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The Consumer Credit Counselling Service (CCCS) has announced that greater numbers of affluent people are seeking help for debt problems as the recession bites. It would seem that they mean previously affluent people but it is an interesting point.

According to the charity, unemployment and a housing market slump has caused a “fundamental shift” in the nature of UK debt.

That shift has been entirely upwards, consumers in the UK have total debts approaching £1.5 trillion.

But it is not just a simple upward trend. The CCCS, which is the UK’s biggest debt management charity, has said that debt problems are becoming more complex, harder to resolve and affect a wider cross-section of society than in recent years.

Although people seeking help for debt are, on average, actually better off and owe less money than previously, they are finding it more difficult to pay off debts.

“When unemployment triggers a debt problem, the fall in income can leave the borrower struggling to service both mortgage and unsecured debts, while the fall in house prices, and growth in negative equity, takes away the option of selling to clear the mortgage,” said the chairman of the CCCS.

“As over-indebtedness becomes a problem for the more affluent, people who come to us are more likely to have mortgages and to lead complex financial lives. As a result, our task in providing best advice is bound to be more difficult and time consuming.”

Homeowners owe 83% more on average than people who rented their homes. Almost half of those seeking help from the CCCS are homeowners.

As the recession deepens, the CCCS expects the complexity of clients’ debts to intensify. These trends seem likely to continue for the foreseeable future; the perfect storm may have arrived but we have yet to reach its epicentre.

Only 35% of people are able to commit to a debt management plan, under which a set amount is repaid each month, which is down from 42% in 2007 and 46% in 2006.

The charity said 90% of its clients owe money on credit cards and personal loans, having run up an average debt of £14,000 on these products.

A regional breakdown shows that the highest levels of debt are generally in the south of England, at an average of £29,000, but the over 60s in Wales had one of the highest debt levels in the UK at £25,947.

Scots seeking help from the CCCS had the highest levels of debt in the UK relative to their income. Those in Northern Ireland were least able to repay debts.

An interesting aspect of this report is that the trend of more affluent earners getting into trouble was not seen during previous recessions. There is little doubt that it is the result of a society where people do borrow freely.
Homeowners, in particular, have had a very optimistic outlook about their house values and find it easy and cheap to remortgage. They are encouraged to borrow more and these previously affluent people are the casualties of that.

Many cannot now remortgage to deal with their debts. Many of these people will have to swallow their pride and engage in some basic budgeting. It is also worth noting that free and impartial debt advice could ease many people’s problems.

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It is a shameful fact that whenever there are people in trouble or distress there will be others willing to profit from that distress. As such, it is particularly gratifying to hear that the Office of Fair Trading (OFT) is taking action against more than a dozen businesses which set up bogus repayment plans for people struggling with debt.

The watchdog says these debt management companies are deliberately misleading consumers by using website addresses similar to non-profit organisations. In actual fact, they are commercial enterprises.

The regulator says it believes a substantial number of consumers could have been deliberately misled. It has written to 13 companies who run 27 websites and has told them to shut them down.

The regulator says if the firms do not comply, they could lose their consumer credit licences. If the companies are not licensed, as seems likely, they could face prosecution.

The director of credit at the OFT said in a statement that, “there is a danger that with increasing unemployment, more people could run into financial difficulty and we are concerned that at the point where they are most vulnerable and seeking advice, they are being deliberately misled by people who are trying to gain a commercial advantage from them.”

The belief is that these companies are misleading consumers by holding themselves out as free advice agencies such as Citizens Advice, the Consumer Credit Counselling Service, the Money Advice Trust and Advice UK.

The OFT have not named the 13 companies involved, but Citizens Advice has been worried for some time about debt management companies which use words that could give the impression they are connected with government organisations or the CAB.

The Citizens Advice Bureau has said that they are very pleased action is being taken to stop unscrupulous businesses profiteering from their activities.

As the UK debt mountain has grown, the number of businesses offering advice and solutions has increased rapidly.

There are now countless debt management companies advertising online which are perfectly legal as long as they have a consumer credit licence and adhere to the OFT’s debt management guidance. They are also well within their rights to charge for their services.

But charities like the Money Advice Trust say this should be made clear. It is warning consumers to do their homework before signing up for a debt management plan.

The Money Advice Trust says that ‘if people aren’t sure if the advice really is free and independent, they should look carefully at the website. An easy way is to look at the ‘About Us’ section to find out who funds it and who is behind it.’

The OFT is urging consumers to be vigilant when searching for debt advice online. If people have concerns, they can check out companies and websites on the OFT’s consumer credit register.