It’s a triple treat day for the staff at Harrington Brooks, with fancy dress, pumpkin carving and a bake sale. Staff are donating to Forever Manchester, a fantastic charity that helps communities in the Greater Manchester area, where our offices are based. Take a look at some of the great work our staff have done.
The Royal Bank of Scotland has seen a surge in complaints from people upset about money taken from their accounts for fees charged by payday loan brokers.
According to the bank, payday loan brokers have made a reported 1million attempts to raid customers’ accounts in July, 2014 alone, successfully extracting £1.1million in total, out of an attempted £60 million.
“There is no need to pay a fee to arrange a loan. You can go direct to reputable lenders who have new rules that ensure they will be clear and up front about costs and they cannot make more than two attempts to collect your loan payments from your account.” – The Conduct Finance Association
Terry Lawson, head of fraud at RBS and NatWest, said:
“We’ve seen large numbers of customers incurring charges they don’t expect when using a payday loan broker since July this year.
“We are reaching out to customers to warn them of these fees and taking steps to block the transactions altogether, but these are sophisticated organisations. They are resourceful and more needs to be done at an industry and regulator level to protect customers who may already be in vulnerable situations.”
Financial Ombudsman calls for vigilance when it comes to “unscrupulous payday loan middlemen”
How has this happened?
Vulnerable customers seeking payday loans have wrongly believed that the middleman brokers offering to find them a potential payday loan deal are in fact the lenders. The Financial Ombudsman has received many cases wherein the customer has been charged for this service without even receiving a loan at the end of it.
The Financial Ombudsman Service have received approximately 11,500 complaints about credit broking websites. Common among complaints have been customers that have been charged without recognising the broker company, or assuming the charge to be a payment towards the originally-sought loan.
How do I avoid Credit Brokers?
By seeking financial advice before taking on a payday loan you may find a more suitable solution than the high interest-rates of further credit that you cannot afford.
If you take on a payday loan, it is essential that you research those available to you. Credit brokers are not necessary in the process; they do not lend money and act as a go-between, offering information that is easily available to you when seeking a payday loan.
The Consumer Finance Association (CFA), who set standards for payday lenders through industry improvements, said:
“Brokers do not lend any money – they are simply the middlemen.
“There is no need to pay a fee to arrange a loan. You can go direct to reputable lenders who have new rules that ensure they will be clear and up front about costs and they cannot make more than two attempts to collect your loan payments from your account.
“Many brokers have no such rules and will keep dipping into your account to take arrangement fees.”
Have you been charged by a Credit Broker without realising?
If you have taken on a payday loan, read the terms and conditions of the loan and repayments to ensure you know exactly where your payments are going. RBS customers have found themselves with charges that they don’t understand, unaware that they’ve accepted the terms and conditions of broker websites that allow the sharing of customers’ data to other third parties. As well as this, the conditions of fees are widely unmentioned.
Senior ombudsman for the FOS, Juliana Francis said:
“It’s disappointing to see that more and more people are being misled into thinking that these credit broking websites will get them a loan.
“In too many of the cases we sort out, no loan is provided and people’s bank accounts have been charged a high fee, often multiple times.
“If money has been taken from your account unfairly or without warning, the good news is the ombudsman is here to help. Give us a call and we’ll help you quickly get things sorted.”
The Government’s latest report of Insolvency Statistics for the July-September quarter have revealed signs of a strengthening economy for individuals and companies in England and Wales, with decreases in formal insolvencies, including bankruptcies.
6% decrease in personal insolvencies
7% decrease in bankruptcies
9% decrease in IVAs
7% increase in debt relief order (DRO.)
The number of people becoming insolvent in England and Wales has fallen 4.6% to 24,837 since the same quarter of last year. This comes from a decrease in the number of bankruptcies, with the number of people going bankrupt falling 18.7% – the lowest in 15 years.
“The recent spikes in personal insolvency numbers have been partially driven by people switching into formal processes – usually IVAs – having previously been in unrecorded debt management plans. It may be that the bulk of this ‘switch’ has now taken place.”
The figures from the Insolvency Service state 4,886 bankruptcy orders were written in the July-September quarter of 2014, noting a one-fifth drop in comparison to the same quarter of 2013.
The results suggest the decrease in formal personal insolvencies, including the decrease in bankruptcies, are in correlation with the increase in debt relief orders (DROs), an alternative form of insolvency to bankruptcy for those unable to afford and IVA or Financial Management Plan.
David Rankin, Lead Insolvency Practitioner at Harrington Brooks, comments:
“While the statistics may suggest a downward trend in personal insolvencies it must be remembered that until non-statutory debt management plans are officially recorded, it will be impossible to establish the true picture of personal insolvency in England and Wales. Research by insolvency industry body R3 shows that 44% of British adults are worried about their level of debts, while one-in-four 25-44 year olds have five or more debts to their name, so falling insolvency numbers do not necessarily mean the UK’s personal debt issue is going away.
“A rise in interest rates in 2015 may put too much pressure on some household finances while the outcome of a recently closed government ‘call for evidence could make it easier for people to access Debt Relief Orders while at the same time making it harder for creditors to make people bankrupt. In addition, the effect of regulation of Debt Management Plan providers by the FCA may also result in more consumers being placed into a formal insolvency solution.”
We have begun to identify which customers are affected and over the next few weeks we will have communicated with all customers who have a Wonga loan on their plan with us to ensure they are informed at all stages as to the potential changes to their plans.
Once we are authorised to remove customer’s debt from their Financial Management Plan, any contributions they make will be dispersed among their other creditors, so they can pay off their remaining debts quicker. In the case of IVAs, their contributions will be dispersed among their remaining creditors but in most cases their plan term will remain the same.
We are working to get all the plans of affected customers updated as soon as possible.
Update: Please note that a number of credit unions have cut off dates for Christmas Loan applications. Visit findyourcreditunion.co.uk to see the closing dates of unions you may be eligible to join.
Around a million people in the UK are currently members of a credit union, a figure set to rise to 3m over the next 10 years following the government’s aims to invest £38 million in them. But what are credit unions, and can you trust them?
Since March, 2014, the financial sector has seen vast changes in its regulation. But which were already there, and which have been implemented since new regulators, the FCA, took over from the OFT?
The FCA have published ‘What’s new and what’s not,’ a guide to the FCA’s approach to supervision. A prominent change is the FCA’s new three pillar supervision model, in place of the old Advanced Risk Responsive Framework (ARROW) model. The previous ARROW model was rooted in assessing products and their target audience, conflicts of interest and complaints. The FCA’s new approach focuses on:
• Securing an appropriate degree of protection for consumers
• Protecting and enhancing the integrity of the UK financial systems
• Promoting effective competition in the interest of consumers.
Regulated firms now abiding by the FCA’s Principles of Business will be supervised under the FCA’s model for the 10 principles of supervision:
1. forward looking and more interventionist
2. focused on judgment, not process
4. focused on the big issues and causes of problems
5. interfaces with executive management/boards
6. robust when things go wrong
7. focused on business model and culture as well as product supervision
8. viewing poor behaviour in all markets through the lens of the impact on consumers
9. orientated towards firms doing the right thing
10. externally focused, engaged and listening to all sources of information.
Whereas the FCA’s principles of business offer an ethos by which firms are to operate, the principles of supervision outline the “issues and behaviours” the FCA will pay attention to. This will particularly focus on a firm’s:
• Business model and strategy
• Front line business processes
• Systems and controls
The FCA’s changes to the sector have been widely welcomed, with the new supervision over firms and customer-centric approach taking a positive effect.
In the wake of news from Wonga and as sweeping changes hit the debt resolution industry, Harrington Brooks release their first quarterly comment “Let’s Talk About Debt”.
Talking about debt reduces stigma, and makes it easier to find a solution.
Debt can be a difficult issue for people to talk about, but admitting there are issues with your finances is a key step in getting back on track. That’s why it’s important we talk about debt. Currently:
6,405 new debt problems are dealt with by Citizens Advice Bureau every working day (The Money Statistics October 2014, Money Charity).
Advice relating to debt represents 30% of all advice provided by Citizens Advice Bureau (CAB). The volume of debt advice has decreased by 14% against last year.
297 people are declared insolvent or bankrupt daily.
71 properties are currently repossessed daily.
We also report that consumer credit lending is the highest it has been in 3 years and that six in ten people in debt affected by mental health problems, leading to Citizens Advice calling for more responsible lending.
Research conducted by Economics Help suggests raising interest rates by 0.5% will increase the cost of a £100,000 mortgage by £60 per month. The Money Charity this week also reported that 9.24m households have no savings plus there are a further 3.43m that have under £1,500. Could credits union help? Read our Guide to Credit Unions.
So, there are thousands of families which remain financially vulnerable and the stigma that debt carries may prevent people from seeking help. Let’s talk about debt and change attitudes.
Energy watchdog Ofgem has demanded an internal audit of the big 6 energy companies following concerns about profiteering, after drops in wholesale gas and electricity prices have not been reflected in household bills.
The annual profits made per customer have shot up in the past 5 years by £40, creating combined earnings of £17bn. This per customer profit is set to rise by a further £62 over the next year, according to Ofgem calculations.
Electricity and gas bills make a huge difference to monthly finances
However, the big six have had a drop in annual profits, from £3.5bn in 2012 to £2.8bn in 2013. This has been blamed partly on plant closures.
Who are the big six?
Rachel Fletcher, senior partner at Ofgem’s market division, said of their decision to refer the big six to the Competition and Markets Authority (CMA).
“What we are not seeing is any reduction in the standard tariff… yet again that raises the question about whether there is competition in the market.”
We know that when you’re on a tight budget, your monthly bills make a massive difference to your finances. That’s why we offer all our customers a comparison and switching service with our partners Uswitch, to make sure you’re paying the most suitable tariff for your household needs.
The Competition and Markets Authority has proposed that payday lenders make their prices and costs more transparent so as to create greater competition in the sector.
Recommendations should make it easier for borrowers to work out which provider is most suitable for them.
Simon Polito, chair of the CMA’s Payday Lending investigation group, has said:
“Greater price competition will make a real difference to the 1.8 million payday customers in the UK. At the moment there is little transparency on the cost of loans and partly as a result, borrowers don’t generally shop around and competition on price is weak.”
Their proposals also include allowing borrowers to research their options without damaging their credit records and giving borrowers access to information on how much they have paid on their latest loan.
The FCA have already suggested that fixed default fees should not exceed £15 and the overall cost of a payday loan should never exceed 100% of the total loan amount.
Richard Lloyd, of consumer association Which? thinks the recommendations should only be the beginning of a reform:
“More must be done to put consumers firmly in control of their borrowing, starting with [regulator] the Financial Conduct Authority looking at the whole of the credit market and cracking down on excessive fees across all forms of credit, including unauthorised overdrafts.”
A new report from charity, StepChange, was released this morning on the issues of ‘problem debt,’ stating it costs the UK £8.3 billion.
The Social Costs of Problem Debt
“All too often, people face their debt burden alone, which can worsen the anxiety they are feeling.”
£89 million due to worse education and employment outcomes for young people.
£19 million due to poorer physical health.
£5 million due to increased ‘desperation’ crime.
£2.8 billion cost of losing a home or being evicted.
£2.3 billion costs due to job loss or lost productivity.
£960 million mental health costs.
£790 million relationship breakdown costs.
£658 million extra costs of older people needing to move into care homes earlier.
£443 million cost of employees in small businesses losing their job.
£229 million costs due to increased risk of children being taken into care.
Mike O’Connor, CEO of StepChange, said:
“Many people are plagued with severe financial worries that can have a huge impact on their health.
“All too often, people face their debt burden alone, which can worsen the anxiety they are feeling. We would encourage anyone who is struggling with debt to take that first step and seek free confidential advice.”
The report was carried out by Baker Tilly, analysing the data of 109,397 StepChange customers. The charity saw a 37% increase in clients seeking debt advice between 2012-13, and are expecting a further 20% increase in the 2014 Statistics Yearbook. With an estimated 2.9 million people in the UK facing problem debt, the report suggests that if the 2.9 million could find help a “conservative” estimate of £3.1 billion could be saved in social costs.
“Problem debt is a brake on people’s capacity to work, or to return to work, a brake on aspiration and a brake on potential. The impact affects us all and we cannot afford to walk on by.” – Mike O’ Connor, CEO of StepChange.
Debt Action Plan
The result of the findings is a call from the charity for the Government to commence a Debt Action Plan, which includes:
Savings help for people on low and middle incomes to build up precautionary savings.
A new statutory scheme supporting people through temporary financial difficulty, accessed via debt advice.
Government committing to the highest standards in debt collection practice where it acts as a creditor, e.g. council tax collections.
Helping the free debt advice sector bridge the advice gap so that everyone who needs help with their debts is able to get debt advice.
Providing proper funding for the tools to help people manage their debt, so that debt advice can help as many people as possible.
A Treasury spokesperson stated:
“A key part of the Government’s long term economic plan is to boost hard-working peoples’ financial security at all stages of life.
“That’s why we’ve taken action to deliver the biggest ever increase to the annual subscription limits for Isas, a radical overhaul of pensions so that people can access them more flexibly, and major changes to the starting rate of savings income tax which will benefit over 1.5 million people.
“The Government has taken a series of steps to help those with problem debt, including giving the Money Advice Service (MAS) responsibility for funding and coordinating the free debt advice sector, and giving the Financial Conduct Authority robust powers to protect customers that use debt management firms.”