Seonaid Sandham

As more individuals seek support and treatment for mental health conditions, it’s notable that the Scottish Health Survey 2023 and Audit Scotland’s Adult Mental Health Report 2023 report that approximately 25 per cent of Scotland’s population will face a mental health problem during their lifetime.

Additionally, recent data from Public Health Scotland indicates that mental health referrals have increased by 22 per cent over recent years, with over a third of GP consultations now related to mental health conditions.

The mental health moratorium

As the demand for mental health services grows, there’s a pressing need for comprehensive measures to address the crisis. The Mental Health Moratorium is one such initiative and it’s aimed at providing special protections from debt enforcement for individuals who are experiencing serious mental health difficulties.

This voluntary moratorium (voluntary for individuals but binding on creditors once an individual’s application has been approved) is designed to offer a period of relief. It will allow individuals to focus on their mental health recovery without the added stress of financial pressures and recovery action by creditors.

The Scottish government’s public consultation on the draft Debt Recovery (Mental Health Moratorium) (Scotland) Regulations closed in March 2025 and its summary of responses was published in July. It’s hoped the regulations will become law in the coming months. The implementation of the Mental Health Moratorium would bring Scotland into alignment with similar regulations already in place in England and Wales. However, before these regulations are finalised, stakeholder feedback is being sought and potential issues with the proposed new initiative scrutinised.

If the moratorium and its regulations are successfully implemented, it should complement the existing Moratorium on Diligence already available to individuals who seek time to consider their financial options, and which may include entering a formal insolvency process. By adopting this approach, Scotland acknowledges the importance of mental health and the need for supportive measures to assist those in serious mental and financial distress. Consequently, the moratorium is expected to provide several benefits, including reduced financial stress for individuals, improved mental health outcomes, and a more compassionate approach to debt management.

Stakeholder concerns

However, the introduction of the Mental Health Moratorium has also raised concerns among various key stakeholders. Some financial institutions worry about the potential impact on their operations and the risk of increased defaults and debt write-offs. Lenders in regulated sectors are already subject to heavy regulation in relation to the protection and treatment of vulnerable consumers.

This includes the Financial Conduct Authority’s Guidance on the Fair Treatment of Vulnerable Customers. This requires compliance with the FCA’s Principles for Business, notably to achieve good outcomes for vulnerable customers by understanding their needs, ensuring staff have appropriate skills and the capabilities to respond to those needs, and to monitor and assess whether the firm is meeting and responding to those needs. Therefore, it’s understandable that the introduction of yet another debtor protection measure is giving rise to concern.

Unsurprisingly, financial institutions are also seeking greater clarity about the qualifying criteria for eligibility to the initiative, for they are aware of the potential misuse of the moratorium (and arguably already in existence in respect of the Moratorium on Diligence).

Interestingly, it’s proposed that qualified mental health professionals will be involved in aspects of the application process. This may include to confirm an individual meets the eligibility criteria, to initiate the application process, provide necessary details to and work collaboratively with money advisers, and for the ongoing monitoring of an individual’s mental health.

However, this also raises the prospect of significant challenges for an already under pressure health sector. For example, how to handle cases where an individual is so unwell that he or she is deemed unable to decide about applying for a Mental Health Moratorium and requires the direct involvement of health practitioners. The draft regulations require an individual’s consent for an application, but more thought needs to be given to when that consent cannot be given, and the individual does not have a power of attorney in place. There are valid concerns that any new protection for debtors should not divert Scotland’s limited and stretched mental health resources from serving the wider public.

Consequently, it will be crucial that policymakers address these concerns and ensure that the finalised process and regulations are fair, transparent, and effective in balancing the rights of creditors, the protection of debtors and the available mental health resources.

Undoubtedly, there are some thorny issues which need careful consideration before the regulations are finalised. However, once the moratorium provisions are in force, the Mental Health Moratorium will represent a significant step forward in supporting individuals with mental health challenges. It will, to some extent at least, close the gap in protections for the most vulnerable individuals in crisis, tightening the loopholes which exist under current debt enforcement laws.

Seonaid Sandham is a senior associate at Shoosmiths