catch up with arrears. When you receive threatening letters for possession or to be taken to court or even with bailiffs, it makes everything bleaker. And suicide becomes more inviting the more the letters arrive.”

Relevant Recommendations from Mind’s “In the Red” Report (2008)

Better regulation of doorstep lenders and private finance companies

Mind calls on the Office of Fair Trading (OFT), under the new provisions of the Consumer Credit Act 2006, to set out a rigorous process for gathering information on lenders’ compliance with legislation and guidance and to take steps to ensure companies address any poor practice. At the moment identification of poor practice is over-reliant on consumer complaints.

In addition, the OFT licensing conditions should require lenders to show evidence of mental health awareness training.

Better regulation of bailiffs

The Ministry of Justice has developed guidance on this issue for enforcement officers but it is not enough. The Government needs to build on the enactment of the new Tribunals, Courts and Enforcement Act 2007 by regulating bailiffs to ensure effective safeguards for people with mental health problems.

County Court Bailiffs are bound by the public authority Disability Discrimination Act (DDA) duty to have due regard to disability issues, including those pertinent to people with mental health conditions. The statutory guidance that accompanies the DDA suggests the following as ways to fulfil this duty:

taking steps to take account of a disabled person’s disabilities, where that involves treating disabled people more favourably than other persons;

elimination of harassment of disabled people that relates to their disability; and

promotion of positive attitudes towards disabled people.

Mind urges all statutory agencies that use bailiffs to include disability equality duty specifications in their procurement contracts.

Improved access to affordable sources of credit

Mind calls for better promotion of, and accessibility to, the affordable sources of credit open to people with experience of mental distress.

Mind calls for the following developments and changes to enable the credit union movement to increase capacity and coverage to make their services easily accessible to people with experience of mental distress:

Legislation allowing credit unions to reach out to new areas and make the most of partnerships with housing associations and employers, increasing access to credit union services.

Local authorities and other community organisations to assist credit unions in increasing accessibility and credibility by helping with accommodation, developing partnerships and, where possible, providing funding to support the development of credit unions.

Community organisations and private sector organisations such as banks and major employers to assist by seconding staff to credit unions, mentoring and participating in governance.

Customers with mental health problems should be able to ask their bank to flag their current account and monitor it for unusual spending patterns

Mind calls for banks to allow customers to put flags on their current accounts to question erratic spending in specified time periods. Mind would like to see this adopted as common practice for people who would like to protect their finances when they are unwell and may be at risk of making unwise financial decisions.

Mind also calls for a safeguard system whereby customers either have to give a predetermined period of notice or joint authorisation from a designated friend or support worker before a flag can be removed from their account.

Banks to respond appropriately to missed payments by customers with mental health problems

Mind calls for banks to have procedures in place to respond appropriately to customers who have disclosed their mental health problems and have missed payments.

If a customer has been unwell and unable to manage their finances then the banks should waive penalties for missed payments. The missed payment should be viewed as an indicator that the customer is experiencing difficulty and the case should be referred to a specialist mental health team within the bank. If the bank lacks resources for this, there should be a sufficient level of training for staff to ensure they can deal appropriately with customers with mental health problems.

Adherence to the new Money Advice Liaison Group’s good practice guidelines

Mind calls for all organisations within the financial industry to adopt and build the good practice guidelines into their policies and procedures. Organisations should also commit to reviewing how well the guidelines have been implemented.

The MALG guidelines on debt and mental health represent the first ever detailed UK recommendations on what creditors should do when a person has debt and mental health problems. These guidelines aim to supplement existing industry codes for banking, leasing, and credit service organisations. The Money Advice Liaison Group is a non-policy making body, so cannot impose the guidelines on the creditor sector. The review of the Lending Code offers an opportunity to enshrine the MALG guidelines in an enforceable Code.

Creditors should have procedures in place to ensure that people with mental health problems who are in debt are treated fairly and appropriately

Mind calls for all creditors to have procedures in place that ensure people with mental health problems who are in debt are treated fairly and appropriately.

Collection action by creditors should be proportionate to all the circumstances, including customers’ likely longer-term ability to repay. Creditors should consider writing off unsecured debts when mental health problems are long term, hold out little likelihood of improvement and make it unlikely that the debtor will be able to repay outstanding debts.

Creditors that outsource debt should ensure that third parties comply with the MALG Guidelines and relevant codes of practice. Creditors should only pursue enforcement through the courts as a last resort and when appropriate.

Creditors should consider writing off debts where a person’s mental health means they did not have capacity to contract. Currently the law states that a contract is void where the other party (the lender) was aware of the incapacity. However, in Scotland debts can be struck off where there is incapacity without the other party having notice. Mind welcomes the Office of Fair Trading’s ongoing work around mental capacity.

Creditors should also establish whether the mental health problem will affect a customer’s ability to deal with telephone, written or face-to-face communication.

Where a creditor has been notified of a mental health problem they should allow a reasonable period for relevant evidence regarding the influence of mental health problems on a customers’ ability to manage their debt.

The collection of appropriate evidence on how a person’s mental health problems affect their ability to manage or repay their debt should be undertaken using a common form that all parties—creditors, money advisers, health professionals and people with personal experience of debt and mental distress—recognise. MALG has developed the Debt and Mental Health Evidence Form to meet this need.

Specialist mental health training for bank, debt-collection agency and debt purchasing company staff

Mind calls for banks, debt-collection agencies and debt-purchasing companies to ensure a basic general standard of relevant mental health awareness training across the staff cohort.

The advisers within the specialist debt-collection units at Royal Bank of Scotland receive mental health awareness training and use this to work more effectively with the customer who is experiencing problem debt. This good practice should be adopted across the sector.

If it becomes clear that because of a person’s mental health problem standard processes are not appropriate, the person should be referred to a specialist team within the organisation trained to help customers with more complex issues. The cost benefit of specialist teams may well work in organisations’ favour, as such teams would have the skills and experience to process cases more efficiently and effectively. If organisations are unable to support a specialist team they should ensure that members of staff who have relevant training are able to assist customers.

Energy and water companies to improve their service to people with mental health problems

Mind calls for energy and water companies to provide a better service to people with mental health problems—one which is more flexible and responsive to the needs of the individual. Energy and water companies currently offer a number of services for disadvantaged customers. This usually involves the customer being placed on a Priority Services or Vulnerable Customers register, which ensures that the person can speak to the same contact every time. They may also be entitled to a reduction in charges if they are in receipt of certain benefits, they can ask for help understanding bills and they can apply for money from the company’s hardship fund.

Advisers who are able to provide information about debt and welfare benefits to be based at GP surgeries

Mind calls for primary care trusts (PCTs) in England and local health boards (LHBs) in Wales to further commit to funding debt and welfare advice services in primary healthcare settings. Some advice is already delivered in such settings but provision is patchy.

Improved access to money and debt advice services

Mind calls for banks to work with the Government to improve access to independent debt advice services for people with mental health problems.

Mind welcomes the initiative by the Government to produce a framework for delivery of a generic financial advice service for the United Kingdom. Mind also acknowledges that banks already provide funding to support debt advice and related activities but calls for banks to contribute more through the disbursement of their corporate social responsibility funds.

Existing and future debt advice services need to be better targeted at people with mental health problems and services need to take account of the gaps in provision raised in this report.

10 November 2011