BERR Consults on Consumer Credit Directive

The Department of Business, Enterprise and Regulatory Reform is consulting on the implementation of the Consumer Credit Directive. The consultation, which was launched with little fanfare on the 14th April, will run for only 8 weeks (as opposed to the usual 12), in order to provide lenders with a longer lead in time to accommodate any changes.

The UK process for implementation of the Directive has been dominated by industry interests, with 'expert groups' established comprising of industry representatives whilst consumers have been provided with few opportunities for input. The curatiled consultation period will once again put them at a disadvantage in making their response.

The consultation document is available from http://www.berr.gov.uk/files/file50962.pdf

The Directive covers:

the information that must be provided to consumers at pre-contract, contract, and post contractual stages

information to be included in advertisements

early repayment

APR calculation

a duty on lenders to provide adequate explanations of the credit offer

an obligation to check the creditworthiness of the consumer

the right for consumers to withdraw from an agreement within 14 days

OFT consults on Financial Sector Strategy

The OFT has launched a consultation on its proposed financial services strategy which sets out its approach to the sector in response to the current economic crisis, and also announced a review of the unsecured consumer credit market.

The OFT is asking interested parties to comment on its proposal to focus on two inter-related themes:

• The prioritisation, in the short term, of promoting fairness and responsibility between the credit industry and consumers, and

• advocating choice and competition to ensure that public decisions made to deal with the current crisis do not harm competition in the long term to the detriment of consumers.

The consultation will run until 12 June 2009, and the consultation document can be downloaded here.

A review of the unsecured credit market is also being scoped out, with details available from:

www.oft.gov.uk/oft_at_work/markets/services/credit-sector/.

Comments are currently being invited concerning this until 8th May, with the full review expected to start in the summer.

Global Coalition for Responsible Credit calls on G20 leaders to create a financial system ‘worth saving’

Debt on our Doorstep, with support in the UK from the trade unions UNITE and PCS, the New Economics Foundation, Church Action on Poverty, the National Housing Federation, and former Cabinet Minister and Chair of the Labour Party Ian McCartney M.P, and with the support of a Global Coalition for Responsible Credit comprising the European Coalition for Responsible Credit, the U.S National Community Reinvestment Coalition, and partners in twenty other countries, today issued a call for the forthcoming meeting of the G20 to commit itself to the creation of a financial system that is worth saving by:

Agreeing to place financial services providers under a ‘duty to exercise responsibility in financial services’. Financial services providers need to be required to sign up to clear principles of responsibility and to have transparent mechanisms in place to ensure that these principles guide their behaviour in practice. Remuneration policies need to be reassessed in the light of this ambition. The responsibility should include a requirement for financial services providers to properly consider the needs of all households, including those on low incomes, when designing financial products

Ensuring taxpayer investment in the banking system is turned into real help for people in financial difficulties, by agreeing actions to force lenders to offer to reschedule the liabilities of households in debt over the long term at affordable rates

Committing to take further action to stop home repossessions and ensure lenders offer affordable mortgages to people in negative equity and/or mortgage arrears, and to work to stabilise housing costs in the longer term by increasing the supply of affordable housing.

Chair of Debt on our Doorstep, Damon Gibbons, commented:

“Financial services providers have engaged in irresponsible and usurious lending, causing households to become increasingly vulnerable to economic shocks and saddling them with unsustainable levels of debt. We call on the G20 to signal a decisive break with the short termism, greed, and irresponsibility that have caused the current crisis and to take action to ensure that taxpayer investment in the banking system is now used to create a system that benefits people.”

Supporting the work of the Global Coalition, Andy Case, a National Secretary for Unite, the UK’s largest trade union with 2 million members, including 178,000 working in the Finance Sector, said:

“The current situation provides an opportunity to re-build a financial system that supports a long-term outlook and is consistent with democratic aims, financial stability and social justice."

Protecting low income borrowers in the credit crisis

Debt on our Doorstep and Ian McCartney M.P have now finalised their report on measures that government can be taking to protect low income borrowers in the credit crisis. The full report is available from the link below.

The report has now been submitted to the Department of Business, Enterprise and Regulatory Reform and the Treasury and we are hopeful of a meeting in the near future.

In the meantime, the proposal to cap prices in non-competitive areas of the credit market is gaining further support with Transact members voting this as one of their top three priorities for action in a survey at the end of 2008. Following the Transact Annual conference London in November, we understand that there will be a number of regional debates organised on this issue in Spring 2009.

Protecting low income borrowers in the credit crisis

Government urged to bring forward introduction of enforcement restriction orders

Debt on our Doorstep and John Battle M.P have teamed up in a bid to get government to bring forwards the introduction of enforcement restriction orders. The Tribual, Courts and Enforcement Act passed by Parliament in 2007 contains provisions for the county courts to make the orders were a debtor's financial circumstances have significantly worsened since taking out credit, and allow for debt recovery action to be suspended for up to 12 months. With rapidly rising levels of redundancies and unemployment, the orders would provide real help now to many households struggling to cope with the recession.

However, following a parliamentary question from John Battle to Bridget Prentice at the Ministry of Justice, it would appear that the introduction of enforcement restriction orders is not scheduled until 2010.

We believe that is far too late and urge government to act now.

John has put down an Early Day Motion on the subject which is available from the link below. Please write to your M.P and urge them to add their signature.

http://edmi.parliament.uk/EDMi/EDMDetails.aspx?EDMID=37814&SESSION=899

Ian McCartney M.P to work with Dood on Rate Cap proposal

Ian McCartney M.P today announced his intention to work with Debt on our Doorstep in order to develop a proposal to introduce a system of interest rate caps, which he will submit to the Chancellor, Alistair Darling, and Business Secretary, Peter Mandelson at the end of the week.

The announcement came during a live interview on the BBC's Politics Show, North West, in which Damon Gibbons, Chair of Debt on our Doorstep also took part.

The full show can be viewed from the following link, with the coverage from the North West starting 33 minutes in.

http://www.bbc.co.uk/iplayer/episode/b00fvxd1/The_Politics_Show_30_11_2008/

Show your support for the 'London Declaration' on the Global Credit Crisis

London Declaratation on the Global Credit Crisis - all agencies urged to indicate their support by signing at http://www.responsible-credit.net/index.php?id=2738

Text of the Declaration follows

Introduction

On 13th November 2008, two hundred delegates drawn from twenty six countries gathered in London to discuss the global credit crisis. The conference recognised that taxpayers all over the world are now being required to foot a mounting bill to rescue banks and financial institutions. Yet, it is households who are feeling the worst effects of the meltdown in the global financial system. Consumers, who have been encouraged to take on excessive housing and consumer debt, are now struggling to avoid repossession and insolvency, savings and pensions are threatened, and unemployment is rising.

Our discussions were informed by the Council of Europe's Recommendation (Rec/(2007)8) concerning legal solutions to debt problems, which sets out a framework for Member States to#

• Provide measures that will prevent over-indebtedness
• Alleviate the effects of debt recovery, and
• Rehabilitate over-indebted individuals and families

There was widespread support for the Council of Europe's framework at the conference, but also recognition that in many Member States the measures that were currently in place failed to take account of the crisis situation now facing households.

Delegates therefore supported the making of the following declaration

The London Declaration

We, the European Coalition for Responsible Credit, with the support of our partners around the globe, call on our governments, financial regulators, and central banks, to take immediate action to support households in financial problems and to work with us and other consumer and social agencies, academics, and the labour movement to establish a new framework for the governance of credit markets at the international, European, and national levels.

The current crisis is a product of the long term neglect of consumer interests in the credit markets and inadequate regulation of the financial services industry. Over the past twenty years we have witnessed the continued weakening of consumer protections in the name of supporting free and efficient markets. The failure of this approach in the credit market is now self evident. This is not a crisis borne from providing access to credit to low income groups, but it is a product of providing them with irresponsible credit products and failing to protect their long term interests in the market.

We call on all governments across Europe to

Improve help available to households in mortgage arrears, by

Establishing, with the financial services industry, ‘mortgage rescue funds’ for households that can be used to help borrowers restructure mortgages at affordable rates of interest over the next five to ten years

Providing courts with the power to halt the repossession of homes and to restructure mortgages by accessing ‘mortgage rescue funds’

Enhance court protection for borrowers with unsecured debts, by

Providing for borrowers to obtain, on their own application, a temporary moratorium on recovery action for up to one year, subject to judicial discretion

Preventing unsecured lenders from obtaining legal charges on homes

Ensure adequate provision of debt advice services by developing and implementing, with the active involvement of consumer and social agencies, a national debt advice plan. The plan should be developed following the commissioning of independent research into the demand for, and supply of, debt advice provision and current funding levels for advice services

Include a duty in bank and credit licenses obliging lenders to ensure people on lower incomes have access to responsible credit products, and which requires lenders to report in a standardised and public way on their performance in meeting this obligation

Improve governance of credit markets by actively involving consumers

Ensure that consumer and social agencies are represented on key policy making and supervisory bodies at the global, European, and national levels

Provide financial support to enable consumer and social agencies to participate in an ongoing dialogue with regulators and the financial services industry at the global, European, and national levels

Develop a quasi bankruptcy procedure for banks which instead of just applying the principle of "too big to fail" provides the intervening State with the right to replace management, to adjust claims and to protect public interest in failing financial institutions without harming the well-functioning of the bank's systems with regard to the markets. Public guarantees and subsidies to banks should be given only with the obligation to act responsibly towards consumers and to return the money after it is no longer necessary to keep the bank from failure.

Signed this 13th November 2008

Professor Udo Reifner

Chair, European Coalition for Responsible Credit

Responding to the Mortgage Crisis

With repossessions at their highest level since the housing market crash of 1991, and more than 30,000 people set to lose their homes on current trends before next April, a new report from the Centre for Economic & Social Inclusion argues that radical measures should now be taken to help hard pushed borrowers reduce mortgage payments and to improve court protection against repossession.

The report highlights the fact that the cost of mortgage repayments, relative to household income, has been steadily increasing since 2004. This has now been combined with a ‘de-coupling’ of mortgage rates from bank base rates as a result of the global financial crisis – causing the cost of borrowing to rise rapidly, a surge in arrears, and a rush to repossession by lenders who have also seen house prices fall dramatically.

Pointing out the more pro-active approaches now being taken by regulators in the U.S where ‘loan modification’ programmes are now being introduced to ensure no-one pays more than 34% of their income on mortgage repayments, Damon Gibbons, Head of Policy and Partnership at Inclusion, commented:

“Restoring mortgage affordability is critical to reducing the number of repossessions. There is a strong case for government to insist that banks introduce a mortgage restructuring scheme in the U.K in order to achieve this. The new UK Financial Investment Company should ensure it uses the £37 billion of taxpayer investment in Britain’s banks as a lever to achieve this.”

The full report is available here :

http://www.debt-on-our-doorstep.com/files/Responding%20to%20the%20Mortgage%20Crisis.pdf

Transcript of speech to Transact Conference

A copy of the speech given by Damon Gibbons, Chair of Debt on our Doorstep, to Transact's National Conference on 21st November concerning the problem of credit dependency and the need for interest rate caps in the UK is now available from the following link

http://www.debt-on-our-doorstep.com/files/Speech%20to%20Transact%20Conference%20Gibbons%2021st%20November

Jim Devine M.P puts down Bill to limit interest rates

Jim Devine M.P (Labour, Livingstone) has put down a ten minute rule bill to limit interest rates on consumer credit contracts. The Bill is also supported by other Labour backbenchers including Jon Cruddas. First reading was on 12th November and details can be found here

http://services.parliament.uk/bills/2007-08/interestratesmaximumlimit.html

We urge Debt on our Doorstep supporters to write to M.P's asking them to support Jim's bill.

Damon Gibbons, Chair, Debt on our Doorstep will also be speaking at Transact's National Conference on 21st November to debate the issue of interest rate limits. This follows a survey of Transact members last year in which rate caps came top of their list of measures that should be implemented in order to make a difference to people on low incomes.

Finally, GMTV begins two days of publicity tomorrow to highlight the costs of predatory lending by door to door (home credit) and payday lenders.

Why cutting VAT could now be on the agenda

With the rise in unemployment figures released yesterday, and continuing long term downturn in consumer confidence affecting retail spending and small business, it may be that the time has come to consider cutting one of the most regressive tax schemes currently in place - VAT.

Calls have already been made this year for government to cut VAT on maintenance and home improvement work as a means to encourage homeowners to carry out energy efficiency measures and contribute to carbon reduction - see http://www.fmb.org.uk/cutthevat/(e4xgrh55hgjfox45er31qiq1)/default.aspx for details.

In his last speech as Chancellor, Gordon Brown also called on the EU to cut VAT on 'green goods' to 5%.

But a wider VAT cut may have advantages over tax rebate strategy that has been put in place by the Bush administation and which was echoed in comments made by the TUC's Brendan Barber in an interview with Channel 4 news last night.

As we highlighted earlier this year on this blog, one of the key theoretical advances made by the monetarist economist Milton Friedman was his exposition of the 'permanent income hypothesis' which dictates that households will not be encouraged to spend by income tax cuts whilst they are fearful for their jobs and long term position. As a consequence, VAT cuts have a distinct advantage - the benefits of them are only realised in the act of spending. To get the benefit of lower prices, you have to buy. They also have a real advantage in redistributing income to the poorest who spend a greater proportion of their income on VAT than higher income households, especially if the VAT regime is rebalanced in order to provide the largest cuts in the VAT rate on those goods which the poorest need and buy most.

If government is seeking to boost the economy and consumer spending then the measures we set out in our post earlier this week - an income based mortgage interest credit, central bank control over new long term mortgage and consumer lending rates, compulsion for banks to lend, discretion for courts to reschedule mortgages that are in arrears, and a cut in the VAT rate could form the basis of a solution.

Banking on Change - Can we build a sane future?

The action of governments and central banks across Europe and in the U.S to save the financial system from complete collapse is without a doubt one of the most significant economic and political events since the second world war. But it would be foolish to think that this crisis is anywhere near over. In fact, we may simply be entering a third phase in which we witness the impacts start to spill over into the real economy - resulting in more lost homes and rising unemployment.

The primary reason for continuing alarm? The causes of the credit crisis have not been addressed. We perhaps need to remind ourselves that neither the mass movement of bank deposits or the loss of liquidity in the banking system was the initial cause. Both of these were second order problems. They only arose because of falling values in the U.S - and by extension uncertainty in other national - housing markets. This 'trigger' remains in place, creating a prisoner's dilemma for banks.

Simply put the prisoner's dilemma is this - with so many people now in need of remortgaging at cheaper rates in the U.S, which one of the banks will be the first to take the risk on by offering them loans? The answer, clearly is none will do so for fear of attracting the most risky customers - after all just as the market knows that those banks accepting loans from government are in the worst problems, the banks know that those customers most desperate to reschedule home loans are likely to have the most problem repaying. This 'adverse selection' in credit markets was recognised long ago.

Two immediate actions need to be taken to resolve this. Firstly, households in the most difficulties need helping and fast. Secondly, central banks have to break the prisoner's dilemma by placing 'strings' on their assistance.

How can households be helped? - Debt on our Doorstep calls on government to consider introducing a 'housing interest credit' for low income families, which provides interest relief at source on mortgages and is paid on a sliding scale according to income. That will provide instant assistance to households struggling with increased fuel prices, and rising inflation but will ensure that it reaches mortgage repayments and reduces the risk of arrears. The Obama campaign has something similar in its economic proposals in the U.S at the moment.

Government should also legislate to amend S.36 of the Administration of Justice Act 1970 and S.8 of the Administration of Justice Act 1970 - the legislation which currently provides court's with powers to help borrowers facing repossession proceedings. The current law does not allow judges to reschedule mortgage agreements to ensure that people can retain their homes. They should be provided with the discretion to do so. Again, these measures are being supported by Democrats and community groups in the U.S.

But fundamentally the prisoner's dilemma in banking needs to be broken. To do this, banks must be forced to put out greater amounts of capital on loan to support mortgage and consumer credit restructuring for households over the next five years. Long term loans need to be made available to the banking industry from central banks to support this but banks must pass on this funding at fixed rates and terms established by the central banks to consumers. In effect the central bank will be setting the terms on which loans are to be provided to consumers, with banks simply acting as the intermediaries. Such is the lack of trust which can be afforded to Britain's banks.

Over time, such a direct mechanism can be relaxed provided the regulatory framework under which credit is provided in future is revamped and ensures that incentives are in place for responsible lending to take place and long term, ethical, relationships between consumers and lenders fostered.

That regulatory framework now needs to be constructed with the active participation of consumer agencies and representatives in partnership with banks and government. Our conference, which will take place on 13th and 14th November in London provides a seminal opportunity to begin those discussions. Further details can be found at

http://www.cesi.org.uk/events/current_events/responsible_credit_conference.htm

Please note that we have also secured up to 50 half price places for not for profit agencies to attend these discussions.

BBC One reports on the growing payday loans scandal

BBC's 'the One show' yesterday highlighted the growing problem of payday lending in the UK. You can watch the clip from the link below

http://www.bbc.co.uk/blogs/theoneshow/consumer/2008/09/26/payday-loans-never-a-borrower.html#comments

Channel 4 Exposes Lies of Payday Lenders

Channel 4 News has exposed the irresponsible lending of payday lenders, which offer high interest loans without checking whether or not borrowers can afford to repay and without bothering to check basic details such as earnings, before offering to extend loans for up to 6 months.

Commenting on the footage, Damon Gibbons, Chair of Debt on our Doorstep said:

"Channel 4 must be congratulated on bringing the reality of payday lending to light. Lenders are constantly telling us that they are responsible and comply with guidance from the OFT and their trade associations. This report reveals that this is simply not true. We hope that the Office of Fair Trading will look carefully at the footage and consider what restrictions now need to be placed on payday lender's consumer credit licenses."

The coverage is available from the link below starting 5 mins and 40 seconds into the clip entitled Payday Loans (broadcast on Tuesday 9th September)

http://link.brightcove.com/services/player/bcpid1529573111

OFT launches consultation on Responsible Lending

The Office of Fair Trading has announced the start of a year long project looking at responsibility in lending, and published a scoping paper for consultation. This is available from the OFT from the link below with a deadline for responses of 24th October 2008.

http://www.oft.gov.uk/shared_oft/business_leaflets/consumer_credit/oft1012.pdf

Dood supporters are encouraged to respond to the consultation arguing for the widest possible remit to be given to the project, in order to allow it to investigate and make recommendations on all matters from advertising, through to lending decisions, and decisions concerning recovery action. We will be examining the issues in more detail over the period of the consultation and will issue further news and views on the website in due course.