Debt solutions expert and DEMSA member, Atlantic Financial Management is calling on the Government to tackle the root causes of people becoming more indebted, following last week’s Commons Debate on debt advice and debt management. The debate focused on pay day loans, debt advice and debt management services, but failed to acknowledge the current charges made by high street banks for unauthorised overdrafts. From Atlantic’s experience of helping indebted consumers with serious financial problems, this is an issue that impacts vastly more individuals than pay day loans. The debate was followed a day later by the Government opening consultation on the proposal to clarify the provision and coordination of debt advice from the Money Advice Service (MAS) – a service which is under resourced and facing severe cuts.
"...further cuts in household expenditure will impact millions of UK consumers..."
Kevin Still, Director for Atlantic said: “The pre-Christmas Commons debate on Debt Advice and Debt Management on 1 December 2011 highlighted the ability of politicians to skirt around the real issues facing ‘iceberg Britain’.
“Although it was widely acknowledged that we are likely to see increased personal debts in the New Year and that further cuts in household expenditure will impact millions of UK consumers, it is apparent that there is no ‘cunning plan’. Indeed, concerns were raised by several MPs regarding the on-going cuts at MAS, the newly proclaimed champion of ‘debt advice’.
"...UK personal debt stood at £1.36 trillion and now stands at £1.45 trillion..."
“It seems bizarre that, by the MPs own admission, the Payday lending market is relatively new to the UK market and has somehow created the problems the UK economy is in today. The reality is that it represents a very small proportion, £1.9 billion in 2010 quoted by one MP, of the total consumer lending and has virtually no serious complaints when contrasted to the high street banks.
“In July 2007 at the start of the Credit Crunch, UK personal debt stood at £1.36 trillion and now stands at £1.45 trillion according to the Credit Action statistics. Secured borrowing has risen by £103 billion in the same period, more than accounting for the difference.
"...more issues with current account debts..."
“The underlying theme is that banks dramatically reduced unsecured lending and hugely increased interest rates on credit cards over this period. Enter pay day loans which crossed the Atlantic and were adopted without any heed of the lessons learnt in the US. It seems these providers, working within current consumer legislation, are now being blamed for the debt problems being experienced in the UK. This was eloquently explained by John Lamidey, chief executive of the Consumer Finance Association (CFA), giving oral evidence to the Parliamentary BIS Committee enquiry into Debt Management and Consumer Credit on 29th November.
“The arguments that John makes about unauthorised bank overdraft fees for bank clients on even basic bank accounts are very powerful.
“As a debt solution provider we see vastly more issues with current account debts than we do with payday loans. It is very common for us to have to set-up a new current account where income can be protected and priority expenditure can be ring fenced.
"...true reasons for debt in the UK..."
The codes of practice that have been put in place by associations like the CFA assist our creditor liaison and settlement teams in establishing debt solutions, like a Debt Management Plan (DMP), knowing that the payday lender is likely to co-operate and that we can act on all the unsecured debts, even if there are multiple payday loans.”
“If there had been more engagement with the lending community, credit reference agencies and reputable commercial debt solution providers, the Commons Debate would have focused on the true reasons for debt in the UK, instead we seem destined to foot the bill for the extensive wish list outlined by many of the MPs.”
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