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No one really knows how many debt advice websites there are on the net and whilst most adhere to the strict OFT guidelines on debt management, too many don’t.

There is nothing wrong with debt provided it is well managed and it has become a perfectly normal part of everyday life. For those that become ‘over indebted’ however, it can become a serious problem.

Read more: 7 point guide to spotting a dodgy debt advice website!

 

A guest blog by Katie Ford

All five epidodes of the new BBC 1 morning show My Worst Deal.

The series looks at the surprising financial dealings of financial bodies from the Big Banks to loan sharks. On Twitter, a lot of people were commenting on just how absurd it was that people were fooled by these deals, but when people are in the deepest, darkest of places, these deals can seem like the silver lining they’ve been hoping for.

Read more: My Worst Deal

 

It is surprising how many times I get asked this question!

If someone has debts in their name only then they are the only one that is responsible for it.  For debts that are in joint names, then in the event that one person cannot pay then the other named person is responsible for the full amount outstanding. It is not split 50-50 just because it is joint names.

Read more: Am I responsible for my partner’s debts?

 

At last the OFT is to review the payday loan industry after previously giving it the green light back in 2009.  After that decision we saw a colossal growth in the industry, which basically paved the way for payday lenders to charge the interest rates and late payment charges that they wanted to.  It also opened the doors to lenders from the US to come over here and fleece our consumers.

Read more: Payday loans are banned in the US, capped at 48% in other countries, why not here?

 

According to the Council of Mortgage Lenders (CML) 35,200 homes were repossessed last year, the lowest since 2007, news that should have us all jumping for joy.

All I ask is this, ‘Are we being complacent thinking that at least things are not as bad as they were in 1991 when 75,500 homes were repossessed?

Back then we never had schemes such as ‘Sale and rent back’ (SAR) and the ‘Mortgage Pre-action Protocol.’ Nor did we have a three year run of 0.5% interest rate!

The impact of ‘Sale and Rent Back’ Schemes

Let’s look at is the number of homes being sold by families to private landlords under 'Sale and Rent back’ (SAR) schemes, often referred to as ‘flash sales’. Now these schemes weren’t around in 1991 when house repossessions peaked at 75,500 but in 2008 the Office of Fair Trading (OFT) reckoned there were over 1,000 firms, plus a number of non-professional landlords who had conducted about 50,000 SAR transactions.

That was over three years ago so how many homes last year were sold under SAR  to avoid repossession and which don’t appear on the CML register ?

Government backed scheme

The Mortgage Pre-action Protocol, which commenced back in 2008, is one example of a government backed scheme which could act as a delaying factor in eventual repossession for some home owners, just postponing the inevitable and adding further debt and eventual repossession through deferred payments.

Credit card and redundancy payers

To add fuel to the argument, research by Shelter shows that an estimated two million people are using their credit cards to meet their current mortgage and rent commitments. And don’t forget those who are paying the mortgage from their redundancy pay.

Three year historic low interest rates

Many more households would have had their homes repossessed if Bank of England interest rates were at the same levels as in 1991 at the height of repossession figures, 13% in February dropping to 10.5% by September, compared to the current three year run of the Bank Rate being at 0.5%.

How many mortgage holders are there on Tracker and Standard Variable Rates (SVRs) paying around a third of what normal payments would be because of the current low Bank of England rate?

The positive side however is that are taking advantage of low interest rates and paying over the top each month in order to get their mortgage down and so they won’t be complaining.

But how many home owners are doing this and how many are twitching every time the Monetary Policy Committee meets to decide whether rates should go up and more to the point, where would the housing market be if we had interest rates comparable to those back in 1991?


Read more: House repossessions dip thanks to low interest rates but are we getting the real picture?

 

It’s hardly surprising to hear that consumer bankruptcies are down and everyone seems to be mystified as to why. I have a pretty good theory; it’s because of the ridiculous cost for an individual to find to go bankrupt, currently £700.

This coalition government increased the cost to go bankrupt by 37% back in March 2010 which has made it impossible for many thousands of consumers that need to go bankrupt as they cannot fund any other debt resolution such as a debt repayment program of an Individual Voluntary Arrangement (IVA).

Some debt experts are saying that Debt Relief Orders are to blame as more people are turning to these. I agree to a point but not everyone can propose a DRO as they fail to meet the qualifying criteria. You are barred from offering a DRO is you have unsecured debts above £15,000, have assets worth more than £300, have disposable income to offer on your debts above £50, own a car worth more than £1,00 or are a house owner, irrespective if the house is in negative equity.

More of a concern is that the DRO level of £15,000 was set EIGHT years ago, what about the upturn of consumer indebtedness and inflation?

With unemployment levels at the highest for 17 years and more house repossessions likely, there will be an increasing need for some to be able to petition for bankruptcy. Ironically the extortionate fee prevents many from doing so.

The CAB have said that around 40% of the people they see that need to go bankrupt cannot afford the fee, the CAB are currently handling just under 9,000 NEW debt cases every working day.

I don’t believe tax payers would need to foot the bill of reduced fees because bankrupts actually do contribute to the cost of administering their case. All bankrupts are assessed to see if they can make any payments under an Income Payment Agreement (IPA) which is a legally binding written agreement between the bankrupt and the Official Receiver. The IPA runs for a period of 36 months, initial payments cover the cost for the administration of the bankruptcy order, after which creditors receive a dividend of the surplus funds.

Between 2007 -2010, 54,889 IPAs were implemented. These do not account for the sale of any assets such as vehicles or homes that belonged to the bankrupt, so in fact the Government does actually make quite a bit from bankrupts!

I wrote to the PM re the fees and am pleased to say that changes are afoot in the way consumers pay the fees, I have just participated in a 139 page consultation of a review of consumer bankruptcy, although I like what’s coming the downside is that there will not be much of a reduction in the fee, just a bit time to help find it!

The last debtor’s prison shut in 1869; that’s 143 years ago. Society, culture and attitudes have moved on, perhaps the government needs to as well.

More insolvency stats


Read more: Should tax payers foot the bill to pay for consumers to go bankrupt?

 

When personal data goes missing it’s just not good enough for a firm to simply write to customers saying “sorry, we have lost your personal data and here’s a website where you can learn about how you are at risk of identity fraud or theft if the data falls into the wrong hands. Read article Are consumers at risk as more Personal data goes missing?

This is it what Welcome Finance and Shopacheck have done following the loss of two tapes containing such data. If they have fallen into the wrong hands then this is a major concern as identity fraud is one of the fastest growing crimes in the UK, so what more should  they be doing about it?

I looked at the Shopacheck and the Welcome Finance websites today and there is nothing about the data loss so any new customer looking at the site will be unaware of their problems.

According to one Shopacheck customer who has been in contact with me, the lost data contains names, address and dates of birth, telephone numbers and payment records. It seems that she, like all Shopacheck customers, and I suspect those of Welcome Finance, are being referred to a website www.identitytheft.org.uk and my initial thought was, so far so good.  But then the website mentions quite a lot about fraudsters and how you can be targeted if you have been a bit relaxed with your data but it could do more to promote and explain better how the consumer can get increased protection if they sign up to CIFAS (Credit Industry Fraud Avoidance System) or a credit agency.

My source also said that she had previously given Shopacheck her National Insurance number and in my book that’s more or less everything needed to start cloning someone’s identity. We are not talking about a low number of consumers here - 1.4 million could be at risk!

In my view it would be better for these two firms, and any other organisation come to that which loses data, to be made to pay for a year’s subscription for each customer to CIFAS and to membership of one of the credit reference agencies that sends an alert if the credit file has been accessed.

So apart from having to post presumably 1.4 million second letters at a cost of £504,000 do these two firms have the money to pay for this, and should they? I say yes to the latter. A free helpline, on 0800 8406 563, has been set up for customer.

If you are worried about identity fraud, and I would be in this case, then see our simple do’s and don’ts to help protect yourself, which can be found here.

Read more: Lost Data, should firms be forced to pay for customers’ credit reference and fraud preventive...

 

It is just total madness to pay a mortgage or the rent using a credit card or other form of credit such as a payday loan, personal loan or overdraft.

I fully understand that people who have resorted to this are desperate, wanting to ward off the threat of repossession or eviction but in fact, if owned, they could be putting their home further at risk by doing so.

This is because any credit card provider, payday lender and bank can apply to the County Court to have their debt secured on the property of the borrower should he or she fail to make the payments.

Therefore, failing to pay your unsecured debt if you are a house owner could lead to your lender forcing you to sell your home so it can recover the money owed.

Everyone is affected

According to Shelter, millions of people have resorted to paying their mortgage and rent in fear of being repossessed or evicted from their property and we are not just talking about those on low incomes; this has also hit the middle classes and other more affluent households.

There are three government schemes that could help people who fall behind on their mortgage payments and you can find out more about these on the DirectGov website and from organisations such as Shelter and Citizens Advice.

If you are behind with your rent

If your rent is not paid, the money owed is called 'rent arrears'. Rent arrears are 'priority debts', which means that the consequences of not dealing with them can be serious - there will be a risk of eviction.

Read more about what rights renters have against repossession

Read article - A staggering 'seven million people' are putting their home at risk

Read more: Would you take on a mortgage at a 20% interest rate or pay your rent on credit?

 

Using the last three quarters’ insolvency numbers, PKF Accountants predict that 20,000 more Scots will go bust this year, warning that even those Scots who feel they are relatively comfortable could also be at risk through unexpected redundancy and extra squeezes on their finances through the ongoing downturn in the economy. PKF refer to those who can only pay the interest on their debts each month as 'zombie' debtors as any slight change in their circumstances means they are likely to be plunged into insolvency.

PKF also predict that around 25 Scottish firms a week will go bust this year as the latest business insolvency figures for the third quarter of 2011 saw the number of companies becoming insolvent rise by nearly 50%  compared to the same quarter of 2010.

Not all doom and gloom though, on a positive note at least the Scottish consumers have a decent Insolvency and debt repayment program which in my view is far more advanced than that which we have in England and Wales.

For a start, it only cost £100 to go into sequestration, the Scottish term for bankruptcy, as against £700 here in England. They also only pay for three years under a Protected Trust Deed (PTD) the Scottish equivalent to our Individual Voluntary Arrangement (IVA) where here the payment term is at least five years and which some cheeky lenders stretch it to six.

The Scots also have legal protection when entering into a debt repayment program under the Scottish Debt Arrangement Scheme (DAS), something we are sadly lacking somewhat back in England and Wales.

News article - The rise of the Scottish 'Zombie' debtor

Read more: Despite the expected rise in Scottish insolvencies, it’s not all bad news up there

 

As far back as July 2009 the OFT decided, after an in-depth look at the way payday loans, pawnbrokers and home-credit worked for consumers, to back away from recommending price controls on expensive forms of short-term borrowing. In short this was the green light for Payday loan companies to flood the market and go against the cries of many debt advisers.

The OFT has said that although this form of borrowing is expensive, it actually serves a purpose for those on low incomes needing short-term borrowing so they were wary of barring it. The OFT also felt that intervention would not necessarily address problems in this sector because controls might reduce competition and if these firms were not around then there was a serious risk consumers would go to an unlicensed money lender, a loan shark.

Why consumers take out Payday loans

There are millions of consumers who just do not plan/budget for an unexpected expense. For example, the car breaks down and money is needed to get it fixed in order to get to work or the washing machine needs replacing sooner rather than later. Many consumers I talk to say they took out such a loan to pay a pressing bill such as council tax to avoid the bailiffs calling.

The banks don’t offer short term loans other than an authorised overdraft. Payday loan companies will argue that their loans are cheaper than an unauthorised bank overdraft and yes, they are right if the payday loan is paid in full within the time frame agreed.

65 Payday loans

I know of one chap, Steve Perry, who has 65 Payday loans, each taken out to pay off interest and meet other payday loan commitments and who has now started a campaign against Payday loans. More can be found here Say No to Payday Loans

No credit checks

One of the major problems with a payday loans is that they are too easy to qualify for. All you need is to be 18 or over, have a bank account and be working. However I am hearing of cases where unemployed people are still qualifying and taking out these loans.

Because there are no affordability or credit file checks it is inevitable that many consumers will not have budgeted for the repayment of the loan and will eventually default. This means that the late payment charges, often at over 2,000% interest, can soon get out of control and be greater than the payments being made resulting in the debt growing daily!

Credit Unions

People on low incomes with a chequered credit history need to be given a level playing field and be made more aware of other means of borrowing, such as from a credit union which can be  considerably cheaper.

It just does not seem fair or justifiable for those on low incomes to have to pay extortionate rates of interest for the profit of the lender if they fall behind with their payments

Banned in the USA

Payday loans are banned in 15 states in the US because of the way lenders rack up the interest rates once a borrower falls behind with the payments. Should we think of banning them here as well?

The bottom line is that a Payday loan is really only suitable for those looking to pay back after just a few days. Beyond this the cost to the borrower can be obscene - miss a payment or two and it gets out of control. So the moral of the story is, if you need to use one, do what you’re supposed to do and pay it back in full on payday.

DebtWizard guide to payday loans, door step loans, logbook loans and loan sharks

 

Read more: Are payday loans terrible money-making schemes that prey on the desperate and the vulnerable, or...

 

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