Past Articles for February, 2007

James Alexander, co-founder and chief executive of online marketplace Zopa, claims that securing massive profits at the expensive of consumers - an increasing number of who are now turning to Individual Voluntary Arrangements (IVAs) or declaring bankruptcy - has become “institutionalised standard practice amongst the big banks”.

Collective pressure applied to banks by their “long-suffering customers” could in time force changes and improvements in terms of the quality of services supplied to British consumers, Zopa maintains.

“Of course, the more effective way for frustrated customers to apply their own pressure is simply to vote with their feet – something we don’t do enough of in this country,” said Mr Alexander.

A recent study carried out by Zopa claimed that Brits in debt could be paying a full £9.3 billion too much in loan repayments each year.

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According to official figures released by the British Bankers’ Association (BBA), while Brits are paying of their credit card debt quicker than ever before, overall individual borrowing levels continues to increase.

During January the total amount of money owed to credit card lenders fell by as much as £496 million, a figure more than £150 million higher than December, the BBA revealed.

“We can see that the January sales did not encourage borrowing on credit cards,” said David Dooks, BBA director of statistics.

“As in the second half of last year, card borrowing is contracting and, with weaker retail sales being reported, this reflects the consumer’s current attitude to spending and their commitments,” he added.

In related news, the Office of Fair Trading this week called for increased transparency with regards banking charges in the interest of consumer fairness.

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Citing Department for Constitutional Affairs statistics, Preston Today reports that almost one third more people chose the IVA rather than be forced into a bankruptcy situation.

And this trend is represents a cultural change in the attitudes towards debt management nationwide, according to head of personal insolvency at finance firm KPMG Paul Bateman.

In addition, Mr Batemen asserts that this shift is a permanent one, as interest rates rises continue put pressure on those Brits who have found themselves indebted.

The finance expert went on to conclude: “It is unsurprising that we are seeing more and more people choosing personal insolvency as the solution to their problems.”

A report earlier this month from KPMG suggested that there were enough people declared formally insolvent during 2006 to fill Wembley Stadium.

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Barclays, with which millions of Brits have credit card debt, reports that compared to 2006 its overall income rose by a quarter to reach more than £21, 595 million.

“Conditions in UK cards and consumer loans were difficult but Barclaycard UK consumer credit performance is beginning to improve,” remarked John Varley, Barlclays chief executive.

Mr Varley went on to reflect that the bank had had an “excellent” 12 months to the end of 2006 and suggest that Barclays was “well positioned” continue its trend towards increased growth over the coming years.

Last week, Richard Snook, from the Centre for Economics and Business Research, said an interest rate increase – which would in turn heighten debt management problems for many – is “extremely likely” in March.

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A new banking code should stipulate that consumers are notified two weeks in advance before any charges are taken from an account and banking groups should end their “reliance” on so-called hidden charges, the independent organisation makes clear.

The calls from the OFT have been submitted to the British Banking Association as part of its recently completed Banking Codes Review consultation process, which investigates the relevant codes of practice affecting the UK’s banking sector.

Chief executive of the OFT John Fingleton said: “Significant change is needed to the banking codes of practice, particularly to address the lack of transparency that pervades the retail banking sector.”

“We aspire to a self-regulatory framework in UK retail banking that achieves sufficiently high levels of fair treatment of customers,” he added.

Unfair banking has been cited by a number of economic observers in recent days as a contributory factor behind Britain’s growing demand for Individual Voluntary Arrangements (IVAs).

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Ms Melville’s suggestion comes in the wake of the revelation that banks in the UK have accumulated their highest ever profits, despite receiving more complaints about their services than ever before.

The very idea of charging current account customers is “crazy” and would mean more debt management problems for those people in Britain who already cannot afford to be charged, Ms Melville asserted.

“I think it’s likely that banks will start charging for current accounts and I think there’s a real problem there because the people who it is going to penalise are the poor,” she continued.

In related news, the chairman of Debt Free Direct Mike Blackburn told the Telegraph newspaper that the country’s banks are to blame for the rise in demand for Individual Voluntary Arrangements (IVAs).

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Chairman of Debt Free Direct Mike Blackburn told the Telegraph that the continuing rise in Individual Voluntary Arrangements (IVAs) being entered into nationwide has been fuelled by excessive and inappropriate bank lending.

And with the same banks expected to announce record profit figures, Mr Blackburn’s organisation suggests that there are between one million and two million people in the UK who have found themselves terminally indebted.

Mr Blackburn is quoted as saying: “We are where we are because of excessive and imprudent lending decisions made by creditors, who end up with debtors strung up with debt they would never be able to deal with.”

A recent study from the Consumer Credit Counselling Service demonstrated that Britain’s largest debts are typically being accumulated by the country’s over 60s.

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In the face of the country’s deepening debt crisis and increasing cases of bankruptcy, the profits being amassed by banks are “excessive”, Mr Cable asserts.

“Gordon Brown should stop worrying about his reputation with the haves and instead start thinking about the have-nots,” he said.

“Banks are still enjoying excessive profits, based all too often on the exploitation of vulnerable customers through unfair, and in some cases illegal, bank charges.”

The MP also quotes figures which suggest the annual amounts being made by high street banks has risen by around 87 per cent since 1997 and now equates to as much as £230 profit per customer, which he called “completely unjustifiable”.

Last week, Tim Moss, head of loans and debt at price comparison service Moneysupermarket, predicted that the UK’s biggest banks will soon be looking to tighten their lending criteria.

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Chris Tapp, associate director at national money education charity Credit Action, suggests that for those in their 20s or 30s the fear of suffering a damaged reputation is less significant when it comes to debt management.

“It [avoiding bankruptcy] is more of a matter of pride than for younger people,” Mr Tapp explained in response to a recent study from the Consumer Credit Counselling Service (CCCS), which demonstrated that over 60s in Britain are racking up the largest amounts of debt of any age range.

Mr Tapp went on to assert: “It is certainly true that the stigma that is attached to bankruptcy and IVAs and that kind of thing is greatest amongst the oldest.”

Credit Action was founded as an organisation in the early 1990s and through collaboration with various other groups and companies aims to “help everybody handle their money well”.

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Tim Moss, head of loans and debt at price comparison service Moneysupermarket, also suggested that rates of interest on personal loans being offered by the country’s major banks will increase over the coming months.

Mr Moss’ comments came in the wake of Moneysupermarket’s own research which showed that a full 8.5 million people have now turned to consolidate debt loans in an effort to climb out of their financial woes.

“Taking a personal loan to consolidate debts can be a useful way for people to get their finances under control but a loan for these purposes should be considered carefully and only regarded as a measure for becoming debt-free,” Mr Moss remarked.

Earlier this month, Steve Treharne, head of personal insolvency at accountancy firm KPMG pointed out: “You could more than fill the new Wembley Stadium with those who have formally become insolvent in 2006.”

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