Author: Johnson Geddes

Complaints against Payday Loan Companies Reaches Five Year High

According to the industry watchdog, complaints made against Payday loan providers has reached a five year high.

The Financial Ombudsmen service has reported that there were almost 40,000 complaints made last year compared with 17,000 during the previous year i.e. an increase of 130%,  reflecting the increasing number of people left to “struggle with debt”.

The Consumer Finance Association (“CFA”) said that many of the complaints were made via claims management companies with the majority of complaints being about affordability.

It is reported that some customers have taken out between 20 and 30 Payday loans in order to service existing debts or to pay general household bills.

The CFA spokesperson has stated that “These figures show a deeply disappointing increase, driven by a flood from claims management companies and we continue to see many a complaint that has no foundation”.

“Now nearly nine in 10 of complaints to firms are generated by these companies. The complaints are often of poor quality.”

Financial Stress and Debt Linked to Depression

It has been recently reported that individuals suffering with mental health issues are three-a-half times more likely to have problems managing debt than those without these conditions.

The Money and Mental Health Policy Institute stated that these financial issues are even more prevalent for those people with specific conditions such as bipolar disorder and depression.

It is understood that people with Obsessive Compulsive Disorder (OCD) are in fact six times more likely to be experiencing financial problems.

A survey carried out by the institute involving 7,500 people in England suggests that 1.5 million people were experiencing mental health issues and debt problems at the same time.

There is at least anecdotal evidence which suggests that certain people suffering with depression will often buy items on credit which are not needed in an attempt to make themselves feel better during periods when they feel low. Credit card, store card and catalogue debt are seen as typical examples of unnecessary and unaffordable spending patterns linked to depression.

The Institute’s findings reveal that one in four people suffering from depression have debt problems. This compares to only one in 20 people who do not have mental health issues.

The Institute states that there appears to be a direct correlation between depression, including low moods and impaired concentration levels, to the ability of individuals to properly manage their finances.

The Chief Executive of the Institute has called on the Government to introduce minimum standards for service providers (including banks and utility suppliers) to be made available to individuals with mental health issues to provide these people with greater financial protection.

The Toxic Legacy of Wonga Debt on Individuals

Over 40,000 Wonga customers are waiting to find out whether the pay day loans they received were mis-sold following Wonga going into Administration in August 2018. Many of these customers no longer believe that they will receive any form of compensation with the Treasury Committee stating that their claims had been “cast aside”.

This is four times the previous estimate of claimants and is expected to increase further according to Wonga’s Administrators.

We understand that the Administrators will be setting up a portal to allow customers to make claims on line.

Certain customers are using the services of claims management companies but this may not result in these claims being processed more quickly and may also result in customers incurring claims management charges which will be deducted from any compensation received.

Even if claims against Wonga are successful, it is likely that customers will only receive a small fraction of any compensation owing to them from Wonga’s Administrators.

When a short term credit provider like Wonga ceases to trade, there currently is no scheme in place which protects customers for claims they may have against the provider, including compensation if the loan has been mis-sold.

We expect the position of many of Wonga’s customers to worsen in the future given the aggressive nature of the loans provided, with customers still struggling to manage the repayment of excessive interest payments and default charges where loan repayments have fallen into arrears.

The Chair of the Treasury Committee has stated that these customers have “been left to fend for themselves by Wonga, the Financial Conduct Authority (FCA) and the Financial Ombudsman Service. They have been allowed to fall through the cracks with nobody taking responsibility for their mistreatment. If Wonga continues to damage people’s finances from beyond the grave, it may be time for the Government to intervene”.

Wonga’s financial failure resulted from a significant increase in compensation claims from customers who believed that the loans should not have been provided to them in the first place.

Council Tax

More Council Tax Increases for 2019/20

As you will no doubt be aware, Council Tax charges for 2019/20 have again increased.

The average Council Tax increase across Local Authorities in England is 4.5%. This is the second highest increase in a decade (largest increase was last year) with Council Tax payers in some regions now paying annual charges of over £1,800.

The North East of England has seen the largest annual increase of £86.

Council Tax charges in Wales have also risen with certain Local Authorities setting increases of almost 10%.

See how the 2019/20 Council Tax increases affect your region in England.

Average B and D Council Tax bills.

North East £1,844 (up £86)
South West £1,846 (up £81)
East Midlands £1,836 (up £79)
South East £1,814 (up £73)
North West £1,807 (up £80)
East £1,780 (up £71)
Yorkshire & Humber £1,746 (up £75)
West Midlands £1,732 (up £78)
London £1,476 (up £71)

Source: Cipfa survey of local authorities

Since austerity measures were put in place by Central Government, Councils have lost approximately 60% of Government funding since 2010. Some of these Government cuts have resulted in Councils passing these charges onto ordinary Council Tax payers together with general cuts to public services.

The Chief Executive of CIPFA states that these increases are merely reflective of the financial pressure faced by Local Authorities for the provision of public services, including policing.

It is our view that these Council Tax increases and general increases in other household costs will inevitably result in a higher demand for formal insolvency solutions for ordinary tax payers, including Individual Voluntary Arrangements.

Breaking News – Harrington Brooks Administration

One Advice Ltd, which trades as Harrington Brooks IVA is now Freeman Jones Ltd, trading as Harrington Brooks.

On 11 April 2018 Insolvency Practitioners at Deloitte LLP were appointed as Joint Administrators to Harrington Brooks Group Ltd, Harrington Brooks Ltd, One Advice Ltd, HB Financial Solutions Ltd and Open-Door (Legal Services) Ltd.

The Administrators have reported that the business and assets of these Companies have been sold to Gregory Pennington Limited, Freeman Jones Limited and All About Money Limited, all subsidiaries of Think Money Group Limited.

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.

Insolvency Service Statistics – Individual Voluntary Arrangement Outcome Statistics, 1990 to 2014

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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