Government Debt Relief Order changes could help thousands more ‘freeze’ what they owe

Thousands of hard-up Britons could benefit from biggest changes to Debt Relief Orders in years… but they still face a £90 upfront fee

  • DROs are aimed at those who struggle to pay any interest-bearing debts  
  • They last for a year and protect borrowers from any enforcement action 
  • However, the eligibility requirements have not been changed for years
  • New rules will expand the number of people who can apply for one 

Some 13,000 more people could benefit from a solution designed to help them with problem debt from next month, under proposals published by the Government today.

The Insolvency Service announced a raft of changes to Debt Relief Orders, which have been described as ‘bankruptcy-lite’ and are aimed at those who have little money to pay their debts.

From 29 June those who owe less than £30,000 will be able to apply for a DRO, up from £20,000 currently. 

The application comes with a £90 fee which will remain unchanged, despite a review by regulators in February calling it ‘a significant barrier to uptake’. 

Debt Relief Orders are aimed at those who have little money to pay mounting debts

But other changes have also been made to DROs to make them more accessible. They were previously only open to those with a disposable income of less than £50 each month, but this will be increased to £75.

Meanwhile, the value of cars and the total other assets which can be exempted from a DRO are both being doubled to £2,000.

DROs are intended for those with mounting debts which they cannot repay even if interest is frozen, and they last for a year. 

During this period, all debts are frozen and creditors cannot take action against a user if they don’t make any payments.

They cover council tax and utility debts as well as personal debt such as credit cards, and must be set up by a registered ‘competent authority’.

The announcement from the Insolvency Service is the latest intervention by the Government to try and help people deal with problem debt. 

Last Tuesday the so-called ‘Breathing Space’ scheme was opened up to those in debt, allowing as many as 700,000 people to stop the clock on certain debts for 60 days.

Meanwhile in the 3 March Budget the Government said it would allocate £3.8million for a pilot of no-interest loans, aimed at helping those with large interest-bearing debts they could not afford to service.

What debt solutions are available? 

Here are some of the terms readers should know in order to get to grips with the conversation around debt:

– Debt Management Plan: an informal agreement for paying back non-priority debts (meaning things like council tax and mortgage bills are excluded) in one monthly payment, for those not struggling quite so much that debts need to be written off. Interest and charges on debts are often frozen during these. They can be free or fee-charging

– Bankruptcy: For those who owe at least £5,000 and have no means of paying it back. Costing £680, it amounts to a declaration that someone can’t pay back their priority and non-priority debts.

– Debt Relief Order: Those who owe less than £20,000 and have a disposable income of less than £50 each month leaving them unable to pay their debts can apply for one of these. These figures could be changed to £30,000 and £75, under proposals from the Insolvency Service. 

It comes with a £90 upfront fee, which regulators warned proved a ‘significant barrier’ to some, usually lasts for a year and can see debts included in it written off afterwards.

Individual Voluntary Arrangement: These have boomed in popularity in recent years amid fears they are being mis-sold as ‘life hacks’. These charge upfront fees of around £5,000 on average and see borrowers signed up to formal and legally binding debt repayment plans which can last for five to six years.

They are usually only recommended for those with more than £10,000 in debt.

Source: Citizens Advice

The changes to DROs were largely welcomed by charities and debt advisers, who said the changes were ‘timely’ due to reductions in some peoples’ incomes during the pandemic.

Sara Williams, a debt adviser who writes the blog Debt Camel, said: ‘The changes are good news – these limits had been left unchanged for years so DROs were becoming less useful. 

‘A lot more people may need DROs if the pandemic has decreased their income, so the changes are timely.’

However, she noted the £90 fee could be problematic for those with large debts with little spare money.

Peter Tutton, head of policy at the debt charity StepChange, added: ‘We are pleased to see the Insolvency Service confirmation of increases to the asset limits that will enable more people to access Debt Relief Orders.

‘DROs can act as a valuable form of “reset” from debt for some people, and are likely to be particularly useful in the wake of pandemic debt.’

There were 2.4million British adults in problem debt at the start of this year, according to StepChange figures, with as many as 11.3million still suffering from the impact of the coronavirus pandemic on their incomes.

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American Express to cut cashback on its credit cards by as much as 50%

American Express cuts cashback on its market-leading credit cards in half from this week: Should customers head elsewhere?

  • Amex offers fee-free and £25-a-year cashback credit cards paying up to 1.25%  
  • The payouts will be cut back depending on how much is being spent 
  • Those who spend between £5,000 and £10,000 on the free card are most hit
  • The cards remain the best cashback deals around 

American Express and its market-leading cashback credit cards are getting a little less generous, with the provider slashing how much customers earn by as much as 50 per cent in some cases.

Payouts on the free American Express Platinum Cashback Everyday and £25-a-year Platinum Cashback credit cards can currently total hundreds of pounds a year with cashback rates of up to 1.25 per cent.

However, from 4 August, cashback rates will be cut.

American Express is cutting the cashback paid on some of its credit cards

The free card currently pays 0.5 per cent on up to £5,000 a year and 1 per cent cashback on spending above that. However, under the changes all spending of up to £10,000 will only earn 0.5 per cent.

Spending above £10,000 will net the same return, but those who spend between £5,000 and £10,000 could see what they earn halve.

Meanwhile, the £25-a-year card currently pays 1 per cent on spending of up to £10,000 a year, and 1.25 per cent cashback on spending above this. But following the changes, the cashback earned on spending of up to £10,000 will be cut by a quarter to 0.75 per cent.

Both cards come with generous sign-up bonuses of 5 per cent cashback on purchases made within the first three months, capped at £125 for the paid-for card and £100 for the fee-free version. These are unaffected by the changes.

But despite the cuts eating into cardholders’ returns, Rob Burgess, editor of frequent flyer website Head for Points, said they did not make a substantive difference to the cards.

‘These cuts don’t change our view of which card is best’, he said. ‘The break-even point remains at £10,000. Put another way, if you spend more than £10,000 per year, you should pay the £25 annual fee. If you spend less than £10,000 per year, it isn’t worth it.

‘Stick with the free Platinum Cashback Everyday card.’

How do the Amex credit card cashback changes stack up? 
Card  Old cashback on £5,000  New cashback on £5,000  Old cashback on £10,000  New cashback on £10,000  Old cashback on £20,000  New cashback on £20,000 
Platinum Cashback £25 £12.50  £75  £50  £200  £175 
Platinum Cashback Everyday  £25  £25  £75  £50  £175  £150 
Santander All in One Mastercard N/A  £-11  N/A  £14 N/A  £36 
Barclaycard Rewards credit card  N/A  £12.50  N/A  £25  N/A  £50 
Source: This is Money/Head for Points (figures are net including fees) 

Spending £5,000 would earn £12.50 on the £25-a-year card after the fee was taken into account, and £25 on the free card, despite the lower cashback rate.

Spending £10,000 would earn £50 after fees, and the same sum on the fee-free version. But spending £20,000 would earn £175 on the Platinum Cashback card, compared to £150 on the Everyday card.

He added: ‘These are still good cards, despite the cut in the cashback rates. However, low spenders have less to get excited about.’

The Amex cashback cards feature in This is Money’s guide to the best credit cards and both remain among the most generous offers around. The only comparable deal is offered by Santander.

Its All in One Credit Card Mastercard pays 0.5 per cent cashback on purchases, and offers a range of other benefits, but comes with a monthly fee of £3, or £36 a year.

Meanwhile Barclaycard, which has been in the headlines in recent weeks for announcing drastic cuts to borrowers’ credit limits, offers a card which pays 0.25 per cent cashback on all purchases. It also comes with fee-free overseas spending and an APR of 22.9 per cent.

By contrast, the fee-free Amex has an APR of 22.2 per cent and the £25-a-year one 27.3 per cent.

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The British buy now, pay later firms: AppToPay, Butter and Curve

Swedish checkout credit colossus Klarna is not just Europe’s most valuable start-up at an estimated $31billion, it’s a verb too.

Rather than pay for something upfront using their debit card or put a big purchase on a credit card, increasing numbers of shoppers, especially younger ones, instead choose to ‘Klarna’ it.

That can mean paying for their clothes shop a month after they have purchased it, or spreading the cost over three, four or more weekly or monthly instalments with the promise of no interest.

Buy now, pay later platforms have signed up millions of users with offers of interest-free checkout credit

Although a small percentage of the online credit market, the buy now, pay later sector has been booming, and others wants a slice of it, however controversial it has proven to be.

Household names like John Lewis, Marks & Spencer and Next have built or are in the process of building their own in-house deferred payment schemes, while retailers both on the high street and online have partnered with the likes of Klarna, PayPal, and Antipodean imports Clearpay, Laybuy and OpenPay.

And even if most of the providers which populate checkouts are imports, there are several home-grown versions which, even if you haven’t heard of them, are hoping to cash in on the checkout credit craze.

These are Doncaster-based AppToPay, London-based Butter and Curve, which is based in Bristol and London. 

How do these firms differ and what are there unique selling points? This is Money takes a look: 

Butter: The ‘original’ British buy now, pay later provider

Claiming to be the original British BNPL provider, Butter, which comes with the tagline ‘spread the cost’, started life in 2017 as a service aimed primarily at travellers.

Founded by Timothy Davis, Nik Haukohl and Stefan Hobl four years ago, the company was previously called Pay Monthly Travel and then Sploor, and allowed borrowers to spread the cost of flights.

It still offers this, along with holidays, with breaks to the likes of Berlin, Istanbul and Oslo marketed as being available for under £20-a-month. 

A return flight to Amsterdam from London Heathrow would cost £162.66 return, paid back over 10 instalments of £16.26 each.

Butter began life as a company called Pay Monthly Travel, and still lets borrowers spread the cost of flights over monthly instalments

Butter began life as a company called Pay Monthly Travel, and still lets borrowers spread the cost of flights over monthly instalments

Butter co-founder and chief executive Timothy Davis

Butter co-founder and chief executive Timothy Davis

However, with the coronavirus pandemic leading to a widespread grounding of international flights and a boom in online shopping, the company changed tack.

In July 2020, it changed its name to Butter, embraced the instalment checkout credit model which has become well-known thanks to the likes of Klarna, and raised £15.8million at the end of last month.

Although a relatively small and likely unknown name, with assets of just £2.06million at the end of 2019 per its latest accounts, it has already struck deals with some big high street names, including Argos, Asos, Currys PC World, IKEA, Smyths Toys and Zara.

Unlike some better-known BNPL providers, however, Butter cannot be used as a payment option on retailers’ checkouts. Instead, users must download a mobile app and make purchases through there.

They can be spread over two, three or four instalments, and affordability checks are carried out beforehand with users having to provide their bank details through open banking and the reference agency Credit Kudos.

It charges no interest but late payment fees will see borrowers charged £12.

It has now pivoted into offering interest-free credit to shoppers in partnership with retailers like IKEA and Zara

It has now pivoted into offering interest-free credit to shoppers in partnership with retailers like IKEA and Zara

AppToPay: The Doncaster-based family business

Founded in 2018 in Bawtry, a market town just south of Doncaster, AppToPay is a credit card and loan hybrid which developed out of a family clothing shop called Robinsons.

The concept, founder James Jones told This is Money, came from trying to sell ‘considered purchases’ like £1,000 Mulberry handbags ‘for people with steady incomes who don’t have a lump sum’ to hand.

After an affordability check, again carried out through Credit Kudos, borrowers would be allocated a credit limit of up to £2,000, like a credit card. 

AppToPay founder James Jones

AppToPay founder James Jones

AppToPay was launched after the experience of James Jones's family business, clothing shop Robinsons, in Yorkshire

AppToPay was launched after the experience of James Jones’s family business, clothing shop Robinsons, in Yorkshire

However, all repayments are done on fixed monthly terms, of between two and 12 months, depending on how much borrowers can afford to pay back each month.

AppToPay is also fairly transparent with the potential drawbacks of missing payments, detailing at the bottom of its website that missed payments are subject to a £12 fee and ‘all options other than an outright payment have a potential risk of damage to a credit score’.

AppToPay works as a hybrid between a credit card and a loan

AppToPay works as a hybrid between a credit card and a loan

The company is regulated by the Financial Conduct Authority, and also bestows Section 75 credit card-style protections on borrowers, something This is Money reported could be more widely rolled out to the buy now, pay later sector.

Commenting on the more overt warnings on the site, Jones told This is Money ‘people should be able to make an informed decision about what they’re purchasing, both with AppToPay and the goods’.

The scheme is currently in a trial stage solely with Robinsons, with over 6,000 applications over the last two years, according to Jones, although not all are accepted as the trial is being ‘funded off our own back’.

Although it is app-based, it is only available on in-store purchases, after which the app is downloaded and the purchase made through that, a process which takes ‘about 25 seconds’.

He added: ‘we’re in rapidly progressing talks with a number of potential investors and strategic partners to allow us to expand our offering to consumers’, but said he was unable to disclose more details at the moment.

Curve credit: The latest card in the wallet

Curve launched in 2016 and has become best-known as the ‘card which lets you use multiple cards at once’. 

At one point, briefly, it even became a way for people to use American Express cards in spots which otherwise did not accept Amex.

Since then it has broadened its product range, offering premium and metal cards with monthly fees and extra perks, and enabling people to rewind purchases in order to purchase them with a different card.

Curve lets users load multiple cards onto one app and choose which one to sync with a physical card

Curve lets users load multiple cards onto one app and choose which one to sync with a physical card

It is now trialling Curve Credit, which will let people pay back purchasers in instalments

It is now trialling Curve Credit, which will let people pay back purchasers in instalments

Now, in order to muscle in on the pay later scene, it is trialling ‘Curve Credit’, which will allow ‘customers to split any transaction into instalments with a single tap’. 

Prospective customers can currently only join a waitlist, which does not require them to be a Curve customer.

Details remain fairly thin on the ground, but, according to Techcrunch, borrowers will either owe money back to Curve after making a purchase on the card, or to a different lender in a marketplace-style model.

The app-based card provider had 2million customers at the start of this year, although there has been persistent controversy over how many of them use those cards regularly.

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Barclaycard under pressure to reverse credit limit cuts for steady customers

Barclaycard customers have called on it to reverse heavy-handed credit card limit cuts hitting cardholders whose financial circumstances have remained steady – or even improved – over the last year.

This is Money received a deluge of responses from readers by email and on social media after we reported on the growing backlash against the credit card provider yesterday.

Credit limits have been slashed by more than 90 per cent under the guise of ‘responsible lending’ but it increasingly appears the company applied a one-size-fits-all approach to borrowers.

As yet more cases of seemingly illogical credit limit cuts to customers whose finances remain steady and have never been checked emerge, This is Money is calling on Barclaycard to reconsider. 

Hundreds of Barclaycard customers have contacted This is Money to say their credit limits are being cut

Of the more than 400 responses we have received since Monday morning, many are from customers who said their spending power was being cut back despite them never having had problems before or suffering a loss of income.

And while the lender has said in certain circumstances they can appeal the decision by providing details of their income, customers told us this information had never previously been requested.

Others were told by Barclaycard that it was cutting their limit due to the coronavirus pandemic’s effect on people’s finances, but then had the credit card firm admit that it had never checked on their financial situation. 

‘They’ve never checked my financial status in 23 years’ 

Mark Gough, 65, told This is Money: ‘I got the letter from Barclaycard last week advising my limit of £14,600 is being reduced in May to £1,850, hardly enough to book a decent holiday.

‘I’ve had the card for 23 years and in all that time they’ve never checked my financial status. I retired in 2017 after working for a bank and, ironically, my wife and I are now more comfortable financially than we’ve been for years.’

Personal finance blogger Lee Silsby said his credit limit had been cut from £16,100 to £500, a reduction of 97%

Personal finance blogger Lee Silsby said his credit limit had been cut from £16,100 to £500, a reduction of 97%

He added: ‘I plan to respond to the letter with the information they’ve asked for which will take me some time and cost in printer ink. I will be intending to pursue them to the Ombudsman until, and unless, I get my full limit back and compensation for my time and efforts dealing with them.’

Another customer, Claire Davenport, said: ‘I have recently had my Barclaycard limit reduced from £9,100 to £6,900 despite the fact that I am about to go back to work on the same number of hours as I used to do.

‘I have also been able to manage on part furlough before this and have never missed any Barclaycard payments or had to have payment holidays.’

This is Money and our sister title Money Mail have reported since last Wednesday on the fact many borrowers who have had their credit limits cut by huge sums have never missed payments or struggled to make them, despite the coronavirus pandemic.

Emma Hasler, from Cambridgeshire, was told her credit limit was being cut from £5,700 to £250, a fall of more than 95 per cent.

‘I’d been with them for eight years with no problems and no missed payments’, she said. ‘I’d never maxed out the card and had always used it responsibly. I spent about £1,000 at most, and at the time they reduced my limit I had £100 on the card. It was a card for emergencies, £250 won’t cover much.

‘I don’t know what they’re playing at.’

What can you do if you’re affected? 

Those affected by the Barclaycard credit card cull fall into two categories. There are those who have been told they can appeal the decision if they provide the bank with up-to-date information about their incomes, and others who cannot.

For the first group, the matter is quite straightforward if they wish to try and keep their Barclaycard limit. They can write to the bank and argue why the decision should be reversed and their old limit given back to them.

However, there is no guarantee this would be successful.

For the latter, they can either accept the decision and keep a card with a lower credit limit, or go elsewhere.

Some Barclaycard customers told they could appeal decision by sending in proof of income

Some Barclaycard customers told they could appeal decision by sending in proof of income

If they wish to go elsewhere, the best thing to do first is either to clear the balance off of their Barclaycard or transfer it to an interest-free balance transfer deal, with term lengths of as long as 29 months available. However, transferring a balance does incur a fee.

The best available deal in our guide, from Virgin Money, charges 3 per cent on the amount of money being transferred over.

If someone wishes to apply for a new card, it is first of all worth checking their chances of eligibility.

The likes of ClearScore and Experian offer this, which allows applicants to see how likely they would be to be accepted for a card without carrying out a formal application which shows up on a credit file.

Experian also offers a service for some card providers which lets applicants see if they’ll get a high enough credit limit to cover their balance transfer which, given what has happened with Barclaycard, may be worth checking out. 

Sara Williams, a debt adviser who runs the blog Debt Camel, added: ‘So many customers have had their limits slashed that Barclaycard don’t seem to be targeting people in financial difficulty specifically. 

‘But some people affected will be struggling. If this is you, this is a good opportunity to talk to a debt adviser such as StepChange about your options – getting the interest frozen on credit card debts could take a lot of the pressure off.’

She added: ‘If your limit had been stupidly high before and this has caused you a lot of trouble over the last few years you may have good reason to make an affordability complaint and ask for a refund of the interest you have paid.’ 

The bank blamed the economic impact of the coronavirus for its decision to cut the credit limits of more customers over the last 12 months.

However, the average UK Equifax credit score actually increased 11 per cent to 398 out of 700 between March 2020 and March 2021, according to the credit-checking service ClearScore.

This is largely because things like mortgage and credit card holidays did not hit customer’s credit files.

However, the cutting of credit limits could do, because a higher utilisation of a card’s limit may suggest a reliance on debt and a need to max it out.

Their letter stated it was due to other debts and the way I used the card. During the pandemic I have reduced my other debts and the way I use the card hasn’t changed for years. I’m absolutely disgusted

Tim Brunsden, Barclaycard customer 

Tim Brunsden, a Barclaycard customer of 35 years, said: ‘I have had the limits on two credit cards reduced, one from £12,500 to £3,500 and the other from £8,000 to £3,000.

‘Their letter stated it was due to other debts and the way I used the card. During the pandemic I have reduced my other debts and the way I use the card hasn’t changed for years.

‘I’m absolutely disgusted.’

Emma Hasler and many others have decided to pay off their debts and cut up their cards in protest at the changes. However, others are choosing to fight their corner and to regain their old spending power, by providing Barclaycard with details they insist it has never previously asked for.

Some who are also customers of Barclays, its parent bank, wondered why they needed to provide this information to the company in the first place and why it did not have it on file.

Barclaycard said: ‘We use our data, and data held by credit reference agencies, to review each customer’s individual financial circumstances when we make a lending decision.

‘If customers feel they can afford a higher limit than communicated, we have provided information on how to appeal the decision by verifying their income.

‘We have extended the amount of time to provide us with the relevant documents from 30 days, until then end of May – no limits will be reduced before then.’

‘My limit is being cut below my current balance’  

And affected customers also hit back at another part of Barclaycard’s defence of its actions. 

It told This is Money: ‘When we reduce a customer’s credit limit, we will not reduce it to below their current balance, and we will ensure that they at least have sufficient headroom on their account to continue essential spending.’

It added some customers would be unable to appeal the reduction because their new limit was higher than their maximum balance in the last 24 months, which covers a period when spending slumped as a result of the pandemic.

However, several people affected have said their limits are being reduced to below their current balance. Although Barclaycard in January waived a £12 fee which would penalise those going over their limits, this has left them angry and frustrated.

One customer from London said: ‘My balance was nearly £900 and they were taking my limit down to £250. 

‘The advisor told me I’d be contacted to encourage me to pay it off.’

Amy Forster, another person whose income has increased in recent years, said: ‘I have received a letter, stating that my credit limit will be decreased from £4,000 to £450. What’s even more annoying is that my balance is £513.

‘In order to maintain a good credit score, I like to use below 50 per cent of my credit limit and now it seems like they’re just looking to take that away from people and/or cause financial difficulties for their customers.

‘I did try to speak to them on the phone about this, but I honestly just felt like I was being fobbed off and given excuses. I’ve yet to submit my payslips for this to be re-evaluated, given that I earn more now than I did when they approved me for a £4,000 limit.’

Barclaycard again denied any such reductions would take place. 

It added: ‘When we reduce a customer’s credit limit, we will not reduce it to below their current balance, and we will ensure that they at least have sufficient headroom on their account to continue essential spending.

‘It’s important to note that credit limit decreases do not take place immediately. 

‘Therefore, some customers may have recently spent money on their account – after we calculated their maximum account balance – which means that their current balance is higher than the credit limit communicated.

‘We want to reassure these customers that their limit will not be reduced to below their balance – there are checks in place before the limit decrease comes into effect, which automatically prevent that from happening.’

Some links in this article may be affiliate links. If you click on them we may earn a small commission. That helps us fund This Is Money, and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to affect our editorial independence.