Past Articles for April, 2006

The group, which includes internet bank Smile, Co-op bank and the Co-operative Insurance Society, said that the increase occurred due to “unprecedented” levels of credit card debt as well as other borrowing for some customers.

Now the group has told the Daily Telegraph that its bad debt charges have rise to £99.8 million (from £70.7 million) in the year to January 14th.

In a statement it said that the deterioration in the credit climate reflects the high levels of consumer indebtedness, as well as the “significant rise” in personal bankruptcy declarations.

From a corporate point of view though CFS is not overly concerned with the levels of bad debt as long as unemployment and interest rates remain low.

Commenting, ClearDebt CEO, David Mond, said: “CFS are not the first financial services group to feel the impact of a rise in personal insolvency.

“If the number of Individual Voluntary Arrangements rises as predicted this year, then banks and credit card companies could see total debt at risk, from this source alone, of well over £1 billion.”

The last year has seen the restructuring of the CFS, which David Anderson joined as chief executive in June 2005.

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Neelie Kroes, the competition commissioner at the EU, delivered the interim findings of an EU inquiry into the industry and called the fees “outrageous”, targeting dominant brands in the market, as well as banks, with her comments.

She said: “What we are faced with is absolutely abnormal profits and is completely unacceptable.”

Ms Kroes went on to say that she was not against profit, but that competition was missing from the credit card market.

She continued: “It’s a closed shop and there’s no cross-border activity, and consumers and small firms are paying for it.”

A recent inquiry by the OFT found that Britons are paying up to £10 billion a year in higher bills and firms could now be fined up to ten per cent of their total turnover if the EU finds they are abusing their positions.

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Michael Jackson has been forced into the sale, which could include songs written by the Beatles, as he owes the Fortress Investment Group some $270 million and is allegedly struggling to meet the $4.5 million monthly interest payments.

The news, which was revealed by the New York Times, also indicated that as part of a refinancing deal Jackson would be leant $300 million and his interest payments would be reduced.

In return for this, he has agreed to sell a 25 per cent stake in the ATV music catalogue, which he jointly owns with Sony records.

It is believed that the catalogue, which contains over 4,000 songs, is worth some $1 billion.

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Those providing services such as car washing or window cleaning could be at particular risk as they may have to purchase expensive equipment in order to reduce water consumption.

Now the Federation of Small Businesses (FSB) is calling on Margaret Beckett, the environment secretary, to stop water companies from obtaining drought orders.

The submission made by the FSB to the drought order inquiry by Southern Water states: “The small scale of many of these businesses means that this economic activity will not cease for just the duration of the ban, but may close permanently.”

It is feared that a sudden stop in trade could lead to businesses owners putting up their homes as collateral, which could lead to bankruptcy of families, not just businesses.

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Higher education minister Bill Rammell yesterday announced his initiatives to help the government reach its target of 50 per cent in higher education.

By introducing a credit system similar to those used in the American higher education situation Mr Rammell hopes to improve the flexibility of how and when students can benefit from higher education study.

“Getting more people into higher education is both a social and economic imperative as the international competition looms large,” Mr Rammell told the Times.

“I believe that two-year degree courses would encourage those who would not usually feel able to take three years out of their lives to study to see that a degree may be possible for them.”

The two-year courses would continue over the summer holidays and would be complimented by pilot schemes promoting online courses and degrees taken while at work.

Education sector organisations like the National Union of Students (NUT) have criticised the proposals, suggesting that intensive two-year courses would prevent students from taking part-time jobs to help them pay for the cost.

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Writing in next month’s edition of the Journal of Consumer Research, Lisa Bolton, Joel Cohen and Paul Bloom claim that the existence of remedial packages encourage consumers to adopt risky borrowing patterns.

Most worryingly of all, the study claims that the group most likely to respond to the remedies include those most at danger of falling into the trap of uncontrollable unsecured debt.

“Ironically, remedy messages boomerang on the people they are intended to help the most,” the study explains.

It concludes that its findings constitute “a serious problem for individuals and at a societal level”.

The study found that its findings about debt remedies were equally applicable to other marketing sectors, pointing to the existence of products helping smokers end their habit as an example of artificially lowered risk perception.

Britain’s debt culture, which claims around 70,000 bankruptcies in England and Wales each year, has helped the UK’s total debt grow to a total of £1.1 trillion.

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In total 75 per cent of CreditIndex’s Personal Credit Index respondents said their borrowing did not present them with difficulties, with only 11 per cent predicting that their levels of debt would rise in the next few months.

Furthermore, 85 per cent said they were confident that they were able to pay household bills, although this figure was significantly lower in London and regions of the south and south-east.

“The Personal Credit Index will provide a valuable benchmark of consumers’ attitudes towards borrowing and their perceptions of their credit situation and will track changes in Britain’s ever-changing credit climate,” said Jim Hodgkins, managing director of CreditExpert.

“It’s important that we keep track of our credit commitments to ensure we’re borrowing within our means and are aware of any changes to our credit report that could impact our future borrowing power.”

CreditExpert’s positive conclusions are at odds with many personal finance experts concerned by the UK’s debt-heavy culture – which now owes, in total, £1.1 trillion.

Commenting, Andrew Smith of IVA specialists, ClearDebt, said:

“The experience of many of the people who come to us for help mirrors that of the CreditIndex Survey – but shows it may be a little naïve. Many of those who enter an IVA with us were deeply, but comfortably, in debt – secure in the knowledge that they had carefully calculated what they could afford to repay.

“Then, life did something unexpected – like divorce, or partnership breakup; pregnancy – meaning one of a family’s two incomes was lost; illness; job loss; even unexpected but unavoidable household debt. These and other unexpected and expensive life changes can turn manageable debt into a financial crisis,” he concluded.

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Research from debt agency One Advice found that of these, half a million owed over £20,000 through personal loans, credit cards and overdrafts being largely responsible.

In particular those aged between 35 and 44 were especially vulnerable, with 650,000 of the two million coming from this age bracket.

“It is worrying that so many people owe so much in unsecured debt… this seems to be rising,” Chris Holmes, chief executive of One Advice, observed.

“With many unsecured borrowing products having high interest rates, many people are entrapped in debt, often only paying off the interest accrued every month as opposed to the capital they have borrowed.”

Although the majority of borrowers feel “comfortable” with their levels of credit card debt, as a survey by CreditIndex released yesterday showed, 11 per cent of people expected their credit card debt to increase in the next few months.

Figures from the nearly 14,000 people who have confided in debt resolution company ClearDebt show that these figures are even higher amongst those who are uncomfortable enough with their debt to seek debt advice. ClearDebt’s user-base owes an average of £26,600 in credit cards and loans, roughly 165 per cent of their annual take-home income.

Britain’s debt culture, which claims around 70,000 bankruptcies in England and Wales each year, means the UK now owes a total of £1.1 trillion.

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IVAs, in which between 40 per cent and 80 per cent of a person’s possessions are recouped to recover as much of the debt as possible, are an alternative to bankruptcy.

However, widespread concern has been expressed that profit-seeking companies convince consumers to take out IVAs when bankruptcy may be a better option.

“Cases have been drawn to our attention this year in which IVAs have been recommended to debtors whose only available source of finance was unemployment or disability benefits and who, in our view, could not reasonably have been expected to meet the payments required,” the Insolvency Practices Council reports.

“We think that some unintentional mis-selling may be occuring where IVA providers fail to see the debtor face-to-face. Without a meeting, debtors may not understand what they are committing to as well as they should,” says ClearDebt chief executive officer David Mond.

He continues: “Face-to-face meetings are, ClearDebt believes, more likely to ensure people know what they are getting into – and we feel they weed out some who are not prepared to take the IVA seriously too – and this may also mean fewer IVAs fail.”

Britain’s debt now exceeds £1 trillion, a significant growth which has prompted legislation in Parliament to protect credit card consumers and highlighted the importance of the effective management of loans, overdrafts and mortgages.

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New research from an online credit organisation has revealed that towns in Yorkshire and areas in the Midlands dominate the top 20 locations with the most CCJs per household.

On average, one in 11 adults in the UK has a CCJ against their name - a figure that rises to as high as one in six in Wolverhampton.

Bradford, Leeds, Hull, Doncaster, Huddersfield and Halifax are all also in the 20 worst towns for CCJ registrations.

MyCallcredit director Alison Nicholson described the concentration of results as “surprising”, adding that it was important people strived to avoid CCJs.

“Anyone who has a CCJ registered in their name may find it difficult to get further credit,” she explained.

“But as there are many other factors that can affect your credit rating it’s important for people to know what information is held about them before they apply for credit, that way they’ll make sure they get the best deal for them.”

One other clear finding from the survey was the absence of towns within commuting distance of London - 14 of the bottom 20 were classed as being in this region.

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