Spate of bad news saps consumer confidence

January 29th, 2011

A survey of consumer attitudes in the UK suggests that confidence in the economy and household finances has suffered its biggest monthly drop in 16 years.

The GfK NOP Social Research report, whose results were released this week, said rising VAT was a key factor behind the steep and sudden confidence fall.

The study also said that further government austerity measures and the surprise contraction in the economy meant that talk of a double dip recession, although not the fact of one, was “unavoidable”.

The eight-point fall in a key measure of consumer confidence between December and January, to minus 29, was the biggest monthly drop since the end of 1994. Meanwhile, the index representing people’s expectations of their financial situation over the next year slid to minus 12, down from plus 4 a year ago.

The score for expectations for the economy over the next year was minus 30, compared with minus two a year ago. This has been a period of bad economic news for the UK:

Earlier this week official figures showed that UK GDP shrank by 0.5% in the final three months of 2010 as the freezing December weather caused major disruption across the economy.

Last week, the Office for National Statistics said that the rate of CPI inflation had risen by more than expected to 3.7%.

Meanwhile at the beginning of this month the standard rate of VAT increased from 17.5% to 20%.

Prime Minister David Cameron, in talking about the recent spate of bad economic news stated that 2011 is going to be ‘choppy’. This is certainly going to be the case, but it is worth remembering the financial mismanagement that led us to be in this position.

By the beginning of 2012, the UK should be returning to stable and sustainable growth, with a deficit that’s under control and greater responsibility regarding personal debt. That is the destination, 2011 is the difficult journey.

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Homes being repossessed to cover £600 debts

January 21st, 2011

An investigation by the Office of Fair Trading (OFT) has found that homes are being repossessed for debts at little as £600. This has led to the regulator clamping down on lenders who tell customers to pledge their homes against non-mortgage debts.

Four financial service providers have been ordered to “address concerns” about the way some consumer debts are enforced. It has been discovered that in a minority of cases across the industry, lenders sent “oppressive and misleading” paperwork to borrowers.

The process of securing these debts is known as a charging order. Financial companies have the right to apply to a court for a charging order when borrowers have failed to keep up payments on credit card debt, loans or hire purchase commitments.

This order turns these unsecured debts into debts secured on the borrower’s property.
Over the last five years, the number of charging orders applied for has risen from 45,000 to 164,000.

However, it should be noted that only a relatively small proportion of orders lead to people being forced to sell their homes.

The OFT investigation uncovered instances of charging orders being used to secure debts of less than £600. Lenders are entitled to use charging orders but must do so proportionately and this is clearly not the case in a minority of instances.

The OFT has stated that where they consider the using of charging orders to be unfair or oppressive they will take action to protect consumers.

The OFT has told four offshoots of major lenders to address the way they use orders.
The four are: Alliance and Leicester Personal Finance, HFC Bank, part of the HSBC group, American Express Services Europe, and Welcome Financial Services which is part of Cattles.

The OFT says that each of the four co-operated with the investigation and have made changes to address the problems identified.

In general, during the investigation of the whole sector, the OFT found that some providers failed to consider the customer’s circumstances, applied substantial charges for bringing in debt collection agencies, and did not have adequate checks in place during lenders’ decision-making process.

This case demonstrates, once again, that consumers need protecting from large financial institutions that will find any way they can to circumvent regulations to maximise their profits at the expense of vulnerable customers.

Thankfully there are signs that the coalition government is aware of the problem and is starting to take action.

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Moves to protect consumers from the insolvency industry

January 14th, 2011

An MP has urged the UK government to investigate the insolvency industry amid claims administrators are cashing in at the expense of creditors. There is concern that in many cases the process is taking years, short-changing those who have lost money when a company goes bust.

There are claims that the case of Christmas savings firm Farepak showed creditors could get little while administrators profit.

The Department for Business said it was examining an OFT report on insolvency.

Parliamentary questions from Mr Weir revealed that 16,554 firms went into liquidation over the past four quarters, owing an average of £584,000 each, more than three-times as much as in 2006/07.

Campaigners have highlighted the expected Farepak settlement where creditors would get only a fraction of the money they had placed into the saving scheme. Farepak went bust owing £37m to more than 119,000 savers. Mr Weir said administrators and their legal advisers could earn up to £3m.

After four years, Farepak victims have been left with pennies while the administrators have walked away with millions, and this by no means is an isolated case. There were similar problems with settlements after the collapse of Zavvi and Land of Leather.

Liquidations also have no statutory time limit and can sometimes take decades to settle. According to Mr Weir and other analysts, part of the problem is that the industry is largely self-regulated.

Additionally, there is no independent complaints investigation procedure or ombudsman to adjudicate on malpractice and there are no questions over fees or delays.

The UK Department for Business said Mr Weir’s criticisms echoed a recent report by the Office of Fair Trading which found that self-regulation had failed and that high fees and lengthy timescales were harming the interests of creditors and consumers.

The government is considering the OFT report, which recommends the introduction of an independent complaints body.

There is little light at the end of the tunnel for people who have lost money when firms have already collapsed. But this is clearly an area where the government can make a real difference in protecting the poor and disadvantaged from being taken advantage of by labyrinthine legal procedures and those that profit from them.

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