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With the number of home repossessions dropping slightly, DebtWizard explains how mortgage lenders still recover their losses many years later, just when you think it is all over.

“Help, I can’t believe this is happening to me” gasped the man on the phone. “Surely they cannot do this to me, this house was repossessed some 10 years ago and now they are chasing me for the mortgage shortfall after they undersold it!”

I get quite a few such calls from desperate people that have previously had their home repossessed and not heard anything for years but then, right out of the blue, a solicitor’s letter drops on the doormat claiming thousands- in this particular case £66,381.

How lenders claim such large amounts

Read more: How a re-possessed home can come back to haunt you

 

As the number of consumer insolvencies continues to rise, Mike Thomas calls on the public and the banks to start supporting bankrupts instead of ostracising them.

With the government announcing 34,743 individual insolvencies in England and Wales in the second quarter of 2010 - 5% up on the same time period last year - spare a thought for those individuals who have been battling unemployment and credit problems and who have now decided that insolvency is the only route left. 

Many people regard bankruptcy as an easy way out of paying debts. I simply can’t agree with this as I have often seen the pain and suffering of those going through the experience.

Insolvency involves an individual either going or having been made bankrupt, or successfully proposing an Individual Voluntary Arrangement (IVA), which is seen as a less stringent form of insolvency. 

An IVA allows a borrower to enter into a repayment programme, usually for five years with interest and charges frozen and with the remaining debt written off upon completion of the arrangement. This is unlike a debt plan, where you pay back the debts in full and interest and charges can still be added.

From my experience the majority of consumers who end up going bankrupt have previously been able to meet their commitments until they suffered a trigger such as unemployment, a breakdown in a relationship or illness. 

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 often turn to alcohol, crime or gambling.

Their debt problems can also impact on their relationships, their friends and their work. What support do we offer these people? Not a lot.

Instead we advertise their names in the local papers, though thankfully, from April this year, this has stopped for most cases. 

We put their names, occupations and home address 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.

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 two out of 17 banks seem prepared to offer bankrupts an account and credit facilities are difficult to come by or are denied. It’s no wonder then that people find it hard to get back on their feet.

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? 

I agree that it’s right to investigate bankrupts so that anyone who has been negligent or reckless pre-bankruptcy is subject to a bankruptcy restriction order (BRO). Once imposed on the bankrupt, this restriction means after discharge (usually 12 months) the bankrupt will be subject to certain rules for between two and 15 years.

Furthermore, if they have any money left over each month after paying normal reasonable expenditure they have to contribute to the bankruptcy by making monthly payments for a period of three years.

My forecast for 2010 is for insolvencies to peak at around 165,000, made up of 110,000 bankruptcies and 55,000 IVAs. This dwarfs the number reported for last year, which was 134,142, so this problem is not going away and is growing by the day. 

Perhaps the truth is that some of us who can pay our debts have a problem in accepting the stigma of bankruptcy could disappear and that a different view could be taken in the future. Creditors in particular need to wake up and listen and support borrowers that are prime candidates for bankruptcy.

Read news article covering more in depth figures and further DebtWizard comment: Consumer insolvencies dip 3% but are expected to rise later in the year

BBC Essex

Mike was live in the studio and offers one reason why he feels the bankruptcy figures are down 20%, debt advisers steering consumers prime for bankruptcy to other arrangements such as IVAs and debt plans. He also staggers Dave Monk when he reveals what the fees are for advising bankruptcy compared to an IVA, which by the way, numbers are up 10%.

Listen

 

Read more: Isn't it about time we started supporting the bankrupt?

 

A cab driver recently told me that if he had a debt problem he wouldn’t know what to do to resolve it or even where to start, so I gave him a quick DIY guide to debt resolution from the back of his cab, and here it is!

When you are trying to deal with debts it can be hard to know where to start. This means many people end up burying their head in the sand, which allows their problems to worsen.

So, to help prevent your debts spiralling out of control I have put together a five-point plan.

This is aimed at those who have low to moderate debt with numerous unsecured creditors. 

1. Find out what you owe and to whom

Take your credit cards, loans and bank overdrafts and make a separate list for each of the following:

  • those in your name only 
  • those in your partner's name only (if applicable) 
  • those in joint names (if applicable) 

2. Establish if the loans are secured

Secured loans include mortgages, loans on a property and hire purchases such as those on a vehicle, these are priority debts. Also identify other priority creditors such as utilities and council tax.

Remember if you don't pay secured creditors then you may lose the security (your house for example) and if you don't pay priority creditors such as your electricity or gas provider then you might lose the services they provide. Make a separate list of your unsecured creditors.

3. Work out your disposable income

This is the amount you have available to pay unsecured creditors - credit and store cards and personal loans for example - after you have paid the secured ones in full.

To calculate your disposable income  you  will first need to work out the total family income including pensions, benefits, family allowance and tax credits. Then list all your outgoings, including those to secured creditors.  

Once you have subtracted this amount from your income you will see exactly what your disposable income is and what you can truly afford to pay toward your debts.

This will help you assess your options when it comes to dealing with your creditors.

Click on our budget wizard to help you work this out for free.

4. Work out how much your assets are worth

Now you need to work out what assets you own. This could be your house, even if you have a mortgage on the property. The difference between the remaining mortgage and the estimated value of your house is known as equity, and this is an asset. If the home is jointly owned, however,  then the other named person may well be entitled to half the equity. 

For example, if your mortgage debt with your partner stands at £80,000 and your house is valued at around £140,000, then there is equity of £60,000. Once this is divided between you both, you would each have a share worth £30,000.

5. Get in touch with your creditors

If you fail to make payments to your creditors and don't communicate with them, you will be regarded as someone who won't pay rather than can't pay. This leaves your creditors little option but to take legal action against you to recover their losses.

So contact your lenders, who will request the information detailed in steps one to four, and who can then make a decision on how best to help you.

Above all, be realistic and accept there is a problem, which will only go away if something is done about it. If you feel you can't deal with it on your own then see the DebtWizard list of agencies you could consider.

Read more: London cab driver inspires Mike to write this 5 point DIY debt guide

 

Is there anything you can do to stop a bank taking money out of one account to pay off debts in another account you hold with them?

During the past week or so I received calls from two people, both of whom had money taken from their bank accounts by their banks to pay off their credit card debt. 

Both asked, “Can a bank do this, legally?” and I said, “The short answer is yes.” This practice is known in the trade as “setting-off” and while there are some restrictions it is perfectly legal.

What exactly is setting-off?

Setting off is when a bank uses the money held in one account to pay off a debt in another account held with the same bank.

So for example, if you have an account you pay your utility bills from at the end of each month and your credit card bill, with the same bank, is due a week before, you bank could potentially take money out of this account to pay the bill if there are insufficient funds in your other account to pay for it. 

This would be unbeknown to you, as you will not receive notification from the bank in case you move the money away. So the bank takes money from the account to pay the credit card bill and it is no longer there to pay your utilities. 

Can I get my money back?

If you’re caught out, as in the above scenario, then you need to contact the bank and ask for your money back but you will need to prove that you suffered as result of the bank’s setting-off. 

In the case above the bank has set-off on one account to pay its non-priority, unsecured credit card bill leaving you with no money to pay your priority utility bills, which could also include your mortgage or rent. You will need to send copies of your late payment reminders on any of your priority bills, stating that they were caused by the bank setting off, and demand the bank refunds the money it took under this set-off.

Also, make the point that the bank is to treat you fairly, sympathetically and positively, as required by its banking code. 

Why are the banks allowed to do this?

According to the Financial Ombudsman Service (FOS), the right that allows a financial firm to set-off dates back to the 19th century. This entitlement allows the firm to monitor a customer’s financial position and to combine accounts held by that customer, even though this is not detailed in the terms and conditions of any accounts.

The size of the set-off that the bank can take from other accounts must relate to the size of the missed payment. This means the bank can only take money equal to the size of the monthly payment that was due, not the whole loan.             

The Lending Standards Board issued minimum standards which came into force on 1 May 2010 covering the use of the right to set-off. 

Those customers most likely to be affected by a set-off are those on lower incomes and those struggling with their debts and missing payments on loans or credit card commitments to the bank or institution.

What’s an institution?

Some banks are connected to each other such as Santander, Abbey, Alliance & Leicester and Bradford & Bingley and classed as being under one institute. It is, however, difficult to know exactly who belongs to who. To help you narrow it down, take a look the FSA's list of UK banking and savings groups, it’s not a full list but it gets close. 

The bottom line is that accounts with different banks that come under the umbrella of one institution can be raided.

The bank has refused my claim

If 8 weeks passes from the date you raised your complaint about setting off and the bank has not resolved the issue to your satisfaction, then you can go to the Financial Ombudsman Service (FOS). This is a free service and they will investigate your complaint. Contact the FOS online or call  0800 0234 567.

How do I prevent this from happening to me?

Have sufficient funds in your bank account to pay your debts when they are due!

If you can’t do this because you are struggling to meet your bills, including debts, then get professional advice.  You may also need to think about getting a new bank account, preferably with a bank or institution that you do not owe money, as this would stop the credit card or loan repayment being taken.

Some people will say you need to pay your debts off using your savings and I can’t really argue with that. Especially since savings offer very little interest at present and credit cards charge massive interest.

Is setting off a big problem?

It has been difficult to establish the exact number of consumers caught out as those affected do not necessarily report it to the FOS when it happens. The FOS has said that they have so far handled over a 1,000 cases - just make sure you are not one of them!

Keep control

To save any risk of this happening to you keep your finances under control. If you are missing payments and the overdraft, credit cards are maxed out then think about getting professional advice fast.  We have a list of very useful contacts.

Read more: Is it fair for banks to raid your savings to pay your debts?

 

While some people may think those who are bankrupt deserve to face harsh restrictions, I say banks are only making the problem worse by treating them like pariahs of society.

Very few people run up debts with a view to going bankrupt. For the average consumer, it’s caused by an unexpected trigger, such as a relationship breakdown or job loss.

For most people, going bankrupt is a last resort and one they usually take after getting professional advice. While many will say people have an outright duty to repay their creditors, it could be argued that if creditors adopted a more supportive approach, there might be less pressure to petition for bankruptcy in the first place.

Unless you’ve been through bankruptcy yourself you can only begin to imagine the stress, trauma and anguish these people go through.  And to top it all off, they are then often denied even a basic bank account, which is demoralising, impractical and makes it extremely difficult for them to take control of their finances and make a fresh start. 

It means bankrupt people may face the burden of having to ask friends or family members to use their accounts, resulting in a dependence on others. Without a bank account, people are unable to benefit from direct debit discount schemes, or online discounts, and can be charged extra to pay bills in cash. In the worst scenario it can result in people losing their jobs or failing to obtain employment, because their employer can’t pay their wages into a bank account. 

So why do banks treat current and previous bankrupts as pariahs of society?

What has bankruptcy or even a chequered credit history got to do with opening a basic bank account? A basic bank account has no credit facilities, no chequebook and no credit card. But it gives the account holder a cash card so at least salary payments can be made direct into the account.

Out of 17 UK banks and building societies only two now offer bank accounts to current bankrupts - the Co-op and Barclays - so why don’t the rest? See list.

It doesn’t wash with me that they cost money to run and are not cost effective.  It works well for the Co-op and I am getting good reports about the sympathetic and supportive way they deal with bankrupt consumers. 

As far as I’m concerned the banks should, by law, make banking facilities available to all and not just cherry pick their customers. After all, the banks contribute to the bankrupt’s demise. They, like the borrower, could have said no!

There is no risk to the bank from supplying bankrupts with a basic account - If you are not offering money then it cannot be owed.

The banks see it differently though. What worries them is ‘fear of liability’ which they feel may come about if the bankrupt has a windfall or large payment of cash dropped into their account and it is hidden from the Official Receiver (OR) the body responsible for overseeing the bankrupt’s finances. For some reason the bank feels they may be liable if the money goes AWOL.  

I’ve heard some pretty lame excuses in my time but I’ve never heard of this happening, and I also fail to see how the bank would be liable.

Are we sowing the seeds of unrest by denying those unfortunate enough to go bankrupt the right to have a bank account?  I’m not suggesting they get the full monty of a credit card and overdraft, just the basic account that allows them to function in a modern society where cheques are being phased out.

We need plastic to start a tab in a restaurant, book car insurance on line, make a purchase on the internet or book a holiday.

So now is the time to support those that have had money woes and put them on an equal footing with the rest of society. Many bankrupts actually rebuild over time and continue to pay their way in society through taxes and national insurance contributions.

Read more: Why do banks punish poorer customers?

 

As families struggle to pay their bills and credit remains hard to come by, unlicensed lenders will try to take advantage but there are ways you can beat them at their own game.

When my team and I talk to people to help them overcome their debt problems, part of the assessment is to identify all the lenders to whom they owe money, including family and friends. 

Nothing unusual here, you may think, but digging a little deeper reveals an alarming trend where often, through embarrassment, some individuals will say their debt is to a relative or friend when in reality, they owe money to a loan shark. 

According to a recent report, around 200,000 people in Britain are at risk from illegal loan sharks because they can’t access credit from traditional lenders. 

In addition, over 100,000 people from the UK's poorest families borrowed a total of £29 million from loan sharks to get through last Christmas, which meant they started 2010 already crippled by debt.

It's estimated that these vulnerable families will pay back around three times the amount they borrowed. On average, they borrowed £288 with an interest rate of 800%, but for some this rate could be even higher and the average expected repayment period is one year.

With millions of consumers in the UK finding it difficult to meet monthly bills, it is inevitable that more will now fall foul of the loan shark. 

What is a loan shark?

According to the English thesaurus a loan shark is a 'swindler', 'crook', 'double-dealer' or 'con artist'. I can't really argue with that, but what is clear is within the law a loan shark is an unlicensed moneylender. 

A person or firm can only legally lend money if they are licensed and regulated by the Office of Fair Trading (OFT) and they also must follow the OFT's strict codes of practice.

The disadvantages of using a loan shark are: 

  • You pay a very high rate of interest. 
  • You get a loan on terms that suit the lender and not you. 
  • You may be put under pressure to borrow more to pay off another debt as this makes more money for the loan shark. 
  • You may be harassed or intimidated if you get behind with your repayments. 

Since loan sharks are not licensed, they operate outside the law, which means they can’t rely on the law and courts to collect unpaid loans.

Identifying a loan shark

So how do you find out if a lender is licensed?  The OFT has formed a Consumer Credit Public Register that lists everyone with an OFT licence and includes anyone that has previously applied for one or has had one taken away or suspended.

The register also details trading names and the activities for which a business is licensed - this information is free to access.

You access the 'Consumer Credit Public Register' here or you can call them on 020 7211 8608, between 9.30am and 4pm, Monday to Friday.

If you find a lender isn't listed as having a current licence to lend, then don't borrow money from them.

Alternatives

If you’re stuck, need to borrow money and have been unsuccessful with a bank then consider joining a credit union. 

The government recently relaxed the rules on credit unions to make it easier for them to operate. Credit unions help you to save a little each month and in return they eventually make an advance to you, but with a very fair interest rate. 

For example, if you had a £200 loan, often the interest will only be around 1%, which in this case will make the interest payable at £2 per month. Your nearest credit union can be found here.

If you are worried you may have borrowed from a loan shark, your first step is to search the Consumer Credit Public Register. If you draw a blank, think about contacting your local Trading Standards Office as they have staff trained to help you deal with loan sharks. 

Visit tradingstandards.gov.uk to find your nearest Trading Standards Officer by entering your postcode.

A common question I get asked is ‘Do I legally have to repay the debt to a loan shark?’ The simple answer is no. You are under no legal obligation to repay the debt. If the lender is not licensed by the OFT then they have no legal right to recover the money. 

Because of this, a tactic often used by loan sharks is to intimidate and harass you for payment, but it is an offence for any lender, whether licensed or unlicensed, to harass you.

If this happens, keep a note of the harassment - the date and time it took place - and try to get a witness. You should report any harassment to your local Trading Standards Office and any threats or use of violence should be reported to the Police.

Word of warning

Always go to a licensed lender as this gives you protection under the Consumer Credit Act. Bear in mind, however, that although the lender is licensed, this doesn’t mean they will offer the best interest rate.

The licence covers practices and codes of conduct and is not given to a lender because they are competitive, so always do your research and seek the best deal from three or four lenders.

The last government set up Illegal Money Lending Teams mainly consisting of former police officers, to tackle loan sharks.

If you need help or know of someone that is caught up with a loan shark then contact the support team by calling 0300 555 2222, texting ‘loan shark’ and your message to 60003, or emailing This email address is being protected from spambots. You need JavaScript enabled to view it..

Read more: How to reel in a loan shark

 

Access to money without undergoing a credit check and at short notice may sound attractive but is it worth losing your car over?

You're behind with your council tax or the washing machine has just packed in and you need cash fast.

Where can you get money without being credit checked? You know you stand no chance with a high street bank, your credit card is maxed out and you are wary of payday loans and doorstep lenders.

Suddenly, your vehicle, parked just outside in the street, grabs your attention. I wonder... hmmm. Yes you can, you can often raise cash against your vehicle. 

Every year thousands of vehicle owners turn to companies to raise finance against their car or motorbike in an arrangements commonly referred to as a log book loan. But are they any good?

A log book loan, secured against your vehicle, can range from £500 to £50,000 depending on the value of the vehicle in question. Having a log book loan means that you will lose your vehicle if you default on the repayments to the loan company.

So what’s so attractive about this type of loan? For many people it’s that they are available irrespective of their credit history. 

To qualify for the loan you have to be over 18 and be the legal owner of a vehicle with a current certificate of insurance, a valid MOT if more than three years old, a current tax disc and which has no or very little finance outstanding on it.

Once these criteria are met and as long as you can demonstrate how you mean to repay the loan it’s time to hand over the registration certificate, formerly known as the log book. This is a document unique to each and every vehicle and without it you cannot sell a vehicle. 

Along with a credit agreement you will then be asked to sign a bill of sale, which temporarily hands over ownership of the vehicle to the loan company and gives them the right to repossess the vehicle in the event of you defaulting on your repayments.

The standard term for a log book loan is 58 weeks although you may be able to pay it off earlier. Since the annual percentage rate (APR) can be high it is advisable to pay it off as quickly as possible.

The APR includes the interest rate you pay, how you repay the loan, the length of the loan agreement, the frequency and timing of payments and the amount of each payment, and finally, the fees associated with the loan. 

By law, lenders must tell you what their APR is before you sign an agreement and it is important to remember that it can vary from lender to lender.

Don’t make the mistake a client of mine did a few years ago when he went to the lender with the highest APR because he thought it was a ranking guide as to the quality of the firm!

For the record, the lower the APR the cheaper the loan will be for you. The typical APR for a log book loan is 437.4%.

With this typical APR, if you borrowed £1,500 and paid £53.60 a week for 78 weeks, you would repay a total of £4,180.80. Although you could pay considerably less if you repay early, so long as their is no early repayment fee.

How they work:

Once the deal is done, how do you get paid?

Usually it is by cheque which takes several days to clear although some firms offer a quick cash service, but can charge as much as 4% in fees for this option.

How much can I borrow against the vehicle?

This will obviously depend on what the lender values your vehicle at. They will usually ask you to take it to an agent, in a location of your choice, together with the relevant documentation to confirm what they are prepared to lend. Even if the vehicle has existing finance against it, it is possible to account for this when they make their offer.

If you take up a log book loan it is important to remember that while you keep your car, the lender will keep your log book until you have repaid the loan.

Disadvantages of a log book loan:

  • A very high APR, possibly as much as 437.4%, making it a very expensive form of borrowing 
  • The debt quickly escalates out of control if you start to fall behind with the payments 
  • You could lose your car or motorbike if you fail to keep up the payments on the loan 

Advantages:

  • No credit check
  • Available to those with an impaired credit history
  • Depending on which firm you use funds can be available immediately
  • No restriction on what the money can be used for 

Read more: The truth about log book loans

 

Chancellor George Osborne delivered a first Budget he insisted was 'tough but fair'. But some of the policies are in danger of tipping those on the edge into greater debt.

When I was serving in the Metropolitan Police I often quipped that no matter what happened to the UK economy, the government would always want police officers: our job was always safe. You can imagine how astounded I was when I heard thousands of police officer jobs are on the line as part of the recently announced Budget cutbacks. When this happens we know matters are bad. 

The Budget was certainly a tough one and only time will tell whether the measures announced are the right call. I don’t know enough about the economy to make an informed judgment but I do know a bit about consumers and their debts and I am worried.

I help individuals and families restructure their debts and I see the pain caused through debt. My role is to offer guidance and support and provide viable solutions to help resolve those debt issues.  The reduction in disposable income - the money people have left after paying essential living costs - as a result of cuts in pay, benefits and job losses will force many thousands of people into debt crisis. Mark my words, many will freefall into insolvencies or debt management plans. 

House repossessions are also likely to rise due to the proposed cut backs on mortgage support currently paid to those on benefits, with the most vulnerable homeowners losing around £140 per month in payments. 

Over the past 15 years, morally and socially, through slick marketing and the easy availability of credit, consumers have been encouraged to spend now and pay later. From this a culture of ‘must have now’ has developed, much like it did in the state too. Now the party has ended and the hangover will last for several years.

I think everyone needs to take a close look at their income and what they are able to spend. Anyone thinking of borrowing money now must make sure they have the means to pay it back.  

As a country we lost that ability to pay back, which is why such drastic measures have been implemented to control the debt. It’s no different for families.

When I’m helping someone re organise their finances, and they are thinking of buying something, I tell them to ask themselves how it is going to be paid for and what is the cheapest way of doing it.

Always remember - if you don't need it and can't afford it then don't buy it!

Most Limited companies have finance directors to run their affairs and if things get tough they prune back with redundancies, buy cheaper raw materials and stop advertising. They have to balance the books to stay profitable or at least stay afloat and it’s a criminal offence for any director of a limited company to trade whilst insolvent. 

But isn’t this basically what consumers and the government been doing over the past 15 years or so?

As for those working in the public sector, if they earn more than £21,000 per year then they are not just getting a pay freeze, but a pay cut because with inflation, their salary will buy less over the next two years.

Then there are those who rely on benefits such as tax credits and child benefit. The former will only be available to those earning below £40,000 (joint income) reducing to £30,000 in the year 2011 -12 with the latter is to be frozen for 3 years. Why not make child benefit means tested? Is it fair that footballers like Wayne Rooney and John Terry, earning circa £120,000 per week, can still receive this benefit? Should it not be means tested and given to the poorest families?

In addition, the impact of the VAT increase to 20% - due on the 4 January 2011 – will be to penalise the poorest in society. According to the Centre of Economics and Business Research, the richest 10 per cent spend £1 on VAT for every £25 of their income whilst the poorest 10 per cent spend £1 for every £7 of income.  

What does the future hold for consumers?

I see that the budget measures will slowly squeeze any disposable income from families and individuals and belts will have to be tightened. We are all in this together, however, and the cutbacks will affect the poorest through to the richest in somehow or another.

But there are some positives. Council tax is to be frozen for two years and Housing Benefit is to be pegged to a maximum of just under £21,000 per year, aimed at saving the Country £1.8 billion and in future will be linked to the Consumer Prices Index (CPI) instead of the Retail Prices Index (RPI). The threshold for those paying income tax has increased by £1,000 to  £7,475 and is targeted to be at £10,000 by the end of this parliament.

The Citizens Advice Bureau is currently seeing just under 10,000 new debt cases every day and they will find out after the spending review on 20 October 2010, whether they are to receive a 25% or 33% cut in funding.  

Great, debt help enquiries about to go through the roof and the service helpers are about to get smaller! So, if you happen to have any spare cash, you may want to think about buying shares in a debt management company, as that particular industry is going to be very busy over the next few years.

Read more: Emergency Budget 2010: effect on consumers

 

Are payday loans a terrible money-making scheme that preys on the vulnerable, or do they provide a useful service?

Now the Office of Fair Trading (OFT) has backed away from recommending price controls on expensive forms of short-term borrowing, I bet the sub-prime market can’t believe its luck.  It means letting firms such as QuickQuid can continue to charge up to 2,278% interest on a payday loan. 

So why has the OFT allowed this market to continue to operate with such high interest rates and is it the right decision?

As far back as July 2009 the OFT decided to have an in-depth look at the way payday loans, pawnbrokers and home-credit worked for consumers. Many debt advisers had also called for a review because they felt, as I do, that these firms prey on the desperate and the vulnerable – people who can’t get money from a mainstream lender, so are forced to turn to more desperate measures.

The pitfalls of loan sharks - unlicenced money-lenders - are well documented by the media, in an attempt to get would-be borrowers to steer clear of them.

This means people in a fix, who have no credit rating and need to raise some cash end up going to the secondary (or sub-prime) market, which is worth around £7.5 billion, according to the OFT. That’s enormous and so are the profits.

The OFT has said that although this form of borrowing is expensive, it actually serves a purpose for those on low incomes, who need short-term borrowing, so they are wary of barring it. It also felt that intervention would not necessarily address the problems in the sector because controls may reduce competition in the area.  

The review conducted by the OFT also found many consumers were unaware of the options available to them. Advice was deemed limited and many consumers were deemed to be too focused on the easy availability of this form of credit and the affordability of the repayments, rather than its cost relative to other products.

But while it has stopped short of putting a cap on interest rates, the OFT has made some recommendations, which in my view could help consumers thinking of approaching this sector to borrow money. These include measures to aid consumers in making informed decisions by promoting best practice among suppliers, with an industry-wide code of practice, a high-cost credit loans price comparison site and ‘wealth warnings’ on loan adverts.

In my view the Government should now intervene and set about encouraging a far more competitive market for those that need to borrow from the sub-prime sector. They can do this by insisting the taxpayers’ bank, the RBS, lends to those that would otherwise have to go to the sub-prime sector. 

I appreciate there is a risk of non- payment and would expect there to be a slightly higher interest rate to cover this. 

They should also introduce a scaling down of charges by these lenders over a period of two to three years and put a similar system in place for complaints as we have for mainstream banks, where customers with a grievance can be referred to the Financial Ombudsman Service (FOS) for a final ruling. 

In their defence, most Payday loans providers claim that while their loans can be expensive they serve an important role, with the average customer borrowing money for a relatively short period of time. One thing not helping consumers is the current inability and unwillingness of the main banks to lend - music to the ears of the sub-prime market wouldn’t you say?

They also argue that in certain circumstances a payday loan can work out cheaper than a bank overdraft.

People on low incomes and with a chequered credit history need to be given a level playing field and consumers need to be made more aware of alternatives such as credit unions, which are considerably cheaper to borrow from.

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

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 anyone 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: Sub-prime market rubs its hands with glee after OFT gives the green light to 2,000% plus interest...

 

Being in debt is not a crime, so don't let people treat you like a criminal. Here I give you advice on keeping rogue creditors at bay.

Over the last four to five years we have seen debt levels reach a crisis point for many consumers and bankruptcies hit their highest level since records began.

This means that more and more people are lying to their spouses and loved ones and turning to alcohol, gambling or even crime in an attempt to solve their problems.

Many people I see or talk to are suffering from depression and contemplating suicide. My concern is that an overzealous credit card company or aggressive debt collector could push them over the edge?

Throughout my many years of helping people resolve their debt issues one thing stands out: consumers have very little knowledge about or experience of dealing directly with debt collectors and many individuals in debt are often subject to unnecessary harassment by lenders.

In some cases this can be justified, especially where the borrower stops paying and fails to inform his/her creditors of the reasons why.

In other cases, the debt is so old that the debt collector cannot legally take the matter to court, but they still try to harass the borrower into paying.

However, in many instances creditors work under the rule of “he who shouts the loudest gets paid” and will therefore annoy, badger, disturb, exhaust, harry, jade, perplex, pester, plague, tease, tire, torment, trouble, vex, weary and worry to get paid - in other words to “annoy or trouble constantly”, reference: Collins dictionary.

There are many forms of harassment, but these are the most frequently used;

• Telephoning at work, creating embarrassment and fear of dismissal.

• Making nuisance visits or telephone calls at inconvenient times.

• Calling or writing to neighbours on purpose, knowing they are not the debtor.

• Threatening personal visits, this is sometimes detailed in letters giving the impression that creditors have greater powers than they really have.

So, consumers need to wise up to their rights, stand their ground and stop being intimidated into making payments they can no longer afford.

One way to do this is to start collecting evidence of the harassment, which is very easy to do.

• Keep a record of all telephone calls, including the ones you make.

• Note the date, time and name of the person you spoke to, what was said and the company from which they were calling.

• Mark down what day it is because it may be reasonable to telephone you early on a weekday, but 8.30 in the morning on a Sunday is not acceptable.

• Try and get a witness to the harassment such as a friend or family member.

Other useful tips:

• Consider an answer service so that you can screen incoming calls. This could be set up on your telephone line without the need to buy an answering machine.

• If your telephone number is not known to creditors then dial 141 before making calls to them as this will withhold your number

• Contact your service provider to see if they can bar specific telephone numbers to stop unwanted callers, like 'choose and refuse' with BT.

If a lender can't contact you over the phone then its only recourse is to write to you. Therefore, keep copies of all your correspondence to and from creditors for reference purposes.

There are also some useful bits of legislation that might help you:

• Section 40 - Administration of Justice Act 1970.

• The Consumer Protection from Unfair Trading Regulations 2008.

• Section 4A - Public Order Act 1986.

• Section 1 & 2 - Malicious Communications Act 1988.

The Protection from Harassment Act 1997, is another piece of legislation that could help. The provisions of this Act are quite complicated and I can't go into them fully here, but it's an interesting piece of legislation with potential repercussions for creditors. 

The Act was introduced to deal with stalking offences but Section 1 can be applied to creditors harassing debtors. A person is guilty of this offence if they pursue a course of conduct that they know or ought to know amounts to harassment of another.

The debtor would need to prove it amounted to conduct, i.e. happened on more than one occasion.

The Police will not normally get involved and will only express an interest if it concerns a serious offence such as violence, blackmail or fraud.

But in minor cases of harassment it may only require representation to be made to the creditor’s head office, with evidence wherever possible in order to stop a ‘rogue’ employee.

If this fails to stop the conduct then contact the Trading Standards Institute, or the particular Trade Association the lender belongs to.

Another contact is the Office of Fair Trading, which grants consumer credit licences to lenders and will have records of previous complaints against any such creditor.

One important point to bear in mind is that if you are obstructive and ignore all reasonable attempts of contact from the creditor/lender and do not adhere to the contractual or agreed reduced payments, then a creditor/lender will claim in their defence that their action is justified and not many people will argue against this.

Remember, the last debtors prison shut in 1869, being in debt is not a crime, so insist that you are treated properly and politely at all times.

If you are suffering from unecessary harassment from a lender or debt collection agency then to help you I have the following template letters;

Bottom of the page on this link Harassment Letter 1 'Disputed debt, a debt you do not owe' 

Bottom of the page on this link Harassment Letter 2 'Stop harassment from debt collection agencies, in whatever form' 

Read more: How to keep debt collectors at bay

 

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