Borrowers in financial difficulty are being left at the mercy of debt-collection agencies because lenders are refusing to negotiate repayment plans, an investigation by Times Money has found.

Debt-repayment plans — where a borrower arranges with creditors to make smaller, more affordable monthly loan repayments — have been a lifeline for 700,000 borrowers as the economy has worsened. About four million people are expected to need advice on how to manage their debts this year, according to National Debtline, as the recession takes its toll on household finances.

However, it is entirely at the lender’s discretion to agree to a debtrepayment plan, which often includes a freeze on interest and charges. Most will do this, knowing that the borrower would struggle otherwise, but some lenders are proving to be less than sympathetic.

Nationwide, Britain’s biggest building society, and the state-backed Northern Rock and Halifax are among the least co-operative, according to debt advisers.

Chris Jary, of Action for Debt, a debt counsellor based in Co Durham, says: “Northern Rock is one of the worst for harassing borrowers. They do not listen to people’s individual circumstances or take into account the customer’s other debts. Halifax is also particularly bad.”

A repayment plan is normally arranged by a debt charity, such as the Consumer Credit Counselling Service (CCCS). The Banking Code, to which all banks and building societies must adhere, clearly states that lenders should co-operate with a debt charity.

Section 14 of the code states to customers: “We will be sympathetic and positive when we consider any financial difficulties that you may have. If you ask us to, we will work with debt-counselling organisations, such as Citizens Advice or the Consumer Credit Counselling Service.”

However, experts say that the code is too vague, resulting in a wide variation between how lenders treat customers struggling with unsecured debt. Alex MacDermott, a creditor liaison officer at Citizens Advice, says: “Creditors do things differently and have different minimum payment levels. One might want a set percentage of the balance repaid each month, while others, such as Capital One, will accept any offer that is based on reasonable expenditure.

“It would make a big difference if all creditors stuck to an industry standard and treated customers fairly, for example by stopping adding to the debt through interest and charges.”

In April this year, a new agreement between the Government and the Credit Service Association stated that debt-collection agencies should wait 30 days to pursue debts once they have been informed that a debt adviser, such as CCCS or Citizens Advice, is handling the case.

However, once those 30 days are finished, it is at the lender’s discretion as to whether or not it accepts the debt adviser’s proposals on behalf of the customer.

Sarah, who asked for her name to be changed, is one of the millions of people struggling with unsecured debt and claims that one of her creditors, Northern Rock, is harassing her on a weekly basis.

Sarah got into financial difficulties after her husband was forced to stop working because of health problems. He now requires a full-time carer while he waits for a kidney transplant, so she had to leave her job to look after him and their three children.

After struggling to repay her debts, she entered into a debt-repayment plan arranged by Vincent Bond, a debt adviser. Six of her creditors agreed to the proposals and stopped charging interest, including Barclaycard, American Express and MBNA. However, Northern Rock refused to acknowledge the plan.

Sarah says: “We owe £30,000 to Northern Rock because we took out an unsecured loan alongside our mortgage. We have paid £118 to them every month for the past year, which is all we can afford. But we are still charged interest and they write and phone us every week demanding more money.”

Many lenders will sell on debts to a debt collection agency, whose agents usually receive about 30 per cent of what they collect as commission. Some agencies will therefore harass borrowers, with constant calling and threats of legal action and bailiffs.

But Tom Howard, of the CCCS, says: “A borrower can repay only what they can afford. If a debt-repayment plan has been properly devised by a debt charity, and the creditor still refuses to co-operate, the borrower should continue making the monthly payment outlined in the plan. Do not be bullied into paying more.”

Paul and Amanda Davis, from Hartlepool, entered into a debt repayment plan arranged by CCCS after accruing £50,000 of debt. All five of their creditors agreed to the plan except Nationwide, which continued to charge the couple 16.9 per cent interest on their £7,000 credit card debt until Times Money intervened this week.

Mr Davis, 39, says: “We can afford to pay only £126 per month, but Nationwide kept insisting that we pay £160. Its debt collection agency, KPR, regularly phones us and threatens to take out a county court judgment (CCJ) against us. It has made an already stressful situation much worse.”

A lender may try to take out a CCJ, as well as a charging order, if the borrower continues to be in arrears. A charging order allows the creditor to secure the debt against the borrower’s property, meaning that if the debt is not repaid, it could lead to repossession. However, there must be a hearing in the county court before a charging order can be made.

Mr Howard says: “If the matter does go to court, this may be a good opportunity for the borrower to put forward their case and explain why it is impossible for them to pay more. The court will decide on fair repayment terms.”

National Debtline 0808 8084000

CCCS 0800 1381111

Citizens Advice Find your local bureau at www.citizensadvice.org.uk