Dood Chair Warns of Debt 'Tipping Point'

Damon Gibbons, Chair of Debt on our Doorstep, has warned that 2007 could be the year in which thousands of consumers are tipped into over-indebtedness. In an interview for the BBC, Gibbons stressed the fact that the growth in secured lending has outstripped the growth in house prices in 2006, and that only small interest rate increases in the coming year would result in the ratio of borrowers' interest repayments to their income exceeding the levels seen during the early 1990's, when housing repossessions reached their peak.

The UK's sensitivity to interest rate rises was confirmed by Howard Archer, UK economist at Global Insight, who stated:

""It is true...that due to over-indebtedness more people will feel the effects if rates just rise a little bit than would have been the case in the past."

Debt on our Doorstep is warning that those most at risk will be mortgage payers unable to afford the fees to move to fixed rate or discounted mortgages and who are coming to the end of initial two or three year discounted mortgages which partly fuelled the demand for housing, and house price increases.

The interview comes in advance of the release of Debt on our Doorstep's New Year Manifesto for Fair Lending, due to be released on Monday 15th, January 2007.

FSA Hands Out Another PPI Fine

The Financial Services Authority has fined Redcats (Brands) Limited £270,000, which trades in the UK under the brand name of Empire Stores and has a tie in with sub-prime lender London Scottish Bank Plc, for failing to treat its customers fairly when selling Payment Protection Insurance (PPI) in connection with home shopping products. The regulator found that Redcats did not have adequate systems and controls in place to minimise the risk of unsuitable sales.

There were also weaknesses in the way that Redcats operated and maintained its compliance systems, training and competence arrangements and sales processes.

Redcats’ breaches were particularly serious because they meant that over an 18-month period approximately 160,100 customers were sold PPI which might not have been suitable for their individual needs.

Redcats specialises in home shopping with PPI sold to cover instalment payments for the merchandise bought through catalogues by phone, post or via the Internet. The FSA investigation found that a significant number of customers were provided with insufficient information about the PPI policy features, terms, exclusions and limitations through its telephone sales channel.

Despite stating that its sales were made on an advised basis, Redcats failed to comply with regulatory requirements for advised sales. As a result a significant number of customers were sold PPI without being provided with personal recommendations or advice, either verbally or in writing, as to why the PPI policy met their demands and needs.

The FSA has confirmed that PPI mis-selling is a priority for enforcement and that other cases are pending. However, following action against Loans.co.uk (fined £455,000 in October 2006),the FSA revealed to Debt on our Doorstep that they had no plans to monitor the number of consumers reimbursed as a result of remedial plans put in place by the lenders following the fines.

Redcats also trades across the world under a number of different brand names as follows:

In France: La Redoute, La Maison de Valérie, Vertbaudet, Somewhere, Cyrillus, Daxon, Edmée
In Scandinavia: Ellos, Josefssons
In the United States: Chadwick’s, Metrostyle, Jessica London, Lane Bryant Catalog (changing to Woman Within), Roaman’s, KingSize, Brylane Home, The Sportsman’s Guide.

RBS criticised for extortionate lending in Germany

The European Coalition for Responsible Credit has highlighted how the Royal Bank of Scotland is circumventing German anti-usury regulation by charging excessive fees for cash withdrawals on its credit card. The Institute for Financial Services (IFF) in Germany comment :

"The Royal Bank of Scotland distributes a seemingly free credit card to people in Germany and elsewhere, which after a certain while turns into high price credit with certain inbuilt tricky characteristics. For example, cash withdrawal with this credit card will cost an extra fee of up to 4.75% for those who have no assets on the credit card account (and who does?). This is targeted at people in trouble with debt, who are tempted to use the credit card as a means to take out an instalment loan. In this case it means that the interest rate in countries like Germany, France, and the Benelux can climb up to 35% p.a. if it is for a small amount and there are delays in paying it back. This is an ingenious circumvention of continental usury regulation as well as a breach of the price disclosure rules of the EU, which seems to be legal in the UK. "

Default Charges - Citicards under fire

The Consumer Action Group report that a judge has found Citibank's default charges of £12 excessive and that they cannot justify fees in excess of £8. In an action brought by a Consumer Action Group user, the judge told Citicards that their current £12 charge was 'plucked out of thin air'. He went onto compare a default charge with the cost of sending out a solictors letter and concluded that a fee of only £8 could be justified. Given the use of automated systems, even that level of charge is open to challenge, but there has been little success to date in getting lenders to disclose the full details behind their charging policies.

Despite the OFT's much vaunted intervention to reduce credit card default charges to no more than £12, it continues to fail to take legal action against lenders to establish the true costs of default. Lenders, in the meantime, continue to charge multiple fees in order to increase their profits. So, a borrower that goes over their credit limit, fails to make the required repayment, and bounces a cheque would actually incur three separate £12 charges totalling £36.

In correspondence to Debt on our Doorstep in October 2006, the OFT stated that "...we will not investigate further a single default charge of £12 or less, but dual fees totalling more than that, flowing from a single instance of default, may merit further investigation."

Despite this statement, no action has been taken and no undertakings obtained from lenders to stop this practice.

Citibank also adopts the usual sub-prime tactic of removing 'promotional' interest rates if a borrower misses a payment, and reverting agreements to a much higher 'standard rate'. So, for example, although it currently advertises a Platinum card with a 'typical' APR of 17.9%, this would increase to its standard rate of 28% APR if a borrower misses a payment, goes over their credit limit, or breaches the agreement in any other way. This interest rate hike takes place in addition to the £12 fees that are charged. Again, no action appears to be planned by the regulator.

Blame Poverty Not Lone Parents

We challenge the assumption ("Family values are back in the political arena", Leading article, The Independent, 11 December) of a consensus that family breakdown is the cause of all Britain's ills. There is no proven causal link between lone parenthood and long-term poorer outcomes for children. But there is extensive evidence of the damaging effects of poverty.

Family breakdown and poverty need not be inextricably linked. Denmark, for instance, with a similar rate of lone parenthood to Britain, has the lowest child-poverty rate in the EU. A married couple's tax allowance would deepen the relative disadvantage faced by one-parent families and would not tackle poverty.

We welcome the Conservative recognition that lone parenthood "is rarely a lifestyle choice", but lone parents will reserve judgement on whether the Tory war on them is over until they see policies for tackling low income and deprivation, whatever the family type.

CHRIS POND

CHIEF EXECUTIVE, ONE-PARENT FAMILIES, LONDON NW5

Empty Threat to the Jobless Young

A report from the Home Office on crime becoming the career of choice for the young men of the inner cities follows hard on the heels of the Secretary of State for Work and Pensions threatening to stop the benefits of the long-term unemployed to get them into work.

They already go without if they fail to turn up at a job interview, and life is little different when the benefits are reinstated at £34.60 a week at 17 and under, £45.50 at 18 to 24 and £57.45 for single, childless adults aged between 25 and 60, all rates to be increased by £1.05, £1.35 and £1.70 a week in April. Many do not apply because the money is not worth the hassle in a very expensive economy.

John Hutton believes he is driving them all into legitimate work, much of which is poverty-paid, but other sources of income are found; the Asbos proliferate and more and more prisons are built.

So the threat to stop benefits that are already painfully inadequate, or non-existent, will be ridiculed on the streets of Britain.

REV PAUL NICOLSON

CHAIRMAN, ZACCHAEUS 2000 TRUST, LONDON N17

Dood Member, Zacchaeus 2000, in The Times Today

Prostitution is everyone's problem


Sir, The Home Office consultation paper Paying the Price, published in July 2004, reports that: "Prostitution may be driven by economic necessity." It also reports "survival to be the overriding motivation" and that 74 per cent of street sex workers "cited the need to pay household expenses and support their children". The lack of money to live a healthy life and participate as citizens in the UK forces choices women would rather not consider. Survival is a powerful motivator.

Buying the things that most people consider necessary is impossible at the lowest levels of income in the UK economy without deciding to go into debt, shoplifting, bending the benefit rules, carrying drugs or, for some, entering prostitution.

At Christmas some credit companies will be lending £1,000 with £700 interest repayable to women wanting to do the best for their children but finding it impossible on benefits, which are below the Government's poverty thresholds. The best the Government could do about that was to invent another fast-track tribunal to examine cases of unfairness, to which access is near impossible for the majority.

All the political parties have failed fully to address such poverty in the fourth largest economy in the world.

THE REV PAUL NICOLSON
Chairman
Zacchaeus 2000 Trust

Hutton launches wide-ranging Welfare Review

John Hutton, Secretary of State for Work and Pensions, today launched a long-term review of the Government's welfare to work strategy to tackle economic inactivity and promote social mobility. The review is to be led by Jim Murphy, Minister for Work, with additional advisory input from David Freud, chief executive of the Portland Trust. The review aims to address what Hutton describes as a 'can work, won't work culture' and will focus on assessing what has worked over the last ten years, and make recommendations for the next decade.

Mr Hutton said that 'the Welfare State should give people the opportunity and support to overcome the barriers they face. But that can not be a passive one-way relationship. It requires individuals themselves to respond; to meet the responsibility this places on them.' He added that 'if we are to break the cycle of benefit dependency, we need to ask whether we should expect more from those who remain on Job Seekers Allowance for long periods of time in return for the help we provide.'

Dood News Blog

Welcome to the news blog of Debt on our Doorstep - the UK Campaign for fair finance. Debt is increasingly in the news, especially at this time of year, so we thought that we'd make it easier to publish news and views on debt and financial inclusion issues by starting the blog.

In the last month alone we've witnessed the release of the Treasury Select Committee reports into financial inclusion, and on banking the unbanked. Then there's been the Social Market Foundation's discussions on 'responsible credit', the Home Credit Competition Commission report, and most recently a call for greater disclosure of bank lending to deprived communities by the New Economics Foundation. Somewhere in the middle of all that was the BBC's excellent reporting of the bank charges rip off - Bank Robbery - so pressure on the financial services industry has never been so intense.

This level of activity is clearly a good thing, but we need to sustain it throughout the next year. We hope this blog will play its part in keeping people up to date with developments and enable a freer flow of opinion on these issues in 2007.