“Vulnerable Debtor” is a phrase with which many in consumer debt recovery are familiar. Basically, it is a phrase which should alert a creditor to be cautious when attempting collection from a debtor who is “vulnerable”. Debtor vulnerability can take many forms and can display itself as a physical illness or where the debtor has psychological problems - often stress-related.
In circumstances where a debtor is vulnerable, most creditors now operate a “vulnerable debtor” policy. In essence, once a creditor has established vulnerability (and there should be no collection activity being perused when this is being verified) then, broadly speaking, the debtor should be treated with compassion. Practically, the policy will dictate that the creditor should cease collection activity and advise the debtor of this. In so doing, the creditor will be giving much needed breathing space and will only revisit collections once the debtor’s condition has improved. Even then, payments towards reducing the debt should only be accepted if they are affordable. "Affordability" is assessed by an industry standard “Common Financial Statement” or tool.
Of course, if the debt is regulated by the consumer credit legislation, then the creditor will be governed by the Financial Conduct Authority. The creditor will be bound to comply with the FCA’s rules and guidance, much of which is contained in their sourcebook known as CONC. This obliges the creditor to have a vulnerable debtor policy, to operate it in appropriate circumstances and to provide evidence to the FCA, if required, that they have done so. Unregulated creditors, such as those who provide utilities, are not obliged to comply with the FCA, but if you dig a little you will find that, for example, OFFWAT will operate a similar policy. Many creditors who provide non-regulated consumer credit will be members of the Credit Services Association. It is a condition of membership that creditors sign up to their code of practice which will contain a vulnerable debtor policy.
The Herald recently highlighted the issue in an article entitled "Breast Cancer Patient Praises MacMillan for Benefits Help". The story focused on a 55 year old woman whose breast cancer had spread to other parts of her body. Both she and her husband were hard workers who did everything they could to make ends meet, as well as putting money aside to supplement their pension. However, on being diagnosed, the patient got into financial difficulty and, amongst other things, found it difficult to repay her credit card debt. She contacted Macmillan Cancer Support for help, and their efforts were exemplary. As well as assisting with her benefits claims, they negotiated payment plans with her creditors.
Whilst the article does not mention whether the creditors operated vulnerable debtor policies, certainly the credit card creditor will have been bound to do so. In operating in this way, creditors will be addressing such debt issues in a compassionate way. In so doing, they will be focusing on the debtor’s needs as opposed to their primary goal of maximising their financial recovery from debtors whose circumstances simply will not permit this to be possible.
Of course, Scotland does have more formal processes to address debtors in these circumstances, such as the much lauded Debt Arrangement Scheme. This allows debtors in regular income to come to a formal arrangement with their creditors in the form of a debt payment plan to repay their debt over a period of time, free from the threat of debt enforcement. It has proven to be very popular and a similar scheme will shortly be introduced in England. Whilst it may be that the scheme was not available to the patient referred to in the above article, Macmillan should be saluted for helping this lady in her greatest hour of need and achieving such a positive result.
Legal changes can have a dramatic impact on you and your business. To ensure you are kept up to date with the latest developments and have the knowledge to make timely, effective decisions, please sign up for our free updates.