What can you do if a creditor is still adding interest when they have been asked to stop?
This can happen if you have a payment arrangement. It also sometimes happens, but much more rarely, in a Debt Management Plan (DMP).
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. And 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 UK lenders says they should treat a customer in financial difficulty fairly.
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.
You may think “Consider” sounds a bit vague. Perhaps a lender will 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 Financial Ombudsman (FOS).
If you are in financial difficulty, lenders have to consider freezing interest so you are protected from escalating debt.
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.
Many people will find all their creditors have frozen interest. But it’s best to be sure.
If one hasn’t, your DMP firm may 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.
COMPLAINT re account number 9999999
If you asked for a payment arrangement, say:
I have asked you to freeze interest and not add any charges to my account. You know I am having financial difficulties, but you are still charging interest or adding charges to my account.
or if you are in a debt management plan, say:
You have been asked by xxxxxx who are operating my Debt Management Plan to freeze interest and not add any charges to my account. The FCA says in CONC 1.3 that being in a debt management plan may be evidence of financial difficulty. But you are still charging interest or adding charges to my account.
The majority of my creditors have agreed to freeze interest, and are not adding charges.
Say either
The monthly payments that I can afford are not enough to cover the interest you are adding, so my total debt to you is increasing each month.
or
Your refusal to freeze interest is prolonging the time it will take me to clear my debts unreasonably.
Continuing to add interest is not fair. And it is a breach of the Consumer Duty as you have already been told that I am in difficulty.
I am asking you to reconsider your decision so that you freeze interest and stop adding charges to my account.
I would like you to refund the interest and charges you have added to my account since [I set up the payment arrangement with you/I entered a debt management plan].
If this complaint has to go to the ombudsman, I will also be asking for compensation.
Thank you for your assistance,
Your name
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.
Success stories
Well worth complaining
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
One reader asked Lloyds for a refund in 2018:
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!
Recent problems settled simply with the lender
Lenders have improved how they handle DMPs. If interest isn’t stopped, it’s often just an admin mistaker by the lender, not a deliberate decision.
In 2022, someone had interest still being added to their Sainsuburys credit card. 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 StepChange DMP. So I suggested making a formal complaint to the lender. Then they got a reply saying there had been an error and interest should not have been added. Sainsburys removed the interest added since the start of the DMP from the outstanding and offered £100 in compensation.
In 2024, Virgin carried on adding interest in a Payplan DMP. The customer complained and the interest was removed from the balance.
But 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. 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.
Here are a couple of cases where the Ombudsman told the lender to refund the interest it had been adding:
More Debt Camel articles:
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Can you get a refund for these loans?
Could a Debt Relief Order help you?