Past Articles for September, 2007

Banks entice students and then “attack them quite viciously” with debt, according to the National Union of Students (NUS).

A spokesperson for the organisation said that students need better debt advice and the access to financial information as they are at a pressured time in their lives.

“It would seem sensible that they were given more financial advice, especially when there is so much open to them: credit cards, loans, etcetera,” the spokesperson said.

“Given all of those things are open to them, we’d hope they’d be given better advice financially.”

However, the spokesperson also said that the market is an “absolute prize” for banks and suggested that after luring students in, they are attacked with the “commercial rate of debt” - something that could result in them having debt management problems.

Finally, she added that when it comes to financial education, “nothing substitutes them [students] being sat down” and talked to about handling their finances, suggesting this could help them clear debt they accrue.

Recent opposition from the NUS to HSBC plans to charge interest on graduate account overdrafts led to a withdrawal of the policy by the bank.

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The National Consumer Council (NCC) has welcomed the government’s plans to crack down on illegal lending.

Speaking on BBC Radio Five Live’s Wake Up To Money programme, Claire Whyley, deputy director of policy at the NCC, said that the issue of illegal lending is a “big problem” and that currently such methods seem like the only borrowing method for some.

“There are people who are completely excluded from most other types of credit and have no choice but to use illegal lenders, so that makes them incredibly vulnerable,” Ms Whyley told the programme, suggesting that people who have had county court judgments (CCJs) or similar credit problems in the past may turn to these lenders.

She added that people who cannot get credit elsewhere, perhaps because they have been declared bankrupt, can become “very dependent on them”.

Government intentions to crack down on loan sharks were revealed on Wednesday by John Hutton, secretary of state for business, enterprise and regulatory reform.

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The Department for Business, Enterprise and Regulatory Reform (Berr) has announced today the biggest nationwide crackdown on illegal lending ever implemented.

John Hutton, secretary for Berr, outlined how new specialist teams would receive funding of almost £3 million to tackle loan sharks.

Mr Hutton’s announcement follows research released today showing that since 2006 such projects have helped 45,000 people with debt problems, many of them victims of loan sharks who struggle to become debt free.

The former work and pensions secretary stressed the government’s commitment to shutting down loan sharks.

“Our targeted teams will make sure anyone who feels trapped or scared has the confidence to report these crooks and put a stop to their illegal behaviour.”

The announced crackdown will build on the work of pilot anti-loan shark teams setup in Birmingham and Glasgow, which as well as offering debt advice, have identified more than 200 illegal lenders and shut down £3 million of loan shark business since their inception in 2004.

A loan shark is defined as a moneylender who is not licensed by the by the Office of Fair Trading (OFT) and is thus not subject to OFT regulation.

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The type of debt that is causing people to need a debt solution or debt advice is changing, according to Credit Action.

Chris Tapp, deputy director of the national money education charity, has said that mortgage payments have replaced credit cards, loans and other unsecured lending as the form of debt that people struggle with.

“We’ve seen such growth in house prices that people have been forced to borrow very large amounts of money if they want to get onto the housing market and that’s led to people borrowing in a way that’s left them very little breathing space in terms of their monthly budget,” Mr Tapp said.

He also offered that it was not necessarily a case of irresponsible lending or borrowing that has led to problems of indebtedness and the need for debt advice, but rather that “the financial system in general” is experiencing problems.

According to Credit Action figures, the level of personal debt in Britain has rises by £1 million every four minutes, with consumers borrowing an additional £322 million each day.

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Britain’s indebted children are relying on their parents as a debt solution, according to the latest research from MoneyExpert.com.

Some 40 per cent of parents have been called upon to offer their children some form of assistance with their debts, with the likes of mobile phone bills, car finance and credit card bills all needing a debt solution.

At least one-fifth of parents have helped out their children with debts on such bills, along with the repayment of an overdraft, according to the research, whereas almost one in ten (nine per cent) have helped with mortgage repayments.

“With the cost of living so high at the moment and with so many people living a buy-now-pay-later lifestyle, parents are often forced to help out their children financially in later life,” said Sean Gardner, chief executive of MoneyExpert.com.

On average over the last three years, parents have spent £2,540 on providing a debt solution for their children and helping them clear debt, the research revealed.

This parent generosity could be having a knock-on effect. Scottish Widows this week highlighted that a number of over-55s will have to work past the state pension age due to not having the required savings to und their retirement.

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National money education charity Credit Action has called for greater financial education to help people with debt management or to stay debt free.

The organisation’s deputy director, Chris Tapp, said that while further regulation is not necessarily the way to reduce consumer indebtedness, financial education could help people avoid the need for a debt solution in the future.

“I think what we need really is people to be better educated when it comes to borrowing - better educated when it comes to managing their money - and so people understand the risks they’re taking on, to not simply borrow because they’re able to,” Mr Tapp said.

The aspect of self-control, in accordance with more education, would be “more effective than further regulation” at combating Britain’s debt level, Mr Tapp added.

He suggested that people have to this point been “educated into debt” but not about debt, which could have helped fuel a culture that is now reliant on debt management.

Credit Action was established in 1994 and offers financial advice and training to help people improve their money management.

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Individual voluntary arrangements (IVAs) give consumers who have struggled with debt an opportunity to start again, according to the Insolvency Practitioners Association (IPA).

The IPA has said that the arrangement between debtors and creditors as a debt solution is a formal agreement that can help indebted parties get their life back on track.

“Hopefully it’s a formal statutory resolution that evokes creditors to get back a reasonable return on money they have lent to debtors and also [gives] debtors the equal opportunity to get their life back on track and start afresh,” said Wayne Harrison, a spokesperson for IPA.

The organisation, which is a membership organisation for those involved in the insolvency, suggested that using an IVA to clear debt has risen along with bankruptcy rates.

Mr Harrison added that while an IVA can affect a person’s credit rating, the debt solution will only be chosen by people who have a poor credit rating due to debt struggles anyway.

According to Insolvencies Service figures, there were 26,956 individual insolvencies in England and Wales in the second quarter of 2007.

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Consumers have been advised by an industry expert to keep an eye on their credit report in the wake of the credit crunch.

Jim Hodgkins, managing director of CreditExpert.co.uk, has said that it is important those who are not debt free closely monitor their credit commitments and their credit files due to the likelihood of rises in repayment sums.

“By checking your credit report regularly and keeping it up to date, you can make sure it reflects you and your financial circumstances correctly,” Mr Hodgkins said.

He added that a credit report can help debt management, highlighting how much needs to be “spent on essentials” and how much is left over for other expenses.

CreditExpert.co.uk has said that with the end of a number of fixed-rate mortgage deals drawing near and five interest rate rises by the Bank of England’s monetary policy committee in the last year, borrowers are seeing higher repayments needed.

The firm is an online credit monitoring service from Experian, with the company also offering an identity fraud protection service, according to its website.

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Prepaid credit cards can help people stay debt free, according to Tuxedo, a company that offers such a product to the market.

One of the benefits of using such a card is that no debt is taken on, according to the firm’s chief executive, suggesting it is possible to remain debt free while enjoy the flexibility that a credit card can offer.

“There is no debt to pay off with a prepay card - you spend what you have,” said Mark Simon from Tuxedo.

“There is no credit involved and as a result there is no risk of going over drawn and there is no risk of incurring credit costs.”

Mr Simon also added that the method of spending allows consumers to manage their finances according to how much money they have, rather than in the way that a traditional credit card allows the taking on of debt.

According to the chief executive, the payment method is “very popular” in the United States where it was introduced earlier and has already caught on.

The Tuxedo website claims that anyone can get one of the firm’s prepaid Maestro cards, while no credit checks are required.

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There are risks associated with spread betting as with any other form of trading, according to the chairman of a bet broker and clearing house.

Wayne Lochner, chairman of Betbrokers, said that there will always be people that struggle as a result of spread betting, suggesting debt management problems could arise, but he added that such people are in the minority.

“With any financial industry, with any trading, there are always going to be people that get into difficulty,” Mr Lochner said.

“But by and large, the vast majority of people who get involved with spread betting know exactly what they’re getting into and understand the implications.”

He added that it is in the interests of spread betting companies to check that potential clients are credit worthy and that they have the ability to clear debt before taking them on, as they “don’t want to leave themselves open to bad debts”.

Finally, the chairman referred to spread betting as a “professional’s game” and not for the “man in the street”.

Betbrokers was launched in October 2003 and boasts an ambassador circle that includes Barry McGuigan, John Virgo and Lester Piggott, among others.

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