Banks in UK Bracing for PPI Claims Totalling Up to £5 Billion

Things are looking bad for UK banks as they are staring down the barrel of £5.1 billion over the course of the next 5 years for the purposeful misselling of PPI (Payment Protection Insurance) to consumers who now are legally entitled to be compensated for the misselling. In turn, consumer help services like 1ppi.co.uk have taken up the cause to help consumers and are finding tremendous success processing these claims. Banks are not happy, but the Government has made it clear that they must pay for their mishandling of the trust consumers have placed in them. Without that trust, say economic experts, Britain’s economy will have trouble fully recovering as consumers grow wary of dealing with the banking system. The compensations serve as a way for these banks to re-establish that trust with their customer base.

Credit card holders are the primary victims of this missold PPI and many were crunched financially during already rough economic times. Major British banks like HSBC, Barclays and Lloyds Banking Group are looking at paying out millions of pounds in compensation as the scandal over PPI gains more and more public exposure. Morgan Stanley, a US investment bank, released research which shows that Lloyds alone, the bank believed to be most heavily involved in the PPI misselling, is going to face up to £1.5 billion in PPI claims. Credit Suisse recently said via its analysts that it could be paying a solid £1 billion due to PPI misselling.

The Financial Services Authority of the UK had said in August 2010 that the industry would be facing up to £3 billion in claims over PPI, but Morgan Stanley has said that it based its estimated on a success rate of 46% for compensation claims because people now know of services like 1ppi.co.uk having such strong success at getting consumers their rightful compensation. Previously, some estimated that only £740 would be the cost to the banking industry, but with word reaching more and more consumers, they are taking action to get their missold PPI compensation at a far greater rate than some thought might happen.

On average, claimants are getting £2,000 according to some estimates with £2,500 being the average reached by other analysts. Banks caught in this PPI scandal face very heavy charges, as well, in terms of additional costs for them in terms of fines and also other fees. Economic analysts say that with each PPI claim filed, consumers send a strong message to UK banks that they will not tolerate such deception in the British marketplace.

Those in the UK who need to file a PPI claim are definitely advised to pursue this action since they stand to gain quite a bit if they have been missold PPI on a credit card or in other cases. The success rate of 1ppi.co.uk is seen as a good indication that these services get those claims processed and get consumers the money they deserve.

British Women Choosing Debt Consolidation Loans More Than Men

Recent figures from the Government of the United Kingdom’s help line for insolvency have shown that there are a significantly larger percentage of women in the UK than men who are choosing loans for debt consolidation as a means of straightening out their finances. Financial experts suggest that often an IVA could have been a better solution for these women, but a lack of information is pushing them towards other solutions that could keep their cycle of debt going – not a good sign with such heavy cuts coming from the UK government that could send many spiraling down further into debt if they do not find a way to fix financial problems.

The figures themselves showed that 22 per cent more women in the UK are now facing a serious financial problem that they hope such loans will cure, compared to 8 per cent more British men. Some have pointed out that the issue could be a case where women tend to be in charge of managing household finances in the UK and therefore may be the half of a married couple most likely to call in and seek help from the Government’s help line.

However, some have stated that there is a preponderance of choosing luxury or simply more expensive goods among women that is a tendency which can be shared by men, but is often not. Of the more than 64,000 women tallied in those figures, it appears that many had been consistently spending more than their incomes could bear for quite some time. This desire to keep up a seemingly extravagant lifestyle shown in TV programmes and movies appears to be hitting women in the UK hardest if they are between the ages of 25 and 49 years old. In that demographic, more than 45,000 ended up as part of the 64,000 women calling in for help. While not blaming such businesses flat out, experts said that retailers constant bombardment of women in this age group to encourage spending has revved up during the economic crisis Britain has undergone recently and that such advertising could be having a mild subconscious effect on consumer buying habits. However, the solution they pointed to was simply better fiscal education for consumers.

Often, these women have reported actually borrowing money to purchase more disposable goods instead of to fund investments to get themselves ahead. Financial responsibility advocates suggest that had they leveraged their borrowing power to be able to improve their situation rather than ‘treat the symptoms’ of financial pain, they could well have ended their own debt problems. Now, instead, they face bankruptcy and still are not aware that an Individual Voluntary Arrangement could be entered into as a solid path to financial recovery.

Today’s British University Students Looking at Years of Debt

Recent word has come that those young people from middle income families could well be priced out of a university education after the Government decided to back a sharp rise in fees associated with student tuition. Some in the press are seeing this as a real blow to middle income families who are simply trying to help their kids get ahead in the UK, but others say that these increases are needed in order to help keep higher education operational during tough economic times. As it is right now, many who achieve university degrees end up having to make use of a debt management plan straight out of the starting gates right after graduation.

This is a harsh reality, but in many ways, not a new one. Students in countries such as Canada, the United States and, of course, the UK, have been paying extremely high fees for higher education for a number of years. The change now is that the recent economic down turn has made things a bit more harsh for those without a bit of a financial buffer. The ministers have accepted proposals that will end the annual cap applied to charges related to higher education and also the amount that repayments can be hiked. This, according to economic experts, means that graduates with an average income will end up repaying the most. Since the cost of a degree each year in course fees alone is set to rise by as much as £12,000 that means students will be leaving the university setting with debts in the neighborhood of £36,000 in addition to the living expenses while they were getting their education.

London has proven to have the highest cost of living and here students that face face the highest annual fees at £12,000 will end up leaving with a debt of around £90,000. Experts have also stated that British parents on an average annual income will be looking at around £50,000 per child to send them to university.

Those graduates are not going to be expected to pay right off the bat because they are allowed to begin repayment once their income reaches £21,000 a year and even at £25,000 the repayment would be around £7 each week. However, those earning a more realistic £60,000 needed for a modern life will need to pay £68 each weak that means they will most likely have the debt for their education throughout the majority of their working years. This, critics of the fees hikes say, is making a university education out of reach for the vast majority of middle income earning families.

The proposed changes were put forth by Lord Brow, a former BP chief who received his appointment from the previous Labour government who wanted to restructure the funding for higher education. While some concessions are being made to support low income family students via grants and a lack of repayments demanded from graduates who earn £21,000 or less, the issue ends up being that middle class grads will end up struggling due to their average income. Over time, the interest on these repayment plans will have them paying significantly more for their educations due to the repayment schedule they will most likely need to opt for. Wealthier students should be able to pay back their loans at a far faster rate.

Millions of British Women Entering Debt to Look Like Celebrities

More and more British women are finding themselves at the end of their financial ropes as times get harder, even after the global recession was said to have been on the way out. In the United Kingdom today, many women are eager to emulate popular celebrities and it is costing them to the tune of several thousand pounds with more added monthly. This alone is driving them to enter debt management plans in record numbers – at least for those who are able to come to their senses before it is too late.

New research from a top online price comparison site has revealed that fully 4 million women in the UK have run up debts averaging out to well over £3,000 in an attempt to look just like the celebrities they so admire. Much of this comes from the grand media culture that has definitely overtaken Britain in the past few decades, one of opulence and extravagance on a level that few can afford to keep up with.

This should be balanced, experts say, with the fact that an additional 3 million British men are finding themselves in the same position, meaning they have racked up debts that are far in excess of their monthly income. Men, too, are becoming ’shopaholics’ in the UK today, driving their balances ever higher on both store cards and credit cards, even taking out high loans to buy things they cannot afford. One in seven men face this situation while the ratio is even higher for UK women today.

Researchers have shared that women are primarily spending on high street fashions, but men are also splurging on designer clothing to the tune of over £550 each year for big name labels, twice what women spend for similar items. Men are leading the way in spending on person grooming products as cultural values continue to push them towards an ever more image conscious mentality, now outspending women who used to rule this sector of the average British budget. Men cite professional reasons for their spending, but experts are not convinced of the wisdom of taking on debt for reasons of personal appearance – job related or not.

According to researchers, these disturbing spending trends are often seen as easily fixable by short term solutions, but those solutions will do no good in the long run as interest rates rise and credit continues to be harder to obtain for the average UK resident.

Full 20% of UK Citizens in Debt for Basic Living Costs

In what comes as a shock to many living today in the United Kingdom, recent research has shown that a full 1 in 5 UK citizens are finding that they are sliding deeper into debt covering their basic necessities instead of by blowing cash on unneeded things. Nearly 50% of those polled also said that they feel even worse about their finances now that they ever had at any previous point in their lives. This paints a very gloomy portrait of life in the UK even after the supposed global recession is supposed to be backing away from not just UK shores, but fading into the distance for the rest of the world, as well.

The consumer activities study was an attempt to measure the attitudes of today’s consumers in the UK and part of what the government wanted to know for the upcoming Emergency Budget. Not only are 18% of UK adults having to battle just to survive, another 14% are struggling with repayments that are difficult for them to try and make on any sort of regular basis. These are ominous times mostly because the debt is getting more expensive. Those not already in a Debt Management Program are struggling to find a way out, battling bank overdrafts, personal loan payments and even credit cards as the interest levels continue to punish their efforts to free themselves from debt. The Bank of England may have a low rate of only half a per cent right now, a truly historic low, but this does not mean that the cost of borrowing for the average consumer has gone down at all.

On top of this, job security is a dark shadow in the minds of a great number of people, making them stress out even more over what they might be able to do to try and have a secure future. The full 2 and a half million unemployed UK citizens does not bode well for those who are seeking a job. These unstable times have been getting worse with a sharp rise in the last 2 months alone, but the public sector will be laying off workers and this means even more jobs will be lost.

With half of the UK’s work force experiencing a freeze in their pay and another 20% expressing doubts about their own current job’s security, the economy is not living up to the hopes of many. Wages are not getting anywhere close to keeping pace with the levels of inflation and this continues to punish anyone with even the slightest bit of debt hanging over their heads.

If the dreaded VAT does end up rising, the cost of living will be even higher and many consumers fear exactly this, according to the recent study. After considering the possiblity that Chancellor George Osborne’s choice may be to increase the VAT, many worry that it could be very tough for them after this. Reserve cash pools are already being tapped by most UK households and this does not bode well for their ability to survive any economic dips that are almost certain to hit eventually.

Even debt charities in the UK are finding themselves underfunded and unable to help many, turning them away and causing a lot of people to be confused where they need to look next. Trying to stay afloat over the long term is certainly easier with an IVA, say most experts, simply due to the fact that short term solutions are usually what got most consumers into the tangle they find themselves in today.

Personal Insolvency in the UK is on the Rise

In the last quarter of 2009, England and Wales saw the number of people that were declared insolvent each its highest number of all time. The Insolvency service has released figures that show that more than 35,000 people had to declare insolvency in the final three months of the calendar year, which is a staggering increase of 25% from the year before. On top of that, more than 6,355 businesses were forced to declare bankruptcy in the same time period which was also a record.

For the entire year of 2009 there were over 134,000 that were declared insolvent in the UK which was a 26% increase from the year before and almost 30,000 more than the previous record which was seen in 2006.

Many people thought that record low interest rates would have saved a lot of people from being declared as insolvent, but the increase of long term unemployment just meant that some people did not have the chance to fight back and compile enough money to pay off their debts. Due to these new increases many creditors have tightened the reins on consumers and started to act a lot tougher. The increase in toughness by creditors could have a lot to do with the increase in individual voluntary agreements, but the increase in the last few months of the year was surprising as usually people wait until after Christmas to deal with their debt issues.

IVAs may also have risen as more people seem to be aware of their options and want to pay back some debt rather than go bankrupt. No matter how you look at, most people agree that there is a lot more to come for UK consumers before things get better and we actually find a way to climb out of the recession.

Bad Debts on the Rise

The Bank of England is pointing out that the number of bad debts that were defaulted on by consumers has increased by an alarming rate through 2009. Financial institutions were forced to write off over 4 billion pounds in bad debt as many consumers declared bankruptcy or find an individual voluntary agreement that ensured they would not be paying back all of their debt. The previous highest number in that category was 3.2 billion pounds that was written off in 2008, so the increase of close to 1 billion pounds has many in the credit industry worried.

More than twice as many mortgages were written off than usual and that combined with personal loans and credit means that the total amount of write-offs for the year reached as much as 9.3 billion pounds.

The effect of this increase in bad debt is being felt most by borrowers that are known for making all of their payments on time. Credit card interest rates are on the rise meaning people are being faced to pay larger monthly payments and new homeowners are having to jump through all kinds of hoops to ensure they meet the criteria and standards of lenders.

It is a sad truth that the most on time of borrowers have to feel the effects for the people that had to declare bankruptcy, but that is the sad truth about the economy at this moment. If interest rates continue to rise then consumers are going to have to learn to live without borrowing, and simply spend what they have at the moment in order to avoid substantial monthly payments on their credit card debt.

That is, unless the government or credit industry can step in and proposes policies or solutions to protect themselves and consumers as we all try to work our way out of this dire economic situation.

Debt from Utilities Excluding People Financially

Debt and the issues that surround it have come to the forefront of the UK over the past year or so, and although things have improved in many ways there are still a number of problems that citizens are facing. One new problem is the creation of utility debt that is driving a wedge between lower and upper class citizens. More and more citizens are foregoing on payments or having to borrow more money, from a system that cannot afford to lend any more money.

Recent studies done by a number of agencies, and especially Citizens Advice, noted and announced that people who are unable to pay their utilities each month are spiralling into insurmountable debt that could lead to major problems down the road. While a few politicians and people of influence have stated that they are on the path towards a debt-free Britain, announcements like this tell us how far we just may be from such a positive future.

The Bank of England recently discovered that net lending to individuals in Britain had reached an exasperating figure of 2 billion pounds in January of this year, and is continuing to be on the rise. They also calculated that on average, every adult in the UK owes close to 30,000 pounds, which is more than 129 percent of the median wage in the country. More and more citizens continue to seek help from debt management programs and IVA’s.

With utility prices going up, and debt continuing to rise, something or someone needs to step in if Britain wants to find a way to be debt-free. If people cannot pay their utility bills then that is just a small sign of other problems that must be on the rise due to the economy. Britain will continue into the next 5 or 10 years with quite a bit of debt yet individual lending continues to rise, so there does not seem to be an end in sight.

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.

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.