Past Articles for November, 2006

In its latest trading update, Barclays said that while its credit card arm was still performing well, it was still concerned by bad credit card debt.

“The rate of growth in impairment charges continued the trend of the first half, driven by a higher level of insolvencies,” Barclays said.

However, it stated that “the flows of new arrears and levels of delinquent balances have stabilised” as Barclaycard takes action against bad debt.

Announcement that bad debt has dented profit levels is of little surprise, especially as the Insolvency Service figures show that bankruptcy cases and Individual Voluntary Arrangements (IVAs) increased in England and Wales in 2006.

Earlier this year, Barclaycard became one of the first main lenders to increase interest rates for credit card debt to recoup losses from bad debt.

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Banks’ total net lending to individuals increased by £10.9 billion, higher than the increase in September and the six-month average of £10 billion.

Similarly, the increase in consumer credit grew by £1.1 billion last month, including a £0.2 billion increase in credit card debt.

While credit card debt growth was £0.2 billion less than in September, other loans increased by £0.9 billion, compared to only rising by £0.6 billion the month before.

The news comes as leading figures, including the governor of the Bank of England, give warnings about Britain’s increasing levels of debt, which have now reached £1.3 trillion.

Political parties across the spectrum have demanded action to stop the rise in debt levels that is being accompanied by increases in cases of bankruptcy and Individual Voluntary Arrangements (IVAs).

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Commenting on its latest savings index, Standard Life said that only 58 per cent of people regularly saved and merely a third were happy with their provision for retirement.

“The UK has the highest level of personal debt in Europe and for this to change we must make it as easy to save as it is to borrow,” said Trevor Matthews, chief executive of Standard Life Assurance.

He added that “37 per cent of respondents in our research expected to save more in the year ahead but without a change in cultural attitudes to savings this may be optimistic”.

Latest figures reveal that Britons are £1.3 trillion in debt and Mr Matthews blamed easy credit for part of this problem.

In order for attitudes towards debt management to change, Mr Matthews added that savings should be seen as the new “must have”, like an iPod or gym membership.

He also said that the level of satisfaction with savings for retirement was worrying, since that could see many people spend their final years in debt.

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Speaking to Reuters, Mike Norris, director of policy at the Insolvency Service, said that the move should help consumers avoid bankruptcy.

“By keeping people out of bankruptcy
and, where appropriate, getting them into Simplified IVAs, we would expect to see better returns for creditors,” Mr Norris said.

“That’s both in general terms, as the returns in IVAsare significantly higher in IVAsthan bankruptcy and more specifically, as we would expect to see lower costs in Simplified IVAsthan in ’standard’ IVAs.”

Simplifying IVAs should offer debtors more options and banks are likely to approve of the changes as the arrangements allow consumers to clear debt and repay banks.

According to the article, SIVAs will have less bureaucracy than existing IVAs and will eventually account for 80 per cent of the IVA market.

However, David Mond, CEO of IVA providers ClearDebt, said: “This is too little too late ­ the SIVA is a potential lifeline for many thousands of debtors and should also force IVA fees down, producing better returns for creditors and allowing debtors with lower debts and smaller incomes to benefit from the debt-forgiveness of an IVA, rather than the uncertain debt management plans that hundreds of thousands mistakenly choose every year.

“SIVAs have been in discussion since 2005 - it’s not acceptable that thousands of debtors should wait until 2008 for the relief they can provide.”

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Richard Lander, director at Citwire.co.uk, reports that the latest monthly update from Seven Investment Management warns about the UK’s poor debt management.

“Britons are a nation of debtors. According to Bank of England data, lending to UK individuals stands at £1,257 billion, equivalent to £21,000 per capita,” he reports.

“UK per capita household debt is well above that in continental Europe.”

The report is stated as adding that 55 per cent of credit cards issued in Europe are held in the UK, increasing the risk of Britons getting themselves into credit card debt.

Mr Lander also comments that insolvencies, such as bankruptcies and Individual Voluntary Arrangements (IVAs), are up in the UK, as seven million people struggle with their debt management.

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According to the Financial Services Authority (FSA), advertising affects people’s debt management decisions, which is why misleading literature can be dangerous.

Vernon Everitt, FSA retail themes director, remarked: “Financial advertising has a massive influence on the decisions people make.

“So it must be clear, fair and not misleading…This is particularly the case in advertisements by mortgage brokers in the sub-prime market, where people are making one of the most important financial decisions of their lives. We need to see standards here rising - and fast.”

Around 930 people have complained to the FSA about advertising in the sub-prime sector, but the number of people who have had their debt management decisions affected by such advertising could be much higher.

Mr Everitt said that the authority fined firms that breached codes, adding that the FSA was looking at the debt advice given in the sector too.

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According to the accountants and business advisers BDO Stoy Hayward, a poll has revealed that consumers want to see usurers taxed, partly due to the debt woes they can bring.

Stephen Herring, a tax partner at the firm, stated that some kind of regulation was even more important due to the amount of bankruptcies and Individual Voluntary Arrangements (IVAs) high interest loans can drive people into.

“As personal insolvency in the UK reaches an all-time high, consumers are calling for the government to intervene and penalise those finance providers they feel are making money out of consumer debt, presumably through irresponsible lending,” stated Mr Herring.

His comments come as Gordon Brown prepares to announce his pre-Budget report that could see a shake-up of certain taxes.

Mr Herring added that he hopes that the chancellor will use the opportunity to reform certain taxes to encourage more saving and thus better debt management.

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According to Scottish Widows, over five million people may need to start a debt management plan that accommodates the death of a relative due to rising house prices.

“The six per cent rise in property prices means that thousands more people will now face inheritance tax this year compared to 2005,” said Anne Young, tax expert at Scottish Widows.

“Whilst the average household wealth has increased from last year, so too has the amount of liabilities meaning the possibility of an added burden of debt left behind to relatives in the event of a death.”

Rising house prices have already forced many people to go deep into debt to get onto the housing ladder, but now it seems that relatives of ‘final buyers’ as well as first-time-buyers are being hit by the price increases.

Ms Young stated that a debt management plan could save “thousands of pounds”, adding that she was sure that most people would prefer that their relatives, rather than the taxman, got their inheritance.

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The BBC has discovered that many former customers are turning to doorstep lenders who charge high interest rates, with reports that loan sharks are targeting some Farepak victims.

One consumer, Lisa Tuckwell, told investigators that she has been approached by people demanding to know if she needs money. However, loans that they offer can have a high rate of interest and push people deeper into debt.

Collapse of the Farepak saving scheme in October has already forced many people into debt despite the Christmas debt management plan it claimed to offer, although funds are being collected to help some of the victims.

However, people affected by the collapse have been told to seek out debt help rather than turn to loan sharks and other providers who give cash at a high loan rate.

“It is a double scandal”, said Janice Allen of the National Consumer Council in the same report. “The people who saved with Farepak thought they were doing the right thing. Now they find themselves forced onto expensive forms of credit.”

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According to the price comparison website, the number of people struggling with energy debt management has risen by 765,000 since March to reach 6.4 million, with the amount of households in fuel poverty standing at 5.8 million.

“The average energy bill has risen from £735 since the start of the year to £1,013 today and the number of energy customers struggling to pay their bills continues to escalate at an alarming rate, with an additional 1.25 million consumers estimated to have fallen victim to fuel poverty this year alone,” states uSwitch.com.

This year has seen 13 price increases by the six main energy suppliers, yet while profits have soared, the website claims that customer satisfaction has decreased.

Such is the level of increases, uSwitch.com estimates that a quarter of homes are struggling with fuel debt management, while 2.8 million pensioners are facing fuel poverty.

Ann Robinson, director of consumer policy at the website, said: “Consumers want value for money and a drop in prices.”

Any consumers looking for advice on how to pay their utility bills should click here .

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