PPI Debt Problems on the rise
Debt problems are on the increase. Credit is already harder to come by; many fixed-rate mortgages will soon convert to more expensive variable-rate loans; and the Credit Services Association, which represents debt collectors, reckons its members will try to retrieve £24bn next year and expects a 20 per cent annual increase in that figure over the next few years. In 2000, they handled just £5.2bn.
These increased debt worries will create mental health problems for some people. Research conducted by Mind, the mental health charity, shows that debt can trigger anxiety and stress, depression, self-harm and suicidal thoughts. Mind has already identified poverty, debt and mental health as the theme for its ‘Mind Week’ campaign next year.
Chris Fitch, a research fellow at the Royal College of Psychiatrists, warns that the debt spiral can start with one missed payment and can eventually lead to letters from collection agencies whose demands are likely to be more intimidating and anxiety-provoking than contact with lenders. ‘The combined pressure of debt and creditor demands can generate enormous stress,’ he says. ‘People become overwhelmed and try to ignore what is happening. It is at this point that mental health can be most affected.’
Newspapers regularly report the suicides of desperate people who can no longer cope with credit card debt, repossession - and, in one case, a student who was overwhelmed by his overdraft problem. Jim Fearnley, head of research and policy at the Money Advice Trust and previously an advice worker, remembers an unemployed client in Southwark who killed himself: ‘We found a pile of unpaid council tax demands on his kitchen table.’
Lenders have to tread a fine line between discriminating against people with mental health problems and protecting troubled customers whose borrowing is out of control. By law, they must assume that customers with mental health problems have the capacity to make financial decisions and enter into credit agreements unless it is proved otherwise.
To help, the Money Advice Liaison Group (MALG) has just published ‘Debt management and debt collection in relation to people with mental health problems’. These are guidelines for money advisers, lenders and debt collectors - people who, generally, have conflicting interests on this issue. According to MALG chairman Anthony Sharp, ‘This is the first time in 20 years that members have reached a consensus about a significant issue.’
The British Bankers’ Association (BBA) has circulated the code to members ‘to use as they see fit’, says Paul Ross, its director of retail banking. The association may produce its own stand-alone guidelines next year, but did not have time to incorporate the MALG advice in the new Banking Code due next March.
Fitch contributed to the guidelines. He says: ‘One in six of the adult population live with a mental health problem, so one in six customers of banks, building societies and loan companies also have a mental heath problem. But the financial services sector is only beginning to address this issue.’
He understands the challenge for lenders: ‘They have to get people to tell them they have a mental health problem before their debt becomes a real issue. Customers do not do this because they are worried what lenders will do with the information and who they might share it with. They worry they might not be able to get insurance in future. Lenders need to demonstrate that they take the issue of mental health seriously.’
The Financial Ombudsman Service (FOS) has found that debt problems can be made even worse when consumers try to claim on payment protection insurance (PPI). Claims are turned down because many policies include two restrictive clauses that apply to mental health problems, which prevent many people from receiving payouts.
FOS spokesman Emma Parker says: ‘We regularly get calls from people in a very distressed state. Someone has taken out a PPI policy, lost their job through redundancy, then become depressed while trying to find another job. This depression has prevented them from seeking work but they cannot now claim under the redundancy part of the PPI policy because they are no longer actively seeking work. But when they then try to claim under the disability section, they are again excluded - either by the clause excluding mental health conditions or, more commonly, because they have to be under a consultant psychiatrist before they can claim.’
A typical clause excludes ’stress, anxiety, depression or any condition of a psycho-neurotic origin unless certified by and under the continuing care of a consultant psychiatric specialist’.
She adds: ‘Quite often, GPs will confirm that the person is too severely stressed to seek work at the time but can find no reason to refer them to a consultant psychiatrist.’ The FOS is in regular dialogue with PPI companies about this restrictive clause.
In other cases, PPI claims have been turned down, perhaps unfairly, and at that point policyholders can become extremely anxious and depressed. They have lost their job but now find that the policy they thought would protect them will not. Meanwhile, their money problems are getting worse.
· Mind is currently researching issues of debt management for people with mental health problems. It wants to hear from people who are currently living with debt and arrears, whether or not they are receiving help managing their debts. They can complete a survey,
Tags: ppi compensation, ppi claim