Lenders can turn new arrears rules to their advantage

The regulator’s latest changes to the way lenders should treat customers in arrears – particularly the requirement for lenders to consider all options before starting action to repossess a property – are to be welcomed.

In my experience, mortgage arrears need to be dealt with in the context of the overall financial situation of borrowers.

In trials in which we are working with a small number of lenders to talk to clients in arrears, we have found that by engaging with borrowers about their whole debt situation we’re nearly always better able to effect a solution that stabilises and makes their repayments on unsecured debt more manageable.

This leaves a greater proportion of income available to put towards improving the arrears situation.

So without having to run the risk of giving advice, lenders adopting a more holistic approach to arrears can turn the FSA’s rules to their advantage and put more borrowers back on the straight and narrow.

They can also fulfil their obligations with regard to Treating Customers Fairly.

So lenders should see the new rules, rather than being a burden, as a chance to tackle underlying unsecured debt liabilities at source and free up disposable income for the repayment of arrears.

John Fairhurst

Managing Director

Payplan

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Government ‘must act urgently’ to regulate debt management industry that will cost consumers £¼bn in 2010

£¼ billion bill to consumers in 2010

New research published today says that consumers will be hit with a bill of over £¼ billion in 2010 in set up and management fees to ‘debt management plan’ (DMP) providers despite the existence of free alternatives. Payplan, a free to consumer DMP provider that released today’s findings, is calling for Government action to safeguard consumers, because the industry remains poorly regulated and open to abuse.

£54m in up-front fees charged to consumers expected in 2010

The research estimates that by the end of 2010 as many as 562,000 fee-charging plans will be in operation, up from the current level of 375,000. This is the equivalent to around 15,000 new schemes being taken out every month in 2010. By comparison, the free-to-consumer sector has 220,000 DMPs currently in operation. The report says that fee-charging DMP providers are expected to levy up to £54m in up-front fees to consumers in 2010, an average of £290 per person. There are no limits to how much consumers can be charged, but it is usual for families in debt to pay 17.5% of their monthly repayments to the DMP provider.

The quality of fee-charging debt management plan providers throughout the UK varies widely. There is little correlation between the level of fees charged and the quality of service, but strong correlation between fees charged and advertising spend.

Unscrupulous Operators

Owing to the absence of effective regulation it is easy for unscrupulous operators to offer debt management plans to consumers – and despite the existence of free alternatives, many people don’t know that they exist. A debt management plan is a structured arrangement between a person in debt and their creditors. The consumer pays a single monthly payment to their debt management plan provider, which is then distributed to the person’s creditors by the debt management company on a pro-rata basis. Fee-charging DMPs levy up-front and monthly fees on the consumer, unlike free plans which charge a much smaller fee from creditors – costing the consumer nothing.

John Fairhurst, Managing Director Payplan, said:

“It is a fact that providers who charge fees can afford to spend large sums on advertising and therefore attract high numbers of consumers. When people are looking for debt help they are often very stressed and will sign up with the first provider they come across – this provider, although most visible – will not always be the one that will provide the best standards of care and service. With the number of people seeking debt help growing, action to bring proper standards to the industry in the form of regulation must be taken sooner rather than later.”

David Hawkes, AdviceUK’s National Money Advice Co-ordinator, said:

“AdviceUK supports the introduction of regulated Debt Management Schemes because we believe they will have clear benefits for vulnerable debtors. Not only will regulated schemes relieve debtors from uncertainty because they are binding on creditors, but they will also protect debtors from being exploited by the bad practices of the less scrupulous fee-charging debt management companies.”

Henry Bellingham, Conservative Shadow Minister for Justice, said:

“The Government needs to act urgently to regulate the debt management industry. This year alone it is estimated that the industry will grow by up to £100m. It is high time the Government took the necessary steps to introduce regulatory oversight to give consumers the assurance that they are not being ripped off by excessive charges and high up front payments. The Government have singularly failed to make this a political priority. At a time when the downturn has pushed many families to the brink of bankruptcy, more and more people are forced to turn to debt management providers. The recent Government consultation exploring the merits of regulation demonstrated that there is widespread support for statutory oversight. It isn’t asking too much for consumers to expect such a huge and influential industry to face scrutiny from an independent regulator. If there was ever a time for the Government to act it is now.”

Steve Meakin, Chair Institute of Money Advisers (IMA), said:

“It is imperative that people facing financial hardship are better protected and informed about which way to turn when looking for debt help. We are extremely worried that poor regulation is in many cases resulting in bad advice and high charges to consumers who are in genuine distress and need help.”

About Payplan

Payplan is a free debt advice and solutions service that provides impartial advice to people in financial distress. Payplan helps over 100,000 people every year and works closely with organisations in the field of money advice and consumer and employee welfare.

Payplan Press Officer

For further information please email our Press Officer Jayne Newton at:
jayne.newton@payplan.com

or telephone:

01476 541980 or 07812 736861

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Arrears support service for lenders shortlisted for credit industry accolade.

Payplan’s Arrears Management Assistance (AMA)

Payplan’s Arrears Management Assistance (AMA) service has been shortlisted in the category of Money Advice Initiative at an awards ceremony honouring key achievements in the credit industry and related organisations.

Free debt solutions service, Payplan, set up the Arrears Management Assistance (AMA) offering in January 2009 to provide specialist support to mortgage lenders with customers who are suffering financial hardship and cannot meet their mortgage payments alongside their other financial commitments.

By working with lenders and encouraging their customers to seek early, independent free debt advice, AMA is able to provide sustainable and affordable repayment strategies for mortgage arrears while offering the customer clear, step-by-step advice and solutions to help them keep their home.

Treating Customers Fairly (TCF)

The service assists lenders in meeting their TCF requirements and has enabled some lenders to develop a value added service to their forbearance policies and processes. AMA is currently working alongside a number of mortgage lenders, including GE Money Home Lending and Yorkshire Building Society.

Phil Bushell, Manager of AMA, said:

“We are thrilled to have been recognised by the credit industry for the work we are doing to tackle the problem of mortgage arrears. Part of the service’s innovation lies in the fact that it aims to change the thinking on tackling mortgage arrears, by looking at the whole of the customer’s financial situation rather than just focusing on the secured commitments. With Payplan’s long history of helping people resolve their debt problems, we are well placed to offer this support to lenders.”

Kellie Evans, from GE Money Home Lending, said:

“Payplan provides a valuable service for customers that require support and guidance. The feedback from our customers that have engaged with Payplan has been extremely positive and we are delighted the company has been shortlisted for such a prestigious award. GE values its relationship with Payplan and is committed to delivering the best service possible to customers.”

Now in its 11th year, the Credit Today awards ceremony is set to take place on 13th May 2010 at the Grosvenor House Hotel, London. The Money Advice Initiative is a brand new category at this year’s awards.

About Payplan

Payplan is a free debt advice and solutions service that provides impartial advice to people in financial distress. Payplan helps over 100,000 people every year and works closely with organisations in the field of money advice and consumer and employee welfare.

Payplan Press Officer

For further information please email our Press Officer Jayne Newton at:
jayne.newton@payplan.com

or telephone:

01476 541980 or 07812 736861

Filed Under  Debt News, Financial News, Payplan Press Releases, mortgages  |  Leave a Comment

Debt Help Sought By Over Sixteen Thousand In January

Calls to debt helpline indicate recession is far from over

Following today’s publication of the insolvency figures for quarter four of 2009, Payplan, the free debt solutions service, has revealed that calls to its debt helpline totalled over sixteen thousand in January alone.

John Fairhurst, managing director at Payplan, said:

“Although official figures tell us that the UK is emerging from recession, we know from the experiences of those people we help that the effects of the economic downturn are still being felt by vast numbers of Britons.

“We were contacted by more than sixteen thousand people in January this year, who are seriously concerned by their debts. Worryingly, there will be many more individuals who have not yet sought help - the longer the debt is ignored the worse the problem will become.”

Today’s figures from The Insolvency Service reveal that more than 35,574 people were declared insolvent in the last quarter of 2009, an increase of 24.9% on the same period last year.

Of those individuals made insolvent over the three months to December, 17,007 people were declared bankrupt and 13,219 entered into an individual voluntary arrangement (IVA) with their creditors, while the remaining 5,348 signed up to the Government’s new Debt Relief Orders.

Notes to Editors

For further information please contact:

Payplan Press Office
Jayne Newton
jayne.newton@payplan.com
01476 541980 or 07812 736861

Debt Relief Orders

A Debt Relief Order is a cheaper form of bankruptcy for people on low incomes. Introduced in April 2009, they allow those with debts of less than £15,000 and assets of less than £300 to declare themselves bankrupt for a fee of £90, rather than the usual £510.

About Payplan

Payplan is a free debt advice and solutions service that provides impartial advice to people in financial distress. Payplan helps over 100,000 people every year and works closely with organisations in the field of money advice and consumer and employee welfare.

Payplan’s freephone debt helpline is open six days a week, call 0800 280 2816 to speak with an experienced debt adviser. Lines are open 8am to 9pm Monday to Friday and 9am to 3pm on Saturdays. Alternatively visit www.payplan.com.

Filed Under  Debt News, Financial News, Payplan Press Releases, debt help  |  Leave a Comment

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