The Financial Conduct Authority (FCA) has published proposals that could mean credit card companies cancelling any interest or charges in extreme cases.

Credit card companies would be expected to identify people in difficulty quicker and provide faster access to repayment plans.
The FCA defines someone as being in credit card debt if they have paid more in interest and charges than they have repaid of their borrowing over an 18-month period.

The main points in the proposal are:

  • After 18 months: Firms should prompt customers to make faster repayments, if they can afford it
  • After three years: Providers must propose a repayment plan to help clear debt more quickly
  • If a customer still cannot afford to repay the main debt more quickly, firms should consider reducing, waiving or cancelling any interest or charges

There have been concerns expressed over the personal debt levels in the UK. The latest figures from the Bank of England suggest that the annual pace of growth in credit card debt is at its fastest since February 2006.

FCA chief executive Andrew Bailey said that the cap on payday lending had protected consumers.

Now the whole of the high-cost credit market needed examination, rather than “picking off” specific issues, he said.

The FCA is launching its mission statement for this financial year.

The documents have considerable focus on personal finances – including plans to protect vulnerable customers, a study of long-term savings, and the completion of compensation for the mis-selling of payment protection insurance (PPI).

The deadline for PPI claims is August 2019 and the FCA is overseeing an awareness campaign to ensure pay-outs are claimed.

Mr Bailey said there had been a big increase in consumer borrowing, such as loans, overdrafts, credit card debt and car finance.

This echoes concerns raised by the Bank of England. Its Financial Policy Committee said there had been an acceleration in debt last year.

Consumer credit lending is still less than 10% of all lending by UK banks to household borrowers. It is also far smaller than mortgage lending, which amounts to 70% of loans to households.

But UK lenders stand to lose much more on their consumer credit loans if there is an economic downturn and their borrowers default on their credit card and other personal loans.

A Lords committee also recently called for stronger controls such as a cap on “rent to own” products.

The FCA is already conducting is own inquiry into overdrafts, door-to-door lending and other forms of “guaranteed” loans.

This includes considering whether a compulsory limit should be placed on overdraft charges. Consumer groups have consistently argued there should be one in place.

Below: Andrew Bailey FCA CEO

Breathing Space Bill

On the 24th February 2017 the Families with Children and Young People in Debt (Respite) Bill received its second reading in the House of Commons. It aims to give families with problem debts a “breathing space” of a year .The Bill aims to stop lenders adding any more interest and charges to debts for a year. Lenders also wouldn’t be able to take the matter further from a legal point of view within that year, by trying to enforce the debt. Enforcement action includes doing things like sending bailiffs round to your house and taking money straight from your wages or benefits.

This breathing space might last for even longer than a year, if someone can show that they can repay their debts in a way that’s affordable for them and within a reasonable time period. However, this would only be allowed when it was recommended by a debt advice agency.

The aim of this 12 month grace period is to allow people to get their affairs in order and put together a plan to repay their debts without the stress of collections influencing their decision making or the fear their debt situation may get worse. Proponents of the Bill hope this will mean that people in debt are in fact more likely to pay their debts, making the situation better for both them and their creditors in the long run.

IVA numbers soar!

Q3 2016 statistics from the Insolvency Service reveal IVA as the debt solution of choice
In England and Wales the number of people becoming insolvent in Q3 2016 was 24,254, a 6% increase on the previous quarter and 19.3% higher than the same quarter in 2015.This included 3,844 Bankruptcies, 6,490 Debt Relief Orders (DROs) and 13,917 IVAs. The increase in individual insolvencies appears driven by the increase in IVAs, which increased 10.9% when compared with Q2 2016.DROs decreased by 3.7% when compared with Q2 2016, which is mainly due to the change in eligibility criteria introduced in October 2015.

Bankruptcy orders were 7% higher than in Q2 2016 yet still 1.5% lower than in the same period in 2015.

Click to be taken to all the reports on the government website.

The Insolvency Service have released the latest IVA statistics and they can be accessed via the link below.
Highlights: Full report here https://www.gov.uk/government/statistics/individual-voluntary-arrangement-outcome-statistics-1990-to-2014

  • The percentage of IVAs failing within the first three years decreased for IVAs registered since 2011, compared with those registered before 2008.
  • Over 12% of IVAs registered in 2008 and 6% in 2007 were still ongoing, having started around 7 to 8 years earlier.
  • IVA failure rates increased for IVAs registered between 2001 and 2007. Failure rates for 2008 and later registrations are uncertain as many are still ongoing.

Between the years 1990 and 2002, inclusive, the percentage of IVAs registered each year that

eventually resulted in termination was around 30% (the lowest figure in this period being 28%

for 2001 registrations and the highest 33% for 1995 registrations).

The percentage of terminations has since followed a generally upward trend from 30% for

2002 to the level for 2007 registrations, which currently stands at 40%. As at October 2015,

30% of IVAs registered in 2009 were still ongoing (Table 1 below), so the percentage of IVAs

registered this year which result in termination is likely to increase going forward.

It is not possible to make direct comparisons between termination rates for IVAs registered

from 2010 onwards, and those registered before, as over half of IVAs are still ongoing for

more recent registrations.

It is usual practice for IVAs to last for five or six years. However, as at October 2015 over 6%

of IVAs registered in 2007 were still ongoing, having started around eight years earlier; and

over 12% of IVAs registered in 2008 were still ongoing, having started around seven years

earlier. There are a number of reasons why IVAs could last for this length of time, such as:

  • the individual originally agreeing to an IVA that would last for this length of time;
  • payment holidays or other variation of an IVA agreement which has lengthened its original duration;
  • IVAs being kept open pending the outcome of Payment Protection Insurance claims
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