Consultation response: Civil Procedure Rules Committee The Pre-action Protocol for Debt Claims Response by the Money Advice Trust Date: September 2014
Contents Page 2 Page 3 Page 4 Page 6 Contents Introduction / About the Money Advice Trust Introductory comment Our main concerns 2
Introduction About the Money Advice Trust The Money Advice Trust is a charity founded in 1991 to help people across the UK tackle their debts and manage their money wisely. The Trust s main activities are giving advice, supporting advisers and improving the UK s money and debt environment. We give advice to around 140,000 people every year through National Debtline and around 30,000 businesses through Business Debtline. We support advisers by providing training through Wiseradviser, innovation and infrastructure grants. We use the intelligence and insight gained from these activities to improve the UK s money and debt environment by contributing to policy developments and public debate around these issues. Public disclosure Please note that we consent to public disclosure of this response. 3
Introductory comment We welcome the opportunity to comment on the draft pre-action protocol for debt claims. We strongly support the introduction of a debt pre-action protocol. This should potentially help both clients and their advisers by requiring creditors to provide documents before starting court action. It will be a great advantage that all creditors will be required to use a mandatory form of words, in the same style and font and given the same prominence within the notice. This would prevent any temptation to hide the information in the small print, or omit it altogether. We are particularly pleased to see the introduction of a requirement on creditors to allow 28 days to seek advice before action can be commenced. A built-in breathing space for anyone seeking independent advice should also act as an incentive for people in debt to take action to sort out their debts and deal with their creditors. The requirement on the claimant to provide reasonable additional time is a bit vague. Can anything more specific be added to decide what reasonable means? More information on timescales for reply is provided in the existing practice direction on pre-action conduct, so why is that level of detail not given in the draft protocol? We would strongly reject any attempt to reduce the number of days allowed to seek debt advice under the protocol. The requirements mirror the concept of breathing space which has been used successfully in the Lending Standards Board Lending Code, 1 the FLA Lending Code, 2 the Credit Services Association Code of practice 3 and is now mirrored in the FCA Consumer Credit Sourcebook (CONC) 4 rules. In addition, where face-to-face debt advice is required, then there may well be a delay for the client in accessing an appointment because of the demand for advice in many local areas. Many face-to-face free-to-client money advice services are under extreme pressure and have lengthy waiting lists. The availability of free debt advice may have been restricted due to the resources available locally following cuts in legal aid provision and local authority support in England and Wales. Therefore, reducing the 28 days will only serve to restrict the chances for the defendant of successfully seeking advice. We have some concerns about whether the aims of the pre-action protocol are sufficiently clear and targeted. We recall that the Pre-Action Notice (PAN) trial was not continued following a review. This review decided that the notice was not successful in persuading defendants to engage with their creditors and avoid the need for creditors to take court action. We were extremely supportive of PAN and were disappointed when the pilot was discontinued. We feel that the protocol could go some way to replacing and expanding upon the PAN but we have major concerns that the protocol as currently worded will not be able to engage the people in debt who are the most hard to reach and the most vulnerable. The PAN letter was fairly short and worded in a simpler way than the protocol. However, it was still not sufficiently effective in persuading people to engage with their creditors in numbers. The pre-action protocol should encourage people to contact creditors with a firm expectation that their proposals will be considered. Currently, there is too often a feeling among those being threatened with court action that there is no point in attempting to engage with their creditors as they will not listen anyway. 1 http://www.lendingstandardsboard.org.uk/thecode.html 2 http://fla.org.uk/index.php/consumer-information/lending-code/ 3 http://www.csa-uk.com/assets/documents/compliance-and-guidance/code_of_practice.pdf 4 http://fshandbook.info/fs/html/fca/conc 4
We believe that the Protocol should be put in place but that it is important that it improves outcomes for clients and reduces the burden on advice agencies in dealing with creditors who are reluctant to engage. The debt must be proven before creditors can take court action. Over the years National Debtline callers have reported many instances of creditors where they have refused to accept reasonable offers of payment or to engage with our clients. There are creditors who appear to have a policy of accepting an offer of payment but taking court action just in case, adding both court costs and unnecessary stress for the clients concerned. It is very important that the court is aware of payment offers and where payments are being made but the creditor has pursued court action in any case. It is frequently difficult to obtain sufficient information about the debt such as copies of credit agreements and statements of account to establish liability and to decide if there is an argument about limitations or the enforceability of the agreement. The protocol should assist in all these scenarios. It is also very important for the protocol to be clear what constitutes a sufficient explanation for a creditor to not provide copy agreements or a statement of accounts. If it can be established that there is no merit in defending a claim before court action is taken, then there is greater scope for settlement. However, we have some concerns that the paperwork requirements should not become disproportionate as a large bundle of documents may also serve to disengage defendants if they find it a daunting prospect. We would suggest that the wording of the protocol is designed as far as possible to take into account the requirements under the FCA consumer credit sourcebook. There should be complete clarity on what should be sent by creditors at this point to avoid duplication. There may be some cases where it can be expected under FCA rules that certain documentation has already been sent. We have made more detailed wording suggestions on the draft pre-action protocol attached to this response. However, we would like to highlight some points in particular. 5
Our main concerns Reword in simple English We are not clear about who the pre-action protocol is aimed at. If it is supposed to be a document that a defendant can read and understand, it needs to be substantially rewritten in clear and simple English throughout. It is not written in easily understandable language and we have major concerns that the important messages and action points contained within the protocol will be missed. If the protocol is aimed more at creditors behaviour and designed to make sure that creditors engage with people in debt, we suggest that the protocol should be accompanied by a simple leaflet for defendants. We have considerable experience in publishing public-facing information in plain English and are happy to assist with this process if required. We note that under 3.2 (a) the claimant should enclose a copy of the protocol with their letter. We would suggest that this would be counterproductive for many defendants if they were to receive the protocol without accompanying guidance. We would strongly suggest that a simple leaflet accompanying the protocol is sent out by creditors as the language used in the protocol is not easy to understand, and we feel will only serve to confuse defendants further in its current form. There is precedent for this in Scotland, creditors are obliged by law to issue a statutory Debt advice and information package 5 prior to using most types of diligence, which provides useful information about the rights and responsibilities of people in debt and signposts them to sources of free-to-client money advice. Advice on defending claims We are concerned that many advice agencies do not have the resources to offer legal advice on submitting defences to claims. The protocol does not seek to explain this and to differentiate between the types of advice available. We have suggested a change to the list of advice agencies that might help make this point, but believe that this ought to be spelt out in the body of the protocol. Pre-action conduct practice direction We would seek clarification of where the existing practice direction on Pre-action conduct 6 will fit into this process. We have found this to be confusing to explain to clients as in the absence of a debt pre-action protocol, debt cases are covered by default by Section III which sets out The principles governing the conduct of the parties in cases not subject to a preaction protocol. We assume that this practice direction would be amended in section II to make reference to using the debt pre-action protocol instead. 5 http://www.aib.gov.uk/guidance/publications/debt-advice-and-information-package 6 http://www.justice.gov.uk/courts/procedure-rules/civil/rules/pd_pre-action_conduct#pagetop 6
Tomlin Orders, Time Orders and accepting offers of payment 6.5 Where the parties reach agreement concerning the repayment of the debt the claimant should not issue proceedings while the defendant complies with the agreement. This is a very welcome section of the protocol. There should be clarity regarding the use of Time Orders and Tomlin Orders in this situation as neither are mentioned in the protocol. Tomlin Orders are particularly relevant as they involve both parties reaching an agreement and they are a specific type of consent order. The problem is that if a client wants to get a consent order, they often need legal advice which can be costly. However, this may be appropriate for some clients, for example those who wish to avoid court proceedings due to the potential impact on their job but who nevertheless want to security of a consent order being in place. Whilst we welcome the clarity of section 6.5 that it is not acceptable for creditors to accept offers of payment and yet carry on issuing proceedings, this does not adequately cover all scenarios. The pre-action protocol for debt should include costs sanctions relating to creditors who take court action despite attempts by a person in debt to come to a payment arrangement. There should be sanctions applicable to creditors for: refusing an offer that is reasonable according to the particular circumstances of each individual; and/or for disregarding communications from the person in debt. We are concerned that this is not clearly set out in the section dealing with the court s general approach to compliance and may not be taken into account by the court when considering costs. Harassment 7.6 Claimants should be aware of the creditor's responsibilities under section 40 of the Administration of Justice Act 19707 and the Consumer Protection from Unfair Trading Regulations 2008 (where they apply) not to harass debtors or treat them unfairly. We agree that it is important that creditors responsibilities not to harass people or treat them unfairly should be explicitly set out within the protocol. We would only point out that there has been some debate as to whether these provisions under section 40 of the Administration of Justice Act 1970 against harassment have been repealed or amended. We believe there is some ambiguity as to who these provisions now apply to and would appreciate clarification. Compulsion on defendants We would query whether there is now any compulsion on the defendant to return the reply form to the creditor. If this is not returned, then presumably the creditor can issue a County Court claim. Is it envisaged that failure to return this form will be an act that could attract costs sanctions for non-compliance? If so then the entire protocol needs to be repackaged in comprehensible language. It would be particularly unfair on potentially vulnerable defendants if they could be penalised in the future for failing to follow the rules in the 7 http://www.legislation.gov.uk/ukpga/1970/31/section/40 7
protocol. If this is the case, every effort should be made to bring the requirements to their attention in a consumer-friendly way. The guidance should be re-written in plain English or there should be two versions, one for creditors and one for consumers/defendants. Furthermore, how will it be demonstrated by creditors that they have complied with the requirements of the pre-action protocol if they commence proceedings? Will there be a requirement to confirm in the particulars of claim what pre-action activities they have taken and the results? If this is not required, then the judgment could be entered with the court being none the wiser as to what interactions have taken place with the defendant before court action commenced. It must be considered relevant information if there was no response at all from the defendant, or if the creditor ignored or rejected a reasonable offer of payment, or took court action despite the defendant seeking debt advice. We have provided more detailed comments in this area on the protocol draft itself. Use of the Common Financial Statement We suggest that implementing a pre-action protocol for debt without recognition of the Common Financial Statement is an opportunity missed. We strongly recommend a steer towards working out a proper budget having sought advice. Advice agencies use the Common Financial Statement (CFS) 8 which is the accepted standard tool for creditors and advisers. This is available through advice agencies. Alternatively, a CFS-style budget can be completed using the National Debtline budgeting suite on their website, or through self-help budgeting tools such as the National Debtline online budgeting suite on the website, 9 or through self-help budgeting tools such as CASHflow 10 and My Money Steps. 11 We would suggest that defendants should be directed to make an offer of payment to their creditors having worked out budget using the CFS and be encouraged to send it in to their creditors along with the reply form. The form could be set out in such a way to encourage people to put in realistic budget figures, to look at their financial situation overall, take into account other debts and make realistic offers of payment that they can afford. The form as it is currently devised does not encourage this behaviour. BOX 4 of the reply form has provided space only to include total income and total outgoings in weekly amounts. This is not adequate. We suggest that guidance notes explaining how to access a proper budget and what is entailed in completing a budget, should accompany the form. We also have concerns about the wording in BOX 4. I enclose full particulars and relevant documents in relation to my income. We are concerned that it appears to be a requirement under the protocol for defendants to submit proof of income at this stage. It is not normally required by creditors where a financial statement is prepared using the CFS. It is also not required when completing the N9A or similar other court forms. It is also unclear what full particulars means in this context. We suggest this is reworded to be clear what the protocol requires the defendant to enclose. Is it intended that the defendant encloses a full financial statement listing income and outgoings then this should 8 http://www.cfs.moneyadvicetrust.org/ 9 https://www.nationaldebtline.org/ew/steps/step2/pages/step_2_11.aspx 10 http://www.moneyadvicetrust.org/advice/supportingadvisers/cashflow/pages/default.aspx 11 https://www.mymoneysteps.org/ 8
be made clear. If it is intended that full particulars relate solely to income only then we would suggest that this is not a useful proposal. Providing a creditor with full information and evidence about income only would give only half of the picture and would not assist with making a decision as to whether to accept an offer of payment. It is important that a holistic outline of income, outgoings, other debts and a realistic affordable offer of payment is provided. Finally, it is not normally a requirement to provide proof of outgoings, household bills and other debts or financial commitments. Comprehensive list of referral agencies We welcome the inclusion of a list of independent advice organisations in the protocol. A common style, content and mode of presentation should have the benefit of ensuring uniformity across the credit sector in terms of all creditors including the same list of approved independent advice providers. This information could be kept up to date centrally, which would avoid any out-of-date contact information being sent out inadvertently by individual creditors. We would suggest that list should match the FCA information sheets on arrears and default. 12 We do not see the need for another version of this list to be created where a commonly used model is in existence already. We would also suggest that it would help to differentiate advice on debt, (e.g. AdviceUK, Citizens Advice, National Debtline, StepChange) from sources of legal advice (e.g. Civil Legal Advice) which may give advice on a variety of legal issues and in particular on how to put in a defence. We also suggest sources of ADR and the Financial Ombudsman Service should be included in the same section. The Ombudsman is referred to in 6.2 of the protocol but no contact details are provided. Comprehensive comments on the draft protocol We have made some detailed comments on the wording in the draft protocol. This accompanies our consultation response as a separate document. For more information on our response, please contact: Meg van Rooyen, Policy Manager meg.vanrooyen@moneyadvicetrust.org 0121 410 6262 12 http://www.fca.org.uk/firms/firm-types/consumer-credit/information-sheets 9
The Money Advice Trust 21 Garlick Hill London EC4V 2AU Tel: 020 7489 7796 Fax: 020 7489 7704 Email: info@moneyadvicetrust.org www.moneyadvicetrust.org 10