All About Loans Weblog

Northern Rock the bank now most famous for having created the only run on a bank in over a hundred years and was bailed out by the Bank of England has now been accused of refusing to return the favour to some of its struggling customers.

Ron Hutcheon a solicitor from Liverpool and a partner at his company are currently defending actions brought by Northern Rock to the court against two borrowers from the bank. Mr Hutcheon believes that the case could lead to a landmark ruling over how banks treat borrowers who are finding it difficult to repay their debt.

Mr Hutcheon’s clients were both finding it increasingly difficult to pay off unsecured loans that they had taken out from the bank and a number of other lenders. On the advice of their insolvency expert both borrowers decided to take out an individual voluntary arrangement (IVA). This means that the lender agrees to write off a proportion of the debt while the borrower agrees to make monthly repayments for the next five years.

However before an IVA can be agreed to the majority lender, in this case Northern Rock has to agree to the arrangement. While all other lenders involved in the case agreed to the terms of the IVA, Northern Rock has refused to do so.

Northern Rock decided instead to take court action against the two lenders and obtaining a charging order against them. A charging loan means that the debt now becomes secured against the value of their property. If they fail to make repayments than both borrowers risk losing their homes.

The lawyers for the two borrowers have found that it seems to be common practice for Northern Rock to reject IVAs. If the court rules against Northern Rock than the bank may be forced to agree to IVAs in the future.

Mr Hutcheon is confident that his clients have a strong case and if they win there could be many more cases like the one currently in the courts coming forward in the future. Northern Rock however denies that the automatically reject IVAs. Rather they claim that the bank looks at each case by its individual merits.

There have been calls for better regulation of the credit and debt solution industry based on research conducted by IVA.co.uk.

The release of the Department of Trade and Industry’s insolvency statistics for Q1 2007 spured the IVA.co.uk Debt presentation by Ipsos Mori.  This was followed by a discussion between a panel of experts and the audience.

The discussion focused on factors causing the increase in insolvencies.

Poor lending and borrowing practices were blamed for Britain’s debt crisis, with lenders keen to push cheap loans, and consumers reluctant to repay them. The research states that 43% of consumers consider this the key factor to behind the national debt crisis, while 32% consider irresponsible borrowing to be the key factor.

Consumers were asked to identify the main reasons people fall into debt. More than half the survey group identified poor money management as the main reason, with unemployment and ill health following.

The problem of a lack of faith in the debt solutions industry, and a strong call for regulation was als revealed. More than three quarters of those polled considered mis-selling in the industry to be common with one third listing it as common.

When asked about the possibility of further regulation in the debt solutions industry, over three quarters of respondents were in support of increased regulation for the loans and debt management industry.

The expert panel uniformly agreed that regulation is needed, but varied in their preference for statutory regulation.

However, other reports state that the IVA industry is causing much of the problem.  They force banks to drop part of the unsecured and secured loan debt, in return for the borrower not declaring bankruptcy on the entire debt.

The government and even some debt management organisations are raising the alarm that the insolvency legislature needs to be updated.  The current regulations are too lax, allowing consumers the opportunity to build up high levels of debt and then claim bankruptcy when the debt burden becomes unbearable.

London’s status as a global financial centre will be in jeopardy unless the UK reforms its insolvency regime before the debt mountain causes the next economic downturn, according the European High Yield Association.

The EHYA represents institutional lenders.  They wrote the government arguing that the UK Insolvency Act (1986) is not up to the task of handling the complex restructurings that are expected to characterise the next downturn.

The UK remains a favoured venue in Europe for restructurings, but the lobby group says legislation has failed to keep up with market developments.

The banks and debt management companies worry that the current relaxed attitude toward bankruptcy will become an economic nightmare as more consumers opt to apply for bankruptcy and start over instead of taking responsibility for their current debts owed on secured and unsecured loans.

The record numbers of insolvencies in the last three months is expected to grow. Analysts predict that 2007 will see 150,000 and maybe a possible 200,000 bankruptcies and IVAs.

Some economic groups believe that tomorrow’s proposed interest rate hike, and another proposed interest rate hike as early as August, will drive many more people into insolvency.  The BoE hopes that the increased interest rates will lower the inflation rate and bring the current debt problem under control.

If you are currently searching for a low interest rate offer for a new credit card, whether it is for the purchase of a new appliance for your home, or plane tickets for a holiday, you will find many credit card offers for low interest rates.  Here are some credit card offers currently available on the market:

Barclaycard Platinum Credit Card
Barclaycard is offering 0% interest on purchases for 10 months, starting from the day the account opens.  The typical APR is 14.9%, there are no annual fees, and they are offering 5.9% on balance transfers for the life of the balance with no handling fees.  Before you apply you must be over 21 years old, have a permanent UK address for 3 months, have a regular income of more than £10,000 per year, and not have a CCJ, IVA or be registered for bankruptcy.  You can apply at www.barclaycard.co.uk.

Sainsbury’s Bank Platinum Credit Card
Sainsbury’s Bank is offering 0% interest on purchases for 10 months with a typical APR of 15.9%.  There are no annual fees, and if you transfer a balance in the first six months you will be charged an APR of 5.94% for the life of the balance.  Before you apply you must be over 18 years of age, have a permanent UK address, and have no history of bad credit, CCJ, default of bankruptcy.  You can apply at www.sainsburysbank.co.uk.

MBNA Platinum Plus Visa Credit Card
MBNA is offering 0% interest on purchases for 3 months with a typical APR of 15.9%, and no annual fee.  They are also offering 0% interest on balance transfers for 12 months with a 3% handling fee.  You must be 18 years or older, and residing in the UK to apply for the card with no CCJ, IVA or bankruptcy defaults.

If you do have a history of CCJs or missed payments, you can still borrow money through various lenders who offer bad credit consolidation loans or other adverse credit loans.  Check our website for further details.

Debt doesn’t have to ruin the rest of your life. A bad history can be tackled with a little careful planning. Liz Dolan explains how

Have you got a sackful of unopened bills and creditors’ letters hidden under the bed? Have you got into a deadly cycle of borrowing more and more to repay existing debts?

Give yourself a break and stop running. The problems won’t go away, they’ll just spiral. If you don’t want a history of bad debts to ruin your credit rating, you must tackle the situation head-on.

So how can you begin to break this awful cycle? Here are some dos and don’ts:

Devise a repayment plan. Work out a budget, showing how much you need to live on. The amount left over is what you’re going to use to start paying off your debts.

Prioritise. Some debts are more dangerous than others. Sort them out first. Top-priority debts include: mortgages and other loans secured on your property; rent; council tax; County Court Judgments; electricity and gas; tax; hire purchase debts; TV licence.

Write to your creditors. They’ll be delighted to hear from you at last. Tell them what you propose to do. Enclose the first month’s payment, plus a copy of your budget plan, so they can see what you’re spending money on.

Be realistic. Pick a figure you know you can afford. If you can afford only a couple of pounds, that’s what you pay. If lenders demand more, tell them they can’t have it and stick to your original plan, sending payments regularly each month.

Seek help. Various organisations offer free advice to people struggling with debt. They include: local Citizens’ Advice Bureaux; the Consumer Credit Counselling Service (0800 138 1111); National Debtline (08459 500511); Debt Help UK (www.debthelpuk.co.uk).

Avoid

Debt management companies. Why pay for a service that you can get for free? There are also horror stories about the way some of these outfits operate.

Consolidation loans whilst your existing lines of credit are still open. Don’t automatically be tempted to take out a loan to pay off all your debts. You may lose the flexibility to, for instance, prioritise creditors. Also, the loan may be secured against your possessions.

Credit repair companies. Don’t believe companies that offer to ‘repair’ a bad credit rating. It’s not possible - legally anyway.

Be wary of
Sub-prime lenders. These are (mainly American) companies that lend money to people with bad credit histories at very high rates of interest. This helps them rebuild credit histories, but at a price. Exhaust all other avenues first.

Tackling a bad credit rating

But what if you think you’ve already got a poor credit rating?

Here’s a scenario you may recognise. Your debts are getting out of control and you apply for a loan to pay them all off in one go. Thanks, but no thanks, says the lender. We’ve checked you out and we just can’t take the risk.

Here’s another. You find the kitchen of your dreams in your local department store and ask to pay for it in monthly instalments. The store makes a few checks and turns you away.

What do you do next? Click over for some questions and answers that may help.

What sort of information do lenders have access to?

Virtually every company that provides credit gives information to one or both of the major credit reference agencies, Equifax or Experian. Credit reference agencies keep individual credit files on millions of people and update them regularly.

They list any existing credit agreements - ranging from mobile phone contracts to mortgages, but not overdrafts - plus details about how good or bad you are at keeping up-to-date with payments.

Most of the main lenders provide this information because, if they don’t, they’re not allowed to make inquiries about other companies’ customers. Credit agencies also use publicly available data gleaned from sources such as electoral rolls and court records.

The agencies supply the raw data to lenders, who use different formulae to work out whether you’re a good risk. They concentrate on things like your income, existing debts and repayment record.

What should I do if I’m turned down?

Don’t trek from lender to lender until you find one willing to take you on. Every rejection leaves a ‘footprint’ on your file. The more footprints you amass, the more wary lenders become.

Ask both reference agencies to send you a copy of your file - even if the lender that turned you down used only one of them. Everyone should do this on a regular basis, whether or not they’ve had problems with credit applications.

How do I apply for my file?

Visit http://www.equifax.co.uk or send a written application to Equifax Plc, Credit File Advice Centre, PO Box 3001, Glasgow G81 2DT. You can call 0870 010 0583 (open between 8.30 am and 6.00 pm weekdays) for more details, but you’ll still be asked to apply in writing - it’s the law.

Experian can be found at http://www.experian.co.uk or you can write to: Experian Ltd, Consumer Help Service, PO Box 8000, Nottingham NG1 5GX. The phone number is 0870 241 6212.

Enclose a cheque or postal order for £2, made out to the appropriate company, plus your full name, date of birth and your addresses for the past six years. You should hear within seven days.

What do I do if my files contain inaccuracies?

Notify the credit agency as soon as possible, enclosing any proof you may have to back your case. If the lender admits it is in the wrong, the entry will be corrected or removed. If the lender disagrees, and provides sufficient proof, the information will stay on file. But you can still write a ‘notice of correction’, which will be added to your file.

My files are overflowing with CCJs (County Court Judgements) and bad payment records. Am I stuck with a bad credit history for life?

Not necessarily. It may take a while, but it’s possible to rebuild your credibility with lenders. CCJs that are paid off within 28 days will not appear on your file. If you’ve paid up, but after the magic 28 days, the CCJ will appear on your file, but so will the fact that you’ve paid. CCJs are removed from your file after six years.

If you’re being unfairly penalised for the sins of a partner, parent or sibling who shares your address, write in and say so. If you have a joint account or other shared financial arrangements, this solution isn’t open to you.

If your relationship breaks down, tell the agencies immediately, so they can remove your ex-partner’s name from your file.

An overwhelming number of debt management companies have set up shop in the UK in the past three years.  They hope to profit off of those who are facing insolvency.  And they are profiting – big time.

Consumer debt is preparing to breach the half trillion pound mark, leaving many UK households unable to make repayments on unsecured credit such as personal loans and credit cards.  these people hope the glossy advertisements offering a fast and painless way out of debt promise a real solution.

However, the Office of Fair Trading has charged some of these companies with false advertising, and has accused several of making false claims  and failing to warn consumers of the disadvantages of opting for debt solutions.  The number one offenders is the IVA industry.

Individual Voluntary Agreement promises to reduce the total consumer repay each month to their creditors and repays all debts within five years.

Some firms promise to reduce debt by as much as ninety percent, which the Office of Fair Trading claims is much higher than the reduction consumers are seeing.

Many consumers are not told about the pitfalls of an IVA. They are unaware of the fees levied, especially for a late payment, or the extra charges attached that can extend the length of the IVA.

One OFT spokesperson stated: “A lot of these adverts and promotions push the potential benefits of these arrangements without mentioning some of the potential pitfalls. There were also some misleading statements. Some were claiming that up to 90% of the debt might be written off when the maximum is likely to be in the region of 60-70 per cent. There was also a failure to display warnings about the possibility of bankruptcy if an IVA fails, and that an individual’s credit rating can be affected for up to six years.”

Many households and individuals are currently struggling with high levels of debt.  A record number of bankruptcy and IVA applications are being filed with 30,000 people expected to petition for bankruptcy in the first three months of 2007.

However, some analysts believe that 2007 is the turning point in the crisis.  Figures indicate that consumers in the UK are starting to gained a tighter grip on their debt management programs as they bring their financial situations under control.

Many blamed the bank’s free hand with lending.  Even with regulations and restrictions, banks were handing out personal loans to people who should not have qualified, giving  credit cards to people with poor credit, and giving loans to people who clearly did not qualify under the government’s regulations.

An insolvency expert at PricewaterhouseCoopers stated: “I’m not sure it is a crisis. The bare figures look dreadful, but I think essentially the worse is over. There will probably be a hangover in 2007 but unless consumers start hitting their credit cards again I do not see it increasing significantly.”

This paints a positive picture for debt in 2007.  The Bank of England’s survey confirms this fact.  They state that most UK consumers are not struggling under a mountain of debt.  In fact, 53 per cent of the participants polled in their survey claim they will be out of debt before the end of 2007.

Many UK consumers attribute both education and debt management counseling to their changing attitudes.  Fear of losing their home, or never owning a first home, has also caused many UK consumers to start managing their finances better.