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Congratulations to Which? for entering their super complaint to the OFT and putting a stop to this blatant daylight robbery of consumers when making debit or credit card payments for air travel.

The amount involved is not peanuts as the OFT estimates that UK consumers spent £300 million on payment surcharges during 2009!

It is well documented that the cost to the travel company of processing  a debit card transaction is between 10 and 20p so how can retailers, and travel companies in particular, justify charging £8 for doing this?

The cost of a credit card charge to a retailer is calculated as a percentage of the value.  Which? believe the real cost of processing a credit card transaction is no more than two percent of the value of the purchase. Travel companies often base the charge on a fixed value, irrespective of the actual cost of the fare, which can lead to you paying more than the true cost.

Airline security prevents paying by cash

Due to tighter security regulations, airline passengers are not permitted to pay for travel using cash because the use of plastic enables security forces to keep tabs on passengers, an important tool in combatting terrorism.

With that knowledge it’s not surprising that airlines are able to exploit passengers by making up their own minds as to what they can charge for a transaction.

Which? also called for the travel companies to make it clearer at the beginning of the transaction what the additional charges are rather than  several pages later or sometimes, only when the consumer is about to complete the payment transaction.

My concern is that these profiteering companies will look at other ways to mug the consumer (sorry, recoup money). Like the banks, they have got used to inflated profits at the consumers’ expense, so inevitably they will seek other ways to fill their coffers.

Hopefully the government will agree to the OFT’s request to change the law to prohibit surcharging for all debit cards, bringing long term certainty for consumers and business.

All we need is transparency, a word I fail to hear in the airlines’ vocabulary.

You can read the Which? report here, Consumer victory as OFT uphold Which? super complaint

Read more: Transparency is a dirty word in the airline industry

 

So we’re off again with house repossession figures and the Council of Mortgage Lenders (CML) releasing the year’s first three months figures. Each time they do this I get on my box - I have to as no-one else raises the same concerns about the truth behind these numbers.

Are you one of the many being fooled into thinking that just because the CML are forecasting that around 40,000 homes will be repossessed by mortgage lenders by the end of this year that things are nowhere near as bad as in the 90s when over 75,000 homes were repossessed in one year alone?

Let’s cut to the chase; although the statistics are collected correctly by the CML, in my humble opinion they do not accurately reflect current market conditions and account for other factors which come into play, making the situation far different from how it appears. Here are my thoughts.

The impact of ‘Sale and Rent Back’ Schemes

The first area to look at is the number of homes being sold by families to private landlords under 'Sale and Rent back’ (SAR) schemes, or flash sales. These schemes weren’t around in 1991 at the height of the last repossession crisis when around 75,500 homes were repossessed.

Back in October 2008 The Office of Fair Trading (OFT) said, ‘It is likely that there are upwards of 1,000 firms, together with an unknown number of non-professional landlords, who have conducted about 50,000 transactions to date’.  That’s three years ago!

So do we know how many homes last year or this year that has been or will be sold under the SAR scheme in order to avoid repossession and which therefore not appear on the CML register?

Only first charge holders are recorded in the figures

Another damning factor is that the CML do not record second charge holders. These are lenders with secured loans on the property but the CML only record first charge holders, the main mortgage. Why?

CML uses old data to make the repossession figures

Another point to look at is that the data put out by the CML is technically out of date as they can only record repossessions that were finalised during the year.

It can take between 6 and 12 months to have a home repossessed, even longer now with the introduction of various government backed schemes (see below) and these latest figures for 2011 are based upon householders who experienced financial difficulty up to almost a year ago.

So all those home owners who are missing the first payment this month and can no longer meet their mortgage payment, in theory will not surface or appear on the CML register until possibly next year!

Government backed scheme

The Mortgage Pre-action Protocol, which commenced back in 2008, is one example of a government backed scheme, which could be 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

There are an estimated one million people using their credit cards to meet their current mortgage commitments. Wow! And don’t forget those who are using their lump sum from redundancy as well.

Historic low interest rates since March 2009

Many households would have had their homes repossessed if Bank of England  interest rates were at the same levels as  in 1991 (Feb 13% dropping to 10.5% by Sept) at the height of repossession figures  compared to the current  28 consecutive month 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 0.5% Bank of England rate?

How many are twitching every time the Monetary Policy Committee meets to decide whether rates should go up?  More to the point, where would the housing market be if we had interest rates comparable to those back in 1991?

Through all this there is a positive side however. Some house owners are paying over the top each month in order to get their mortgages down and so they will not be complaining. Are you one of those or are you a twitcher?

Read article and further stats House repossessions rise 15% (260 words)

Read more: The hidden truth behind the latest house repossession figures

 

The BBC recently reported a 40% increase in the number of prescriptions being prescribed for anti-depressant drugs such as Prozac over the past four years, with GPs and charities saying they were being contacted increasingly by people struggling with job worries and the guilt of debt. Money woes 'linked to rise in depression'.

In my experience the majority of consumers who end up in financial difficulty have previously been able to meet their commitments until a trigger such as unemployment, a breakdown in a relationship or illness occurs.

For some it is just too much to recover from and they end up being plagued by debt collectors who harass them into paying monies they do not have. They then become ill, depressed and can turn to alcohol, gambling or even crime. Their debt problems can also impact on their relationships, their friends and their work. What support do we offer these people? Not a lot. The stigma of unmanageable debt is rife within our society.

Until recently we used to advertise bankrupts’ names in the local papers but thankfully, from April last year, this stopped. This change in policy was not just taken to help protect bankrupts but instead was a cost cutting exercise, saving the cost of placing adverts in the papers!

We still put the names, occupations and home addresses of insolvents (those consumers going bankrupt, proposing Individual Voluntary Arrangements, IVAs, or debt relief orders, DROs) on a public register and then bar them from having bank accounts and future credit. What further compounds the matter is that we are fast moving towards a cashless society and these people need bank accounts and access to plastic to function.

All this makes it harder for those who have been through financial difficulties as they can’t pay by direct debit, receive wages electronically or use the internet for purchases if they don’t have a debit card.

The banking industry isn’t helping matters either. Only 2 out of 17 banks seem prepared to offer bankrupts a bank account and they also find credit facilities difficult to come by or denied. It’s no wonder then that people find it hard to get back on their feet and get depressed!

Are we sowing the seeds of unrest by making these people feel like outcasts in society? Isn’t it about time we started to support and help them manage and rebuild their lives instead of ostracising them?

Read more: The stigma of debt is still rife within our society

 

The main criticism of a Debt Relief Order (DRO) is that once it is granted there is no incentive for the individual to find employment because the eligibility rules for DROs require a person to disclose if their circumstances and or income change over the 12 month period the order is in force.

Imagine someone who is 10 months into a 12 month DRO who succeeds in getting a job or substantial pay rise. Under the rules the additional income may result in them being no longer eligible and the DRO may be revoked. If the DRO were then to fail then they may only have sufficient money to pay priority creditors such as rent and utilities but not the lenders that previously featured in the DRO.

Approved pensions now allowed in DROs.

Before the 6th April if a debtor had a pension fund to the value of more than £300 then they were automatically prevented from applying for a DRO. The government has now confirmed that from this date struggling debtors who would otherwise have met the qualifying criteria for a DRO but for their pension will no longer be barred from proposing a Debt Relief Order (DRO).

What is an approved pension?

For the purposes of the DRO an approved pension is one defined under Section 11 (2) of the Welfare Reform and Pensions Act 1999. This means that the majority of occupational and personal pension schemes will now be accepted.

Pensions barred one in eight applicants

Although difficult to quantify, initial estimates suggest that as many as one in eight people who met all other eligibility criteria for a DRO were unable to access the regime because they had a small pension fund in excess of £300.

DRO qualifying criteria

Not all over- indulged consumers will qualify for a DRO as first they must have unsecured debts below £15,000, their disposable income must be less than £50 per month and their assets valued at less than £300.

The DRO is designed to place the least complicated debt discharge cases on a fast-track bankruptcy through the court system with no personal appearance at court required. They are filed on-line by an approved intermediary, usually the CAB for a fee of £90 as against the new consumer bankruptcy fee due in April of this year of £675.

Personally, I would like to see the qualifying criteria changed to widen the appeal to many other desperate and vulnerable consumers who would otherwise be rejected.

My recommendations would be to;

  • increase the assets amount to around £3,000
  • include  homeowners that are in negative equity
  • double the car value amount to £2,000
  • increase  the disposable income level to £100
  • Increase the debt level to £25,000

However, addressing these areas would make many more desperate consumers eligible and push up the insolvency figures even further. No government wants that on their books, do they!

Read more on Debt Relief Orders

Read more: As major changes with Debt Relief Orders come into effect today there is still the issue of them...

 

This coalition government certainly knows how to kick you hard where it hurts. If the threat of unemployment, wage freeze or pay cut and extortionate fuel prices hanging over your head wasn’t enough then how about Her Majesty’s Court Service (HMRC) increasing the bankruptcy court fee by £25 to £175.

In March 2010 the cost of going bankrupt stood at £510. Now, just 13 months later consumers will have to find £625, that’s the Court fee plus the Insolvency Service fee of £450, an increase of £115 in just over a year.

So where is anyone with no money who has been advised to go bankrupt because they cannot pay into an Individual Voluntary Arrangement (IVA) or debt management program, going to find £625?  When insolvencies are running at the highest level since records began in 1960, this has just got to be insane. Where is the caring Government that professes to help and support the consumer?

We need urgent and decisive action to help clear the ‘log jam’ of individuals caught in the limbo of being unable to take to deal with their debt situation. Instead of increasing the fee reduce it so that more can take the bankruptcy route to end their misery. I know Debt Relief Orders (DROs) are an option for some but the qualifying criteria excludes most consumers in difficulty.

Any fee reduction obviously has cost implications but it would be welcomed by me and the debt counselling profession in general and demonstrate a positive commitment to a vulnerable element of society.

According to the Insolvency Service back in May 2009, a bankruptcy cost on average £1,715 to administer, part of which is met from current fee. The Insolvency Service told me that ‘If the Official Receiver’s deposit were to be waived in its entirety, all the costs of case administration would have to be met from other sources, in particular the tax payer and creditor.’

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 -2009, 41,170 IPAs and 204 IPOs 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!

Even more money is made, subject to the timing of the petition, in a well hidden scheme whereby an individual going bankrupt and in receipt of an income receives a ‘NT’ tax code with the tax diverted to the Official Receiver towards administration costs for up to 12 months.

Another important point is that many consumers recover from bankruptcy and rejoin the ranks of tax and NI payers and contribute to the income stream, so it is not all doom and gloom for the PM!

The only blessing is that some consumers may be able to claim a reduction in the fee if they can show financial hardship or if they qualify under the Court rules for claiming a remission.

So let’s cut to the chase; why is it so expensive to go bankrupt? When a consumer does not have the ability to repay their debts and cannot afford to enter into any type of repayment programme through lack of funds why is there so little support?

The last debtor’s prison shut in 1869; that’s 142 years ago. Society, culture and attitudes have moved on!

Read more: Coalition targets bankrupts as court fees rise in April 2011

 

So its official then, the Council of Mortgage Lenders (CML) says that only 36,300 homes were repossessed throughout 2010, a drop of 24% on the year before. That’s close to half the number of homes that were taken back by lenders in 1993, so we’re okay: what’s the problem?

The problem is, in my humble opinion, that although the statistics are collected correctly by the CML they do not accurately reflect current market conditions and the situation is far different to how it appears. Here are my thoughts.

The impact of ‘Sale and Rent Back’ Schemes

The first area to look at is the number of homes being sold by families to private landlords, under 'Sale and Rent back’ (SAR) schemes, or flash sales. These schemes weren’t around in 1991 at the height of the last repossession crisis when around 76,100 homes were repossessed.

Back in October 2008 The Office of Fair Trading (OFT) said, ‘It is likely that there are upwards of 1,000 firms, together with an unknown number of non-professional landlords, who have conducted about 50,000 transactions to date’.  That was well over two years ago!

Since that announcement the SAR industry has gathered momentum leading to the intervention of the Financial Services Authority (FSA) and full regulation being implemented last July, rightly so in my opinion.

Based on the OFT figures and on increasing consumer awareness of the SAR scheme I estimate that the number of homes sold under SAR in 2010 could be as many as 20,000.

Only first charge holders are recorded in the figures

Another damning factor is that the CML only collects the number of first charge holder repossessions, this is the main mortgage. There is no record of how many second charge holders, usually secured loans, who are repossessing homes. How many are there of these that the CML do not know about?

The effect of the Mortgage Pre-action Protocol

We haven’t even thought about how the introduction of the Mortgage Pre-action Protocol back in 2008 could be a delaying factor in eventual repossession for some home owners. Some of these schemes just delay the inevitable and add further debt through delayed payments.

CML uses old data to make the repossession figures

All these aside I now have another argument to put to you; that the data put out by the CML is technically out of date as they can only record repossessions that were finalised during the year.

It can take between 6 and 12 months to have a home repossessed, even longer now with the introduction of various government backed schemes and these latest figures for 2010 are based upon householders who experienced difficulty up to almost a year ago.

So all those home owners that are missing the first payment this month and can no longer meet their mortgage payment, in theory will not surface or appear on the CML register until late this year if not next year!

The good, the bad and the ugly sides of the of Tracker mortgage

On the positive side those on Tracker mortgages and some on Standard Variable Rates (SVRs) have benefited from historically low interest rates for 24 consecutive months and I hear that many consumers are paying over the top each month in order to get their mortgages down.

Equally there are some that have been saved from repossession purely because the low interest rate has meant that their normal monthly mortgage payment has been reduced for example, from £1400 to around the £450 - £600 mark. The latter must be thinking are we about to see an increase in interest rates, is the end nigh for their ‘Honeymoon period’?

Unemployment

You simply cannot ignore the unemployed, more so as their numbers are expected to climb again over the next 18 months as the austerity cuts begin to bite. Repossession figures will surely rise  when those out of work can no longer pay their mortgages having exhausted family and friends with that one more monthly payment before it ‘turns around’.

Redundancy and credit card payers

We also have some people using their redundancy payments to keep up the mortgage repayment and there are an estimated one million people using their credit cards to meet their current mortgage commitments. Wow!

Chasing the mortgage shortfall debt for 12 years or more

Not many house owners are aware that any debt still owed to the mortgage company after the repossession and subsequent sale of the property is recoverable by the lender for a period up to twelve years in the UK. This counts from the date of the last payment or acknowledgement of the debt, and applies on any sole or joint mortgage account. I have many clients still paying back from 1990, that’s 21 years ago!

Struggling to meet your mortgage payments?

•             Your mortgage needs to be paid before your credit card commitments

•             Contact your mortgage lender sooner rather than later

•             Visit the government website direct.gov.uk to see if you qualify for any of the mortgage rescue schemes, also see our Helpful organisations link.

I do not accept that house repossession numbers are stable or falling as much as is being reported. I think consumers are becoming more adaptable and for many a SAR scheme is an attractive proposition when faced with repossession as it can offer stability as the move from owner to a tenant can help keep the children at the same school and the parents to stay nearby to friends. More importantly to many, no one need know what you have done, which can save awkward questions and embarrassment within the community.

I know what it’s like to lose a home. I was one of eight children and it happened to my family when I was 15 years old.

Read more: How accurate are last year’s house repossession figures really?

 

With so many battling debt and unemployment the number of people owing more than they’re worth (insolvent) has, according to The Insolvency Service hit record levels - 135,089 for 2010. My view however is that this figure still does not reflect the real level of over indebtedness in the UK and anyone reading through the figures thinking that consumers have their debts relatively under control is looking through rose tinted glasses. 

This is because The Insolvency Service’s figures excludes the ‘debt iceberg ‘which R3, a leading professional association for insolvency specialists, claims contains up to 500,000 people in unrecorded debt management programs. Then we have another 574,000 that are struggling financially but who have only contacted their creditors informally, not using a debt charity or the commercial sector. Of even more concern are the 961,000 individuals struggling with debts but who have not sought help. This group alone could find themselves in formal insolvency procedures unless they take swift action.

What drives me insane is that the tools that are there to help people resolve and control their debt issues such as Bankruptcy, Individual Voluntary Arrangements (IVAs) and Debt Relief Orders (DROs) are just not accessible enough. 

Many cannot afford the bankruptcy fee and fear their names appearing in the papers

I know of many individuals that cannot go bankrupt because of the huge £600 fee. They are no longer paying their lenders and are moving house every six months just to keep ahead of debt collectors or bailiffs. One can only imagine the pressure and stress these people are under.

A recent report highlighted the top two reasons putting consumers off bankruptcy even though they have no alternative. The first was attending court to file for bankruptcy and the second having one’s name and address in the local paper for all the gossipmongers to feed on.

The Insolvency Service is currently conducting a review as to whether bankrupts actually need to attend court to petition and I can hear some of you say this should still be a necessity. I say society needs to be more supportive for those that find themselves with unmanageable debt and I point out that the last debtors’ prison shut in 1869. There are sufficient provisions in place to punish those bankrupts that have been negligent in their borrowing or conduct, and yes, if you commit fraud then yes, you go to jail.

The requirement to advertise a bankrupt’s name and address in the local paper was removed last year and is only necessary if the person concerned is uncooperative or if the Official Receiver deems it necessary. So why are consumers not made more aware of this change?

Individual Voluntary Arrangements (IVAs) fast becoming a more attractive option for consumers

IVAs have advanced over the past year or so, now being supported by most of the High Street banks and credit card providers, probably because they know the alternative would be bankruptcy, and also because there are no upfront cost for fees for the person proposing the IVA; these are taken from the monthly contributions over five years. This is reflected in the overall insolvency figures for 2010 with bankruptcy numbers down 20% and IVAs up 7%. 

Impact of DROS on the ‘bankruptcy’ figures

Included in the insolvency figures are Debt Relief Orders, (DROs), which were introduced by the Government in April 2009. A DRO is designed to allow those with debts of less than £15,000 and minimal assets to write off their debts without entering into a full blown bankruptcy or having to go to Court. These however are proving to only help a selected few and are totally ineffective in helping consumers because of the ridiculous and unreasonable qualifying procedure; still they work for some as over 25,000 were issued in 2010 alone.

Personally, I would like to see the qualifying criteria changed in order to appeal to many other desperate and vulnerable consumers that would otherwise be rejected.

My recommendations would be to; 

  • increase the assets amount from £300 to £3,000
  • include  homeowners that are in negative equity, currently exempt if a home owner
  • double the car value amount from £1,000 to £2,000
  • increase the disposable income level from £50 to £100
  • raise the threshold from £15,000 of unsecured debt to £25,000 

Disincentive to work for those on DROs  

Another criticism of the DRO is that once it is granted there is a natural disincentive l to find employment. Under the eligibility rules for DROs the person must disclose if their circumstances and/ or income change over the 12 month period the order is in force. 

If for example the individual were to find employment on month 11 of the DRO then this extra income may well mean that he/she is no longer eligible and the DRO may be revoked. You have to say that a DRO is mainly for those on benefits or unemployed and whilst the concept is good it just needs thinking through more clearly and be better applied

However, if the areas I mention above are addressed they will surely add to the insolvency figures - so I shan’t hold my breath for too long...

Read more: Latest insolvency figures mask the true level of unmanageable debt

 

It’s not uncommon to hear someone in dire financial straits say they can’t face bankruptcy because they will lose their home. I expect some of you reading this will agree, thinking that’s what happens when you go bust, you always lose everything including your home, err don’t you? 

Let me tell you here and now that it’s a myth! I know of many instances where people have gone bankrupt and some three or more years later are still in their home. It’s all down to individual circumstances, getting good professional advice and not listening to your mate spouting off down the pub. 

Bankrupt homes before April 2004 

Prior to 2004 it was an absolute nightmare for bankrupts that owned homes, typified in one memorable case back in 1994 where a lady went bankrupt owing the Inland Revenue, VAT and other creditors some £45,000. At the time the home was valued at more or less the same amount of the mortgage, £70,000. 

You can correctly assume that when bankrupt your unsecured debts, including those owed to the tax man, are written off. However any assets or potential assets you have will be signed over to the Official Receiver and even though there was no equity in the home at the time this lady went bankrupt, potentially there could be many years later. This is exactly what happened here when contact was made by a court appointed trustee in 2002, some eight years after the bankruptcy order was made claiming for £105,000; this was the original £45,000 plus interest. Even though the debts had been written off, unbeknown to our lady a charging order was placed upon the home and over the years this had gained in value to near the £250,000 mark. 

I am pleased to report that there was a relatively happy ending to this story as we got the Crown Departments and other creditors to drop the interest element, the lady remortgaged and paid back the £45,000, the bankruptcy was annulled and struck from the records as if this person was never ever made bankrupt. 

The key changes post April 2004 

Then, welcome major changes came in to force on how bankrupts were to be treated; one being the way the dwelling house is dealt with. 

Briefly, the Official Receiver (OR) or the appointed Trustee has three years from the date of the bankruptcy order to deal with any property owned by the bankrupt.   If nothing is done within this time then any interest in the property/ies, reverts back to the bankrupt: i.e. it is no longer part of the bankrupt’s estate unless the trustee; 

  • applies for an order of sale or possession
  • applies for a charging order on the property to cover the value of the interest.
  • realises the interest or reaches an amicable agreement with the bankrupt regarding the interest. 

Official Receivers don’t look to turf individuals and their families out of their homes: it’s not cost effective as the state generally has to pick up the tab to re-house. Most bankrupts have very little equity, (the difference between the mortgage outstanding and the current value of the home) and if they did have a reasonable equity then they would either remortgage or sell the home and not go bankrupt! 

The new policy change as from January 2011 

Up to the end of December 2010 within the first year of his/her bankruptcy a bankrupt could  agree with the OR how much interest there was in the property. 

However a change in policy, effective from the 1st January this year, means that there will be no agreement to deal with a bankrupt’s interest in a family home until at least two years and three months have passed since the bankruptcy order was made, except if an offer is received which is in the creditors’ interests to accept.  If after this time the value of the interest in the property is valued at less than £1,000, then the OR will take steps to hand the interest back to the bankrupt. 

Anything above this figure will become the basis of negotiation between the bankrupt, his/her family or friend and the OR. 

One important point is that if a property is jointly owned, say with £20,000 equity, and only one of the owners is going bankrupt, then the amount available for the OR would be 50%, £10,000. One would argue that this could then be reduced further by estate selling costs and legal fees which is why, under certain circumstances, the bankrupt, family member or friend may be able to buy back the interest for several thousands of pounds as against the £20,000.  

The OR has the discretion to effect an early re-vesting of the property back to the bankrupt in specific circumstances. 

Why don’t you just sign over the house to the Mrs? 

I am often asked if this is possible and the short answer is no. When someone applies for bankruptcy they have to disclose what assets they have and if they have sold anything of value within the past five years and this includes transferring the home into the Mrs’s name only and it also includes cars. 

If you do that and go bankrupt within the five years of the date of transfer then expect the OR to come looking and I have to agree - one should not remove assets from creditors. How would you like it if you were owed money by someone that did just that, just  changed the names of the owner of the home to avoid having to pay up? 

Bottom line then, those individuals thinking of going bankrupt should first take professional advice to ensure that this is the right course of action for them and if then it is deemed the only way forward, get professional advice about the situation with the home!

Read more: Can you keep your home in a bankruptcy?

 

These rules are not something thought up by the credit card providers in order to level the playing field in the credit card industry; they come instead from a government consultation exercise last year which found that credit card holders needed to be treated more fairly.  The card providers knew the rules were coming and that unless they accepted them as a voluntary code, they would be faced with new and possible punitive legislation.

So what are the key changes?

  • Cardholders’ repayments will be used to reduce their most expensive debt first
  • Those opening new accounts will have a minimum repayment level set that covers all interest, fees and charges during the month, as well as 1% of the outstanding balance
  • Card holders are to be given greater control over their credit limits
  • Consumers will have the choice to remain on the existing interest rate in place before any rate hike
  • Card providers are to work more closely with debt advice agencies in helping those consumers with debt issues
  •  Credit and store card holders are to provide annual statements detailing the cost of borrowing that will be compatible with other providers.

£600m loss to the industry, per year

Credit card companies are bleating that the new rules will cost them £600m a year; I actually read it another way, credit card holders have been mugged to the tune of £600million per year!

For nearly two years now, 23 months actually, the average credit card interest rate has been more or less 36 times that of the Bank of England base rate.  This extortionate rate has allowed credit card providers to fill their coffers well before the new regime actually started and there are reports that card rates are to rise again.

There is no way an industry can afford to lose such an income: are we likely to see credit card providers make redundancies? Impose staff pay freezes? I don’t think so because I believe they only volunteered for the code in the knowledge they will recoup their losses in other ways. Thinking caps are on for the marketing team, so I expect credit card interest rates to remain high, if not increase in the foreseeable future.

Is credit a bad thing?

I see nothing wrong with credit, providing you can afford to pay it back. A credit card can give you peace of mind and confidence that you can buy your way out of a sticky situation, like being stranded when the ash cloud struck last year and there are other benefits such as purchase protection if the supplier were to go bust or the purchase did not arrive.

That aside, to spend and make purchases on goods and services you would not otherwise be able to afford is one recipe for disaster. Credit card companies play on those that wish to live a life beyond their means, offering the funds to acquire  luxuries that for the average consumer would otherwise be out of reach  but for  a credit card, (or perhaps better described as a ‘Debt card’!).

Lending money through a credit card is a lucrative business for the card provider as minimum repayments are mathematically designed to make your debt linger and make the card providers more profit.  For example a credit card debt of £1,000 attracting an APR of 18% with payments of 2% or £5 would take around 26 years to clear with interest payments of £1,885, source Moneysavingexpert.com. 

Are you lying to your loved one about your credit card debt?

I spoke with a client earlier this week who was assured by her fiancé that his credit card debt was reducing; now she has found out that he paid for the wedding on the card and is only making minimum repayments.

He and many others are lying to their spouses and loved ones about their credit card debt. Some turn to alcohol, gambling or even crime in an attempt to solve their problems.  Many I see or talk to are suffering from depression and contemplating suicide.

Morally and socially we have been encouraged to spend and pay later through slick marketing and the easy availability of credit, mainly through credit cards.  From this we have developed a culture of ‘must have now’ that has to change. Will these new rules do this? Not a chance. 

Read more: Expect a credit card backlash as new rules for 30 million credit card holders come into play this...

 

The CEO of MBNA Europe is having dinner with a top banking executive, and up pops the question, “How’s business then Charles in the credit card world?”

‘Err... okay’, stifled Charles with a cough. ‘Slight problem with the UK City regulator, nothing too much really’.

Well if I were Charles I would be very concerned. Not only have MBNA been investigated by the Office of Fair Trading (OFT) but  what they uncovered caused real alarm; simply ignoring UK debt recovery guidelines which many see as bullying and intimidation of the credit card holder.

The official story is that the OFT has ordered MBNA to improve the way they deal with 5 million of its customers should any experience a problem repaying their credit card debt.

Cutting to the chase; they have been told in not so many words to stop pressurising confused customers and start acting within UK guidelines.  If it wasn’t for the Citizens Advice Bureaux raising the issue then how much longer would they have been able to get away with it?

What the OFT uncovered

Having been tipped off by the CAB the OFT found that MBNA had not being sufficiently clear when communicating with customers in financial difficulty who were offering token payments, even though it was proven this was the best they could afford.

Also in some instances they were failing to follow its own policy or procedures by bypassing customers' appointed representatives.

By ignoring the customer appointed representative, whose job it is to negotiate a smaller debt repayment, this meant that the likes of me and any other debt advice firms or debt charities would be disregarded.

Own policy? What about the OFT Debt Collection Guidelines? The MBNA policy is derived from these guidelines and arguably MBNA chose to breach them. It has nothing to do with their own policy which has been found to be somewhat lacking.

The debt collection guidelines that were breached

My interpretation is that MBNA breached sections 2.6f, 2.8c and 2.8d of the OFT Debt Collection Guidelines

He who shouts the loudest gets paid!

It is well known in the debt collection industry that the lender or debt collector that puts the most pressure on borrower / debtor for payment is the one that usually gets paid.

This means that if the lender can badger, confuse, intimidate, hoodwink or simply bully a customer who isn’t aware of their consumer rights then they are going to get paid.

Ray Watson, Director of the OFT's Consumer Credit Group, said:

'Our investigation found problems with the way MBNA communicated with customers in financial difficulties. MBNA has agreed that it will make its debt collection letters clearer and clarify its policies and procedures for dealing with appointed representatives.'

It’s a shame the OFT did not ask me for comment, because if they had, I would have said something along these lines;

‘What the OFT is basically saying to MBNA is stop pressurising customers into paying back what they cannot afford.  MBNA were doing this when they ignored any appointed representative of the customer; usually a debt charity or commercial firm.

This action left the borrower / debtor in a more vulnerable position and under pressure to pay more even though it had been proved they could not. Step out of line again and we will put restrictions on your licence to trade, plus hit you with a £50,000 fine for each breach.’

What’s difficult to understand in that?

If you take a look at the MBNA press release on their website, the line they take on this issue reads somewhat differently. Perhaps that is why I will stick to defending consumers in financial crisis and not go into PR.

Read more: Is MBNA guilty of coercing and bullying non payers?

 

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