Lenders are legally obliged to send “debt threat” letters to people struggling financially, even though many would prefer not to.

Millions of households who have been granted a temporary debt repayment ‘holiday’ by lenders during the coronavirus crisis are due to receive a letter in the coming weeks, even if they’ve never been in financial difficulty before.

The Money and Mental Health Policy Institute, founded by consumer champion Martin Lewis, is calling for urgent action to change “out-of-date” laws as part of measures to support people during the pandemic.

Lewis said: “The fact that lenders are forced by a decades-old law to send thuggish letters to people with debt problems is staggering. These letters ruin lives, and many lenders say they don’t want to send them, but the law gives them no option.

“In the next few weeks, we’ll have the perverse situation where lenders will be compelled to send threatening letters to millions of people, even if they’ve been given permission for a temporary break from debt repayments.

“That will cause distress and confusion at a time when people in financial hardship, and many struggling with mental health issues, least need it.”

The charity says by law, these letters contain “threatening and confusing language”, often alongside threats of court action.

For example, the Consumer Credit Act (1974) demands debt letters include the following text in full – capitalised or in bold text – when people are seriously behind on payments:

IF YOU DO NOT TAKE THE ACTION REQUIRED BY THIS NOTICE BEFORE THE DATE SHOWN THEN THE FURTHER ACTION SET OUT BELOW MAY BE TAKEN AGAINST YOU [OR A SURETY].

Research by the Money and Mental Health Policy Institute shows that 100,000 people in problem debt attempt to take their own lives each year in England, and that these letters are a key contributing factor.

A spokesperson for UK Finance, the banking trade body, said: “Lenders want to support customers who might be facing financial difficulty, and at the same time, must comply with the legal requirements regarding debt collection – which includes using specific wording in any customer correspondence.

“The industry recognises that the current requirements can be confusing and off-putting, especially when customers and lenders have agreed changes to contractual payments, which is why we support changes to the legislation in this area.”

A Treasury spokesperson said: “It’s vitally important that banks communicate with their customers about debt so they can be supported to manage their finances. However, we are aware of the concerns raised and are looking into the issue carefully.”