Following on from the post Lloyds TSB: letters to people in Debt Management Plans I wanted to think more about how creditors manage the behaviour of people in debt.

It feels odd writing this when Zero-credit is a consumer cooperative representing borrowers’ interests, but the fact is that many of us still do not bite the bullet when financial difficulties are taboo. But what is a creditor supposed to do when we don’t get in touch? Certainly not bring out “Counterfeit Lawyers 4 U”, that’s for sure!

Creditors to debtors are like teachers to pupils

Oddly, I am reminded of challenging classroom behaviour, or as teachers call the bulk of it, low-level disruption. Kids chewing gum, over-knotting school ties, chattering throughout the lesson on a non-uniform day – challenges to authority that we may equally apply to a creditor in the play of everyday life – sod you for adding charges, you overpaid git! Just as much as kids baulk at the reality of sitting GCSEs, so too are adults perfectly capable of omitting debts from a pressing to do list.

Whilst such actions demand reactions, a good teacher knows when not to apply sanctions. With a class of 30 kids champing at the bit, the last thing anyone needs is to escalate the situation. Thus, when confidence in the banks is at an all time low, turning the screws serves only to sever the few ties remaining and end any possibility of a desirable outcome. This is a dangerous precedent to set, when economic uncertainty is the norm.

What can creditors do?

In the teacher’s toolkit, alternatives to dishing out detentions and exclusions include creating layer upon layer of warnings and contrasts: a raised eyebrow, the look, standing close to a trouble maker, or rewarding the bad kid turned good, anything and everything to prevent confrontation. Interestingly, we are beginning to see signs of this from utilities providers. Plusnet, for instance serves a polite reminder that Internet connection may be lost if the bill is unpaid. The account holder simply acknowledges the notice before carrying on browsing.

Gentle reminders that I’ve got the power to keep you at break, stop your pocket money, or restrict access to services is, of course, how the vast majority of us parent our kids. If the creditors would only stop and think about it, austerity Britain is one great big kid with more people committed to credit than any previous recession has witnessed. Getting out of this mess is a learning curve for us all, but one thing’s for sure, scaremongering the cash-strapped taxpayer who bailed you out only to find that you still got your bonus is not the way forward.

Chris Brown, a member of the team who has worked as a Debt Management Plan Customer Service Officer and now works in the creditor liaison team, shares his views on Lloyds TSB.

Having worked in customer service for Abacus (part of ClearDebt Group plc), I have spoken with many of our clients on Debt Management Plans who have received correspondence from their creditors, which has caused them a great deal of concern. The letters in question are making demands for payment and threatening legal action.

Despite the fact that at some point or other, every lender is likely to send letters of this description, there has been and still is a repeat offender that is constantly filling up the letter boxes of their customers – Lloyds TSB.

Lloyds TSB Scare Tactics

As soon as an individual is no longer able to afford the contractual payments for a debt with Lloyds TSB, at least 500 square miles of rainforest is reserved and 50 lumberjacks employed to provide paper for the letters that will be sent daily until the debt is paid off. At least 5 species of rainforest creatures will become extinct and the debtor’s postman is 10 times more likely to suffer from arthritis in their post delivering arm during this period. This is not entirely true but it is in the Lloyds spirit of exaggeration and scare tactics.

The letter that causes the most concern, in my experience, is sent under the name SCM (Sechiairi, Clark & Mitchell) solicitors. They claim to be instructed by Lloyds to contact you because “despite several reminders your account remains out of order”. It goes on to say, if you do not pay them, legal proceedings may be issued at your expense. You are then “strongly urged to make immediate payment”.

The whole letter paints the image of ruthless legal professionals who take great pleasure in unleashing the full fury of the legal system against any individual unfortunate enough to cross their path. They are in fact a collections department of Lloyds.

Should you ignore the Lloyds TSB letters?

Having spoken to Lloyds about these letters they say the majority are sent during the process undertaken when an account is passed from their Financial Management Unit to their Central Debt Recovery department and apparently can be ignored.

So if they can be ignored, why send them?

I accept that letters should be sent to inform a debtor that their account is being handled by a new department within Lloyds (which they are), but to send a letter that gives the impression that court proceedings with be issued when they will not, is beyond unnecessary.

In addition to SCM solicitors they also have other collections departments that go under the names MHA collections and BLS collections (you can see some of the letters that they send here: MHA Collections letter, BLS Collections letter, SCM solicitors letter). It appears Lloyds want to give the impression that hundreds of mercenary debt collectors and legal teams are pursuing the debt on their behalf and are gathering on mass outside your front door.

Cutting unnecessary costs

After having to be bailed out by the tax payer, who now own over 40% of the company, I would have thought Lloyds would be looking for ways to cut unnecessary costs. A good way to start would be to stop sending out these letters to people who have found themselves in financial difficulty and have since taken responsibility to seek professional help.

In the time it has taken to read this, because of the intensive deforestation required to support Lloyds’ need for paper, the Borneo Jungle Ferret no longer has a habitat and is extinct. There is no Borneo Jungle Ferret, I made it up. The same way Lloyds made up MHA collections who may be taking legal action against you.

Santander recently announced some changes to their overdraft fees. ClearDebt’s Mike Morgan goes through the finer details to see whether Santander account holders are better or worse off now.

Quite by chance, I happened to stumble across the overdraft charges that are outlined in the table below. At first glance, and certainly in the printed literature that I have read – where they compare their charges with those of other banks, they do not look too bad, but as ever the devil really is in the detail.

What are the new Santander overdraft fees?

Click to enlarge or view the full summary announcement from Santander.

Santander’s arranged overdraft fees

For an arranged overdraft, they charge 50p per day, capped at 10 days each monthly statement period. In comparison with others, this is actually very competitive. It is where unarranged overdrafts are in place that the real pain starts.

If we consider, as an example, a case where a customer has an overdraft limit of £150 and believes their balance to be £124 overdrawn, they would still be able to write out a cheque for £25. In this case they would be within their agreed limit and would incur a maximum charge in a month of £5.

Santander’s unarranged overdraft fees

However, if this same customer made a slight error in their budgeting and their balance was £126 overdrawn then this is where the danger lies. As we all know, banks will make a charge for returning an item unpaid, whether that be a cheque, direct debit or standing order. In this instance, if they were to return the item unpaid then the fee incurred, £25, would still take the customer over the limit and would then be subject to a daily charge of £5. Those £5 daily charges are not limited to 10 days, but are capped at 20 days. So, for the sake of not honouring a cheque that would take a customer £1 over their agreed limit, the potential charges that the bank make will be £125!

Damned if you do, damned if you don’t – one banks way of “helping” their account holders.

And what if the bank honours the cheque? Well, it must be realised that the account will still go over the limit, so that £5 per day charge will still accrue, but you would hope that at least you will save the £25 unpaid fee. WRONG!!! They will charge a paid fee, which, unsurprisingly, is £25. In summary, damned if you do and damned if you don’t. I am aware that there are other banks that charge paid fees, but I am happy to report that they still seem to be in the minority.

Read the small print

The lesson here, surely, is to read the small print in great detail, and if you are living very close to the edge, then minimise your future losses by picking an account with the least charges. Also, if you are on the edge, it may well be worth having a chat with one of our professionally trained, qualified and very experienced advisors by calling us freephone on 0800 019 2095 or completing our online contact form.