Those With Debt Facing More Court Actions

Debt recovery company Lovetts, says it is chasing debt more vigorously than before through legal means. In the second quarter of 2009 it has increased court cases being brought against debtors by 105% from the same quarter in 2008, a telling sign for these rough economic times in the UK.

The value of the debts pursued through written communication prior to entering the court system has increased by 38%. Since pursuing legal enforcement of debt collection is generally an ultimate last resort, this is indicative that those who are not entering IVAs or debt management programs are quite likely going to be subject to further debts via the highly uncomfortable legal process involved in debt collection.

According to media sources, Lovetts’ chairman has said he hopes other businesses will take a similar approach to debts.

Student Debt in the UK Expected to Hit £23,500 per Student

Students entering into institutions of higher learning this Autumn of 2009 are expected to graduate with debts of £23,500 according to new research that is being widely reported across UK media. Those students in Northern Ireland, England and Wales will be paying the most while students in Scotland, where higher education is paid for with taxpayer funds, are expected to amass a debt only half the amount of those in other areas of the UK.

With the cost of higher education expected to rise by a full 10% in coming years, many potential students may find themselves unable to afford a degree of their own. This news comes along with word that Goverment may lift the £3,100 cap on tuition fees since some vice-chancellors are calling for a doubling of fees after an expected review of funding levels which should take place later this year.

The National Union of Students warns that many incoming students are facing what they term “a lifetime of debt” due to these rises in schooling costs.

At the present time, undergraduate students can expect to owe £5,000 per year of schooling. This is going to be rising in the coming years, but also it must be taken into account that those pursuing mathematics, science or engineering courses face an additional £1,300 in books and additional fees, as well.

With all of these costs rising so rapidly, many students may end up deciding against schooling partway through. This phenomenon is leading to penalties on loans or grants that must be paid back at differing terms once students have left their degree programs. This means huge debt with many former students turning to IVAs and Debt Management Plans as a result since the debt further hinders their ability to establish the life they would like to lead.

David Cameron Warns UK Runs Risk of Defaulting on Its Debts

The leader of the UK’s Conservative Party, David Cameron, has been reported as saying that he believes the Government runs the risk of defaulting on its debt due to increased borrowing in recent times. His statement was not intended to be a prediction, but rather a warning intended to show that the same financial issues leading so many UK citizens towards IVAs and even bankruptcy can happen at the national level, as well.

Due to recession fueled drops in tax revenue, the Treasury announced in April that it would borrow 269 billion pounds more than it had previously estimated. The shortfall this year totals 12.4% of GDP (Gross Domestic Product) and is the highest shortfall of all the Group of Seven nations.

Standard & Poor has already warned the UK that it risks losing its AAA credit rating as the debt nears 100% of its GDP which stands at nearly 1.3 trillion pounds. They’ve changed their view from “stable” to “negative”. In June of 2009, the Government had 657 billion pounds of debt which is over 56% of the GDP. The current debt is the largest amount owed since 1976 when the UK borrowed from the International Monetary Fund to meet overseas financial obligations. Other than this, the Government has not defaulted on a payment since the days World War II.

On August 20, the Treasury will reveal the amount it collected in July which is typically the second largest month of revenues in the fiscal year. There has not been a deficit in July since 1996.

Actor Neil Morrissey Enters IVA to Repay Debt

Known as a star of the hit show ‘Men Having Badly’ and the voice of children’s show ‘Bob the Builder’, actor Neil Morrissey was also an investor. Unfortunately, his property investments did not turn out as he hoped and his company got into financial troubles that forced his partner into bankruptcy after only five years.

Morrissey’s company had invested in several ventures including a pub that Welsh poet Dylan Thomas had been known to frequent. When the property scheme collapsed, Morrissey was quoted as saying he felt “morally obliged” to repay his debts via an individual voluntary arrangement instead of declaring bankruptcy.

At age 47, Morrissey will spend the next three years repaying his debt, but has said he feels most comfortable with this solution at a personal level.

Trend Towards Defaulting on Credit Cards to Hit High Street Banks

After being on shaky ground from the effects of so many bad home loans in the UK, high street banks are hearing from KPMG accounting firm that unsecured loans such as credit card loans may bring further losses right behind the huge hit they took from large numbers of home loans that were defaulted on in the past few years.

Even though investment banks are back on the path to profits, their retail arms are still not showing the profitability expected of them largely due to unemployment rates which affect whether or not people are able to repay their debts. This, in turn, will most likely mean higher interest rates and increased fees for those consumers who are seeking credit at this time and in the near future as banks attempt to restructure their services back to a more profitable situation.

Barclays, Lloyds Banking Group, Royal Bank of Scotland (RBS) and HSBC have all reported profits for the first six months of 2009 in their retail divisions, but the levels of bad debt are pinching those profit margins. Lloyds has announced that it believes the worst of the defaulting has already occurred in the first half of this year, with £2.2bn in bad debt, a 60% increase. After this, they expect the defaulting situation to calm back down to more normal levels.

From March to June 2009, over 11,000 homes in the UK were repossessed according to an announcement from the Council of Mortgage Lenders, a 14% increase from 2008.

All told, many citizens are expected to turn to Individual Voluntary Agreements, as opposed to bankruptcy in order to get themselves out of the debt worries brought on my these tight economic times.

Students in Scotland Borrowing to Frightening Levels

A shocking set of statistics have come out of Scotland recently, with numbers indicating that 70% of Scottish students are spending more than the 10 hours per week working to pay for their studies. This is beyond the amount recommended for students due to the time they need for their studying. More than half of these students have borrowed from banks or credit card companies according to a study that questioned over 6,000 students on behalf of the National Union of Students in Scotland (NUS).

While the group who conducted the study is suggesting that the government take steps to fix the problem, the Scottish Government is claiming that it has already taken such steps. For those who are in debt in Scotland, a Scottish Trust Deed may be their primary option to get themselves back on track and many students are finding that turning to this option could help, but still the debt levels are quite high.

According to the survey’s results, 52% of the debt students took on came from commercial lenders such as banks or credit card companies, 67% owed their friends or family members, students loans were given to 61% of those surveyed and over a third of these students owed money to all three of the lending sources above. What may have enabled this amount of lending is the fact that the Student Loans Company was offering some of the lowest interest rates in history but the interest rates of other lending sources remained high in comparison. This can lead to confusion over the the interest rates of various loans taken out over time.

The survey reported that nearly half of graduates of universities, over a third of postgraduate students and a third of college students were most concerned with commerical loans out of all their debt sources. The NUS is calling for to raise the amount possible for student loans while offering more to particularly impoverished students. They are also seeking a ‘Summer Holiday’ grant they believe will help students during the break period in their schooling.

Welcoming the input of the NUS, the Scottish government and will consider the additional information in their future examinations of funding student education.

In total, the survey itself polled students from 18 different institutions of higher learning and more than 20 further education colleges.

Rule Breaking Credit Card Companies Shut Down by Government

The Ministry of Justice (MoJ) has formally shut down companies that offered to secure compensation for personal injury claims or write off debts. From April 2007 to August 2009, one hundred of these companies have been forced to stop doing business.

According to a spokesperson from the MoJ, the companies have been using high pressure sales strategies and making claims that are misleading in an effort to get consumers to pay large fees for their services. The spokesperson told the media that those who are desperate for a way out of debt are especially vulnerable to these tactics and only end up getting further into debt due to the unscrupulous tactics the companies employ. As a result, the government is warning citizens to be careful with offers that appear to be too good to be genuine because that is the lure these businesses use.

According to the MoJ, many of the companies that were shut down used extremely exaggerated claims in their advertising such as claiming that 80% of credit agreements were not enforceable or that debt from credit cards could be totally wiped out within six weeks. Other cases involved companies run by those who had fraud convictions or people ignoring the goverment claims regulator’s request for further information about their advertising claims.

The current regulations for this industry state that no in person cold-calling is allowed and a cooling off period of two full weeks must be given for anyone considering taking on a new credit agreement. This is means that it is better to find IVA, Debt Management Plans or other debt reduction services through a company that allows the customer to request the call by providing their information of their own free will. Instead, many of these companies were making their customers pay huge fees up front, knowing that the customers were already struggling with large debts and that the services they offered to them would not be carried out.

However, plenty of debt management companies still operated within the rules and did not use high pressure cold-calls or unsavory tactics to get the consumer to pay large fees. The Ministry of Justice Claims Management Regulator continues to tackle more cases in an effort to relieve the public of these financial predators, but as long as the claims the companies make are accurate regarding the chances of debt management success and the costs involved for the company’s services, no harm is done.

Hopefully, these companies will either change or continue to be shut down so that the public will be able to get the help they need without fear of fraud.

Record for Personal Insolvency Broken in England and Wales

According to the government’s Insolvency Service, over 33,000 personal insolvencies occured during the second quarter of 2009, breaking all previous records for England and Wales. The increase demonstrates a 9% rise over the first quarter of 2009 and is 27% higher than the same period in 2008. Many of these individuals are finding some relief in either IVAs or, in more extreme situations, they are seeking a Bankruptcy.

Although the number of companies experiencing insolvency has decreased by 14% compared to the first quarter of 2009, it remains 23% higher than the same period in 2008.

Since the end of 2007, personal insolvencies have been soaring due to the recession and its financial implications on the budgets of average people. During the final quarter of 2007, well over 23,000 people went bust but today the number of people experiencing the same situation has increased by almost 40%. Bankruptcies accounted for over 18,800 of the overall 33,000 plus personal insolvencies which is lower than in the past, but Individual Voluntary Arrangements rose to take up 12,225 of that overall number of insolvencies.

For the second consecutive quarter, the number of companies going through administration, voluntary arragements or receiverships decreased, but experts warn that this trend may not continue into the future.

Lower Income Customers Face Hardship from Barclaycard Interest Hike

The largest credit card company in the UK is raising the interest rates it charges to customers already struggling to repay their debts. The move is clearly controversial since it stands to reason that it would cause genuine hardship for those consumers already stumbling beneath heavy debt loads and punishing interest in addition to their debts that they must pay. An increase in the number of consumers entering into highly effective debt solutions such as Individual Voluntary Arrangements and Debt Management Plans is expected as a result for those consumers who do not wish to undergo a Bankruptcy.

The irony is that the Barclaycard decision comes out in direct contrast to what the Government has asked lenders in regards to playing fair with those in debt, particularly credit card customers. The fear is that now those Barclaycard customers who are being further punished for debt will be increasinly more vulnerable to unscrupulous lenders that prey on the financially unfortunate.

The decision comes from Barclaycard as part of their new policy of “risk-based pricing” that is designed to charge the poor and customers who are in debt pay more than those with greater financial ability to repay any credit they take out. This policy is spreading throughout the entire credit industry and means that a person with a good income who borrows £1,000-£3,000 will pay 15.9% in interest whereas a person who is considered “high risk” would end up paying 20% for the exact same amount being borrowed.

Nearly all the UK’s primary banks have been raising interest rates on credit cards in 2009 even as the Bank of England reduced the base rate to only 0.5 percent. Along with these moves, the credit card lenders have added other lesser noticed fees such as fees for using one’s card overseas.

The extremely difficult financial circumstances that these interest rate hikes put customers into have led to an alarming number of ‘debt suicides’ where UK citizens have taken their own lives in response to the overwhelming stress of debt.

The sitation is society wide and means that many people will find it increasingly difficult to take out credit on reasonable terms when they are at a lower income level. Those who are caught in the “risk-based pricing” scheme will see much more difficult credit arrangements coming their way. The financial crisis ends up punishing those at the bottom who already struggle with debt by making debt even more expensive to these people who may need it more than those with better incomes who do not actually need the credit in order to make ends meet.

According to what’s been said by the banks recently, the main focus will be on those who have experienced financial changes such as job loss or poor health leading to loss of work. These people will be targeted for potential interest rate increases since they are viewed as the highest risk for entering default.

Barclaycard does claim that its ‘early assistance’ scheme has been designed to help those who are heading towards default after income changes and that since the program’s early days this March, it has helped 11,500 cardholders, but the overall results will take time to see.

Credit Card Cheques Expected to Face Serious Opposition from UK Government

A new post is being created to help consumers recoup losses from unwanted credit card cheques which have become such a huge problem in the UK in recent years. The cheques are from rogue traders and are expected to be banned in the near future, as well, due to the amount of debt they add to the already staggering debt problem in the UK that has seen so many turning to Individual Voluntary Arrangements and Bankruptcy.

According to the latest figures coming out of the Bank of England, UK citizens owe loans, credit card debt and overdrafts that total to £233bn.

However, the reaction to the current plans to create a Consumer Advocate are mixed, though the White Paper on its creation outlines the Advocate as a means to raise awareness about the severity of current consumer struggles. It would also act on behalf of groups of the public who are seeking refunds or compensation when the case is judged to be of “national importance”, such as against a substantial and unfair debt from a rogue company.

The government is looking for action to be taking in regard to debt levels during this current recession. They want lenders to be held more accountable for irresponsible practices within their industry because UK credit card debt is again standing at £54.4bn after having been reduced for a short time, months ago.

Credit card cheques have proven to be quite controversial because of the handling fees incurred for using them. These blank cheques are often sent to credit card holders along with their monthly statements as a means of enabling the customer with a different way to spend the funds from their card’s account. If things go awry, these cheques do not offer the same protections as the cards themselves and they almost always do not have an interest free period that the card does, leading to confusion for consumers and thus, increased spending.

Since the government has been expected to ban these cheques for some time now, they will be banning them in order to halt companies from sending unsolicited cheques. This means credit card companies may only offer these to those who have opted in to receive them ahead of time rather than eliminating the option to consumers altogether.

This news follows the announcement from Uswitch, a price comparison website, that states 20% of UK consumers have seen their credit limits rise without asking for such an increase.

Consumer groups have been requesting that there be more help for consumers who believe they have been unfairly treated by companies and as a result, experienced significant financial loss.

The person who will be the Consumer Avocate in the coming year will be an individual comfortable with being involved in representing substantial groups of consumers who seek compensation through the courts and also highly public consumer campaigns. These consumers who feel they have been ripped off will be able to perform group actions against the company named by opting in to the group legal action.