A reader asked if there is anything he can do to get some of his creditors to freeze interest on his debts and they have refused. Yes there is – use the template letters in this article. They aren’t guaranteed to work, but it’s worth a try!
Why should a lender freeze interest?
Regulators say that a creditor should treat a customer in financial difficulty fairly – they should listen to you if you say you have problems. Offering creditors lower payments is called debt management or a Debt Management Plan (DMP) For details about debt management and who can benefit most from it, read What is a DMP? which looks at how they work and how to set one up.
As part of a DMP, creditors are asked to accept a lower payment each month, freeze interest and not add further charges.
Most major banks and credit card companies in Britain subscribe to The Standards of Lending Practice. This came into force on 1st October 2016, replacing the previous Lending Code. You can check if a creditor is a subscriber here.
The Standards of Lending Practice says:
7. Firms should apply an appropriate level of forbearance, where, after having made contact with the customer, it is clear that this would be appropriate for their situation.
9. Firms should consider freezing or reducing interest and charges when a customer is in financial difficulty.
You are less likely to have a problem with interest being charged if your debt has been bought by a debt collector. But if you do, see if the debt collector is a member of the CSA, whose Code of Practice for debt collectors says:
“All members should consider reducing or stopping interest, charges or fees being applied to the account if the customer has demonstrated financial difficulties.“
Does it matter how the DMP has been set up?
You may be wondering if your creditors will be more likely to freeze interest if you use a debt management firm, rather than running the plan yourself. No, it shouldn’t make a difference, lenders are supposed to give equal weight to self-administered plan, provided you have supplied an Income & Expenditure Statement.
You may wonder if it is better to go to a firm that charges you fees for running a DMP, perhaps they will do a better job than one of the ‘free’ DMP firms such as StepChange? There is no evidence that this is the case! Paying fees for a DMP is a bad idea – it will prolong your DMP and they are no better at getting interest frozen than the free ones.
What does matter is how long the DMP has been set up. If it is in the first few weeks and the lender hasn’t yet been sent an Income & Expenditure Statement, then it’s frustrating but you just have to sit back and wait a bit as it can take some creditors a while to respond to the DMP letters. If after three months a creditor hasn’t agreed to freeze interest, phone the DMP firm and ask if they know why? And if they can issue a chasing letter?
“I don’t have a DMP”
If you have asked a creditor to freeze interest because you are in financial difficulties, this is a “DMP” even if you didn’t realise it! Here your creditor is much more likely to freeze do this if you show them an Income & Expenditure Statement which shows:
- you can’t afford to make the usual monthly repayments.
- you are treating all your creditors fairly. You can’t expect one lender to freeze interest and accept a lower payment if you are carrying on paying the whole amount to another lender;
- your expenditures are within ‘normal’ levels.
If you don’t have an Income & Expenditure Statement, I suggest you use the free self-help CABmoney system. This will generate an I&E in a format lenders will be familiar with. It will also warn you if any of your expenses look too high and divide up your available money fairly between our creditors.
You need to send this off to the creditor and ask them to freeze interest, rather than the letter below which assumes you have already supplied an I&E statement.
Write to your creditor
If you (or your DMP company) has asked a creditor to freeze interest and sent them your Income & Expenditure Statement, but the creditor is still adding interest, send them a version of the following letter, deleting any bits which are not applicable for you. This can be sent by post – in which case it’s best to send it recorded delivery – or by email.
If you have mental heath issues such as depression or anxiety, then you could add a paragraph about this into the letter. Some people would prefer not to mention this, but it could make a lot of difference as lenders usually have policies in place for different treatment of ‘vulnerable’ clients, see this article on Debt and Mental Health for details of what to write.
If that doesn’t work…
You have asked nicely, now it’s time for a formal complaint to the lender.
If you get a refusal or no answer within 8 weeks, take your complaint to the Financial Ombudsman. This is a customer-friendly service. You don’t need to be able to quote laws the lender has broken, just explain your situation and why you feel the lender is being unfair by continuing to add interest.
Here is a judgment where the Ombudsman upheld a complaint about not freezing interest. The creditor in this case was Argos – catalogues are often among the most “difficult” creditors to agree to freeze interest. Argos was ordered to refund all interest and charges that had been added since the DMP started, and not add any more unless the debtor’s situation improved significantly.
Is this likely to work?
It isn’t guaranteed to work – a DMP is an informal debt solution and you can’t force your creditors to freeze interest. But most creditors do freeze interest if you have supplied a reasonable Income & Expenditure Statement. It is certainly worth trying these letters, because getting interest stopped will make a big difference to the viability of your DMP.
If after trying all this interest still isn’t frozen on a lot of your debt, you may have to look again at whether there is a better debt solution for you.
This article was published in 2014 but is kept updated.