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Creating Breathing Space for customers – How to stay efficiently compliant with the new regulations 10 NOVEMBER 2020

Creating Breathing Space for customers – How to stay efficiently compliant with the new regulations
4 minute read

With the COVID lockdown and its associated consequences dominating collections processes over the summer, the final announcement of a new requirement for customer breathing space processes flew by largely unnoticed to the wider public.

However, the changes proposed, which become regulation in May 2021, are actually more than a simple replacement of existing breathing space best practice. They need time to prepare and implement.

What are the changes?

Under the new regulations, customers1 will be allowed 60 days breathing space moratorium2. This will be interest, fee and enforcement action free, in order to provide them time to access debt advice and allowed once in a twelve-month period2.

The intention with this legislation is to incentivise customers to get help from the free debt advice sector as soon as possible, especially those with problem debt. It applies across all customer debt types and industries, from financial services, to utility and even council tax.

But we have this today under CONC, so what is different?

There are similar provisions for financial services under CONC (7.3.11 for those that are paying attention). This is a 30-day breathing space hold, with a 30-day extension, in order to provide time for the development of a repayment plan.

However, these new measures are different in that they extend to a wider set of industries and now require the customer to work with a fee-free debt management company3 in order to get onto the scheme.

In addition, this is also now being managed via the insolvency service. This centralisation of processing largely limits direct communication between the companies and their customers, instead being reliant on the debt advice sector as a central point of contact.

Significant challenges ahead 

Straightforward to explain, however difficult to operationalise, this new structure does unfortunately generate some significant operational complexity. New processes, interfaces and systems changes all need to be ready. For example:

  • Customer details need to be securely received (via file transfer) and processed from the insolvency service.
  • Processes need to be set up matching received details (by name, DOB and address) against customer accounts. Completed matches then need to be placed on moratorium hold, exceptions handled, and any unidentified related debts, not originally included, reported back by the end of the following day (according to guidelines).
  • Interest, fees and enforcement action (including removing from the collections and recoveries process) must stop, the day after notification, for included debts. (There is added complexity in areas such as mortgages, as new payments due, after the start of the moratorium can still be collected on. This complexity is further compounded if the process is run in a batch-based system, which many still are.)
  • Debts need to be assigned to third parties. A timely notification process to let the assignee know of the moratorium needs to be designed and implemented.
  • Finally, there needs to be a process to remove the customer from the moratorium onto any new state, on notification, typically at the end of the process.

All of this adds up to considerable new complexity, with limited customer visibility during this period. There is potential for costs to be driven up and significantly, if not handled properly and implemented in time.

So, what happens to the current breathing space?

It is likely that the current payment arrangement breathing space will continue, albeit in an earlier arrears form. The new breathing space moratorium, driven by the debt advice sector, will simply sit as an additional avenue of debt relief for customers.

One consequence of this is that customers may be able to access both schemes: the existing breathing space in order to form a plan (~60 days), and then a breathing space moratorium via the debt advice sector (60 days), adding up to total 120-day delay in any debt resolution.

Additionally, with increased volume flowing to the debt advice sector, will insolvency recourse, such as IVA and bankruptcy outcomes, become more likely? Will it accelerate existing outcomes or result in better resolution? Time will tell.

If these are the best outcomes for the customer, it will be working as designed. However, both are likely to impact loss-provisioning calculation and therefore collections strategies as a result, so it is worth being prepared.

What can you do today?

Now is the time to get ready. With the scheme due go live in May 2021, time is short. Getting your operational and collections system processes in place now is going to be critical to ensure this transition works well and at minimal cost.

Arum has already been working with clients on this and it has proven to be more complex than it appears at first glance. Do not delay or wait to start; this should not be underestimated.

If you’re worried about where to start or what needs to be done within your organisation, we would be happy help. 

Chris Warburton
Principal Consultant



  1. This is applicable for customer in England and Wales. Customers in Scotland fall under the Scottish Moratorium in the Bankruptcy (Scotland) Act
  2. Alternative entry criteria and timeframes for mental health crisis moratorium
  3. Or local authority.


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