What can you do if a creditor is still adding interest when they have been asked to stop?
Most creditors do freeze interest if you have supplied a reasonable Income & Expenditure Statement. If you are in a DMP, your DMP firm will have sent the creditor this.
The regulator says firms have to treat a customer fairly when they know you are in financial difficulty. Not freezing interest isn’t fair!
This article has a template you can use to complain.
Why should creditors freeze interest?
The regulator says lenders have to treat customers fairly
The Financial Conduct Authority (FCA) who regulates all lenders in the UK says they should treat a customer in financial difficulty fairly. That is a key principle for the FCA.
Here are some extracts from the FCA’s rules.
A firm must treat customers in default or in arrears difficulties with forbearance and due consideration.
Examples of treating a customer with forbearance would include …
considering suspending, reducing, waiving or cancelling any further interest or charges (for example, when a customer provides evidence of financial difficulties and is unable to meet repayments as they fall due or is only able to make token repayments, where in either case the level of debt would continue to rise if interest and charges continue to be applied).
Major banks and many credit card companies in Britain subscribe to The Standards of Lending Practice. The Standards say:
Firms should consider freezing or reducing interest and charges when a customer is in financial difficulty.
“Consider” may sound a bit vague. Perhaps a lender will just tell everyone “We thought about it and won’t freeze interest as it will lose us money” … they aren’t allowed to do that. If they do, they will very probably lose any cases that are taken to the Ombudsman!
The key thing to remember is, if you are in financial difficulty, lenders have to consider freezing interest so you are protected from escalating debt.
The regulator has emphasised the importance of this in the Cost of Living crisis.
Check if interest is being frozen in a DMP
If your DMP has only just started, don’t worry if interest is still added. It can take a while for your DMP firm’s letters to be read and acted upon. You may even get chasing letters saying you need to pay in the first couple of months – ignore these!
But after three months it’s worth checking if all your creditors have agreed to freeze interest.
Most creditors will have stopped. Many people will find all their creditors have frozen interest. But it’s best to be sure.
If they haven’t, your DMP firm will probably write to them again, but I suggest you also write to the lender.
Loans are more difficult
Freezing interest applies to new interest being added. It is most important for cards, catalogues and overdrafts.
For loans, the amount of interest is fixed at the start. A firm doesn’t have to reduce that amount. But they can’t carry on adding more interest – for example if your loan was for 5 years and 2 years in you entered a DMP which is expected to last for 6 years, they can’t carry on adding “new interest” because your loan now lasts longer.
If they are still adding interest … make a complaint!
A template to complain
If a creditor has been asked to freeze interest but hasn’t, and they have been sent an Income & Expenditure Statement by you (in a payment arrangement) or by your DMP firm, send them a version of the following complaint, deleting any bits which are not applicable for you.
Just change the template so it describes what happened to you. For example if the lender froze interest for a while but then started adding it again, say this. And if the lender told you they could not freeze interest until you were in arrears by several months, add that.
If you have mental health issues such as depression or anxiety, you could add a bit about this to the letter. Some people would prefer not to, 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.
How to send the complaint
It’s best to send this complaint by email, which is instant, free and you have a copy of what you sent with a date stamp. Here is a list of complaint emails for the major banks, credit card lenders and catalogues.
Use a clear email title eg “Complaint that you have not frozen interest in my DMP”
If the creditor provides a Secure Message system, you can use that but be sure to take a copy of what you send and a note of the date.
When there is no secure message facility or you cannot log into it as your account has been closed, you may have to send the complaint by post – use recorded delivery.
Take a rejection to the Ombudsman
If you get a rejection or no answer within 8 weeks, take your complaint to the Financial Ombudsman.
Do take cases to the Ombudsman if they have been rejected. Even if the lender has replied saying they are legally allowed to do this or sent you long complicated explanations, you may still win your complaint at the Ombudsman if they have behaved unfairly. Adding interest and charges when you are in trouble is not fair.
The Ombudsman 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.
Sending these complaints isn’t guaranteed to work but it’s well worth a try! Getting that interest frozen could make a HUGE difference to how quickly you can clear the debt.
Some Ombudsman decisions
Here are a couple of cases where the Ombudsman told the lender to refund the interest it had been adding:
- a decision where the Ombudsman upheld a complaint against Argos;
- a decision where the ombudsman upheld a complaint against Simply Be
Some banks have paid refunds if they didn’t freeze interest
Some creditors are admitting that decisions they made a few years ago weren’t fair.
In 2018 Barclays started a program of refunds to some customers where it now feels it didn’t treat them well when they told Barclays or Barclaycard they couldn’t make normal payments. This includes some people where it carried on adding interest and/or charges.
One reader read the article about Barclays and contacted his bank, Lloyds to ask for a refund:
I had written to them in 2013 during our DMP asking if they would freeze interest. They reduced it but didn’t freeze it for another 12 months. I asked them yesterday to consider refunding the interest for this 12 month period.
I had a call this afternoon to say that at the time they had fulfilled their obligation but on reflection they should have reduced to zero %. They offered me a refund of all interest plus a goodwill gesture of £75 and a very sincere apology which was accepted. I had the money on my account (£706.00) within an hour of that call!
This is very good news.
More recently, interest being added is often a mistake!
In late 2022, someone reported that a credit card was still adding interest. I told them to query this – the lender’s reply just said they had only stopped interest for a few months and didn’t mention the DMP.
So I suggested making a formal complaint to the lender.
Then they got a reply saying there had been an error, interest should not have been added. The lender removed the interest added since the start of the DMP from the balance and offer £100 in compensation.