IVA.CO.UK DEBT EVENING 02/05/07
Report on the Debt Evening organised 02/05/07
Earlier this year, IVA.co.uk held the highly successful IVA.co.uk Great Debt Debate. On 2nd of May, we held the IVA.co.uk Debt Evening.
The aim of the evening was to explore the topical problem of debt in Britain through discussion and debate in a relaxed atmosphere. The key event of the evening involved an hour long debate with an expert card and questions fielded from the audience.
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Melanie Giles, an Insolvency Practitioner with over 20 years experience.
James Falla debt author with over 10 years experience as MD of a debt consultancy, also regularly featured on BBC as a debt expert.
Glen Bullivant, is a Vice President of the Institute of Credit Management and has been involved in the credit industry for over 41 years.
- Anthony Hilton
- Zoe-Anne Phillips
- Melanie Giles
- Glen Bullivant
- Adam Davies
- James Falla
- Male Audience Members
- Female Audience Member
Keynote speech by Adam Davies
Adam Davies: Good evening ladies and gentlemen, and thank you all for coming to the IVA.co.uk debt evening. Four years ago I faced bankruptcy. Several years prior to that I'd opened a small greengrocery shop, and for a few years did very, very well. I decided to expand my business, took on two more shops, and after a short while these proved to be unprofitable and I had to close them down and pay off the remaining leases. I was left with one original shop, and although it was still profitable, it didn’t generate enough income to cover my commitments, so I had to eventually sell that.
At the end of the day I was left with close to £70,000 of personal debt. I had a choice of either bankruptcy or to enter into an IVA, an individual voluntary arrangement. When I sold the last remaining shop, I found employment as a supermarket manager. It was for this reason that I was a little bit concerned about going bankrupt. I thought that my employers would feel very uneasy about having a bankrupt in charge of what was at the time a multi million Pound cash business.
I also felt that I would find it hard coping with the advert in the local paper regarding bankruptcy, as we had traded in the local community for a number of years and I knew a lot of people. So in early 2004 I opted for an IVA, and like most people at the time, I wasn’t really too sure what I was actually getting into. I was just happy that someone was taking on my debts and was going to help me, so I quickly signed on the dotted line.
Although an IVA proved to be my salvation, it also proved to be a very, very difficult time, not only for myself, but for my wife and for the children. Living on a tight budget was very difficult, and many times we had to put items back at the checkout because we simply didn’t have enough money. Many times I had to scrape around to find enough money to buy petrol to get to work. I even ended up buying clothes off eBay.
I was very lucky however because I had a very supportive wife and a very supportive family, and indeed, it was my mother who gifted me enough money to be able to put a deposit down on a house. We were renting at the time. Now, with the full knowledge of my IP, I purchased this house, and within two years I'd made enough equity to be able to offer a full and final settlement, and ended my IVA early in January of this year.
So here I am, in my 40s, totally debt free, and I've also come a full circle because I've now reopened my original shop. Obviously a lot wiser and with no expansion plans, and we are doing very, very well. So I am proof that you can survive debt, and that IVA can give you a second chance in life. Now, it was whilst I was in my IVA that I came across IVA.co.uk. Whilst searching the net one evening looking for a specific answer to a question about my IVA, I came across the site. I found that my question was answered very, very quickly, but more importantly, I found people in the same boat as me, and some with bigger debts than me.
So I began to post on the site quite regularly, and it became a way of life. I used to come home from work, log onto IVA.co.uk and start answering people’s questions, many times until gone midnight. I posted under the nickname of 'neverending' [sic], and I was very lucky a few weeks ago to be asked to become their spokesperson. This I jumped at, because for me it was the best way that I can try and help others who are in debt and are seeking a solution. I want to make sure they can receive the best advice, and just as importantly, support that they need. I think I can best do this through being a spokesperson for IVA.co.uk.
If I can tell you a little bit more about IVA.co.uk, it is the biggest online IVA community for information and advice about individual voluntary arrangements. It was formed in 2005 to help improve the understanding of debt and debt solutions. It provides much advice through its live forum, and this was launched in early 2006. When I first started posting in early 2006, there were about 100 members. There are now 1,800 members who have posted in excess of 10,000 times.
The forum has regular users, including myself, ranging from people who are in debt and looking for solutions and support, right through to professional experts who can offer this. There is also an online TV channel where a film of tonight’s debate can be seen as from tomorrow.
The event tonight is to further explore issues that were raised at IVA.co.uk great debate, which was held earlier in the year in Canary Wharf. We also want to raise awareness on debt and the issues surrounding it, and also to give voice to the community of IVA.co.uk. Finally, we also want to promote better communication between consumers, banks and the debt industry. Thanks for listening to me, and I hope you enjoy and participate in the rest of the evening. Thank you.
Introduction to the debate and panel
ZOE-ANNE PHILLIPS: Thank you very much Adam Davies. At this point I would like to introduce our Chair for this evening, Mr Anthony Hilton. Anthony has over 35 years experience as a financial journalist, and is currently the financial editor of the Evening Standard.
ANTHONY HILTON: Thank you Zoë, and thank you to Adam Davies for that opening remark, and good evening to you all. As Adam Davies said, we are here to discuss the key issues around debt and the debt situation in Britain today. We’re going to tackle four issues this evening, and the website, IVA.co.uk has actually commissioned some specific research to highlight the issues we are going to discuss. So the format is that I will pose a question and then I will run through a couple of the research findings, then ask the card to contribute, and open up the debate for the floor, and I will do that on each of the different topics as we proceed. So the whole thing should take about an hour.
So let me kick off then by introducing you to the panel. Adam Davies nearest me you have already met, who is the site manager and spokesperson for IVA.co.uk. Next to him is Melanie Giles, an insolvency practitioner with over 20 years experience in the insolvency industry. Third in line is James Falla, a debt expert and author with over 10 years experience in helping people with their debt problems. Finally on the far end is Glen Bullivant, vice president of the Institute of Credit Management, who has got over 40 years experience in the credit industry, although he probably doesn’t want us to say so [laughs].
Issue 1: Why are Britons suffering from increasing personal debt, and why are insolvencies on the rise?
So, thank you all for coming, and let’s get on with our first question of the evening, and that is why are Britons suffering from increasing personal debt, and why are insolvencies on the rise? We will come to the question in a minute, but let’s look at the research questions that we have. First of all, what do you think are the key factors for people falling into debt in Britain today? The answers are irresponsible lending by creditors at 43%, is the biggest single issue, and irresponsible borrowing by consumers at 32%, and then lack of financial education, named by almost 1 in 5, as the issues.
So clearly responsibility there, too easy lending, too careless borrowing, and people not really knowing what they are getting into. The other question – what do you think are the main reasons that people get into debt? So if you like, the first question gave us the big picture and this is giving us the pictures at an individual level. Here the highest score is poor money management at 60%, and 3 out of 5, then reduced income and unemployment, both kicking in at 14%.
I think the message there is that people could have handled their debt until some eventuality came along that they hadn’t anticipated, illness or unemployment, so they didn’t get the money and so the whole thing got out of control. Saving nothing, too little or not at all at 4%, and financial illiteracy at 14%. I think marginal in this context. So, that is what the research, the polling of the public suggested. Let’s go to our card and kick off with James. Can we kick off with you James? You can give us your feel for what this question is about and why is it that we are suffering from increased personal debt.
JAMES FALLA: My personal view, having worked with probably over 1,000 people in the last 10 years who have found themselves with personal debt problems, is that a little bit of both creditors and individuals are involved in the reason why people get into debt. So I would say that at the moment we do live in a have now pay later culture. So people are looking at all the things that they can buy, credit is relatively available, and they are eager to take that credit. The culture we live in, in this country, certainly doesn’t dissuade people from borrowing.
I was talking to somebody earlier on today about how, if you buy a new sofa for example and somebody comes round to your house and goes oh, that’s a lovely sofa, they are quite likely to say to you how much are you paying for that each month. You say well, I'm paying X, Y and Z each month on a finance agreement, and that's not unusual, whereas 15, 20 years ago, if the same question had been asked and you said well, I'm paying monthly for this sofa, it would have been almost that you were like a leper. You are borrowing money? That’s dreadful.
Now, in this country, in this culture we live in, borrowing money isn’t dreadful. So people actually are able to borrow money and they don’t feel as if it’s a bad thing. They feel as if it’s perfectly normal. So I think that individuals are taking money because they feel it’s a normal way of life, and coupled with that, banks are willing to lend the money. So you’ve got banks who are saying well, we live in a culture where people want to have things, we will freely lend them the money, and banks in my opinion are not necessarily considering enough whether or not people are in a position to pay back the money that they are borrowing.
Banks need to take some responsibility for the money that they lend, and they, in my view, need to take more time and put more effort into looking at somebody’s circumstances, perhaps working more closely with individuals who want to borrow money, and actually getting underneath their income and expenditure and saying can you really afford to repay this money, rather than just saying well, let’s lend it to you anyway and worry about the consequences later. So, in my view, people are borrowing too much money, banks are lending too much money.
ANTHONY HILTON: So you agree with the research findings broadly then? Good. Adam Davies, what’s your take on it?
Adam Davies: I think James has covered quite a lot of it there. I would certainly agree it’s a live now pay later culture. Years ago my parents didn’t have credit, didn’t use credit, used to save up for anything to do with the house. Now it’s so easy to get credit. You go into a store to pay for something at the checkout, you are probably asked if you would like to open an account today, we will give you 10% off, and it can be said that it’s a little bit too easy.
I think another thing as well, when you pay for items on your credit card; it just doesn’t feel like you are buying them. It’s not the same as taking Pound notes out of your pocket and paying for something. When it’s on a card, it doesn’t seem real, and then when you get your statement at the end of the month, you have always spent more than you think you have done. So I think, as James says, credit is a little bit too easy to come by.
ANTHONY HILTON: Let’s have a contribution from the floor.
MALE AUDIENCE MEMBER: Just picking up on a couple of points that were raised. Both the pie charts, to me, the first one picking up on irresponsible lending and irresponsible borrowing, the second pie chart, bad money management. I think fundamentally, it all comes down to education. Education of the people that need to know what they are trying to do and education for the lenders also in that we are not just numbers in yes, computer sense, yes, you can borrow. They need to really look into what they are doing. We all need better, better money management and better education, in my opinion.
ANTHONY HILTON: I think that's a fair point. I think we have a specific question on education later on, so I don't want to go too far into education of the public at the moment, but what about the issue of educating the lenders? Does any of the card feel that, obviously the lenders should take responsibility, but do you think that they are acting out of ignorance at all?
MELANIE GILES: I think it’s difficult to blame the banks. Looking at the statistics on the first pie chart are quite interesting in that there's a fairly similar percentage blaming creditors, and a similar percentage blaming consumers. To pick up on the point that James mentioned, there are faults on both sides. I think lenders need to become far more aware than individuals over all circumstances in deciding to lend, and determining whether somebody is providing adequate security for those lendings.
But also, I mean, there is far too much reliance on credit out in the marketplace. We live in a consumer society where consumer goods are a lot cheaper in real terms than they were five, ten years ago. If you look at clothing, consumer electrical goods, household goods, it now is the norm to actually buy those using credit. A lot of the clients that come to my office don’t actually realise how much they actually do owe on credit until they sit down in the cold light of day and add things up.
So, in terms of blaming the banks all the time, I think that’s rather unfair. They are a business entity, they are making money, and if credit is readily available, people are going to carry on availing of it.
ANTHONY HILTON: There’s another question from the floor.
MALE AUDIENCE MEMBER: I'd like to make a point, I agree with Melanie to a certain degree, but the market if you like has been fuelled by the lenders in the sense that, and the retailers, with interest free credit. If I go back 15 years ago, I was consolidating as a mortgage broker for people interest free credit for the first year to get the goods sold to get the deal done. The bank wanted to lend and it was First National, they were independent at the time, the shop wanted to sell the goods. It was done interest free. They then forget, and as soon as you hit the 365th day, bang, in comes the 20, 30 APRs.
So the retail industry and the banks, or the secondary banks, have fuelled it because yes, you can have it now, but if you forget, we’ll charge you the interest on the lot. I think it’s just been perpetuated, and I think actually, although it will never happen, if it was limited to total borrowings to five times your net income as declared to the revenue two years previous, and that was the total borrowing – it will never happen – that way people wouldn't be able to get into debts, banks wouldn’t be able to lend it either.
ANTHONY HILTON: Glen, could I bring you in? Do you think that it’s fair to blame the lenders as much as we have been implying tonight?
GLEN BULLIVANT: I think everybody has some form of responsibility, both the borrower and the lender. It’s interesting; you have very kindly mentioned I've been in this business over 40 years. It’s 45 years to be precise, and there were times when governments did attempt to control. I mean, everybody here is far, far too young, but I can remember higher purchase restrictions when, if you bought a motor car, you had to have a third deposit or 40% deposit and 2 years to pay or 3 years to pay, and these were gradually lifted over a period of time.
So, there were methods by which growth could be stimulated, or indeed restricted. I think one thing we mustn’t forget, which makes us unique, certainly unique in Europe, certainly puts us closer to the United States in terms of economy, but UK GDP is driven by consumer spending. It accounts for about 68% to 70% of gross GDP. If that slows down, as a nation we are in trouble. There's no question about that. So there is considerable pressure to keep the consumer economy going at full steam in the UK, which is why your good self in the financial press will make great relations to high street spending and what’s happened. Doom and gloom, a poor Christmas, joy, a good Christmas, etcetera. It’s afterwards that people have to start to pay for it. But I think everybody has a responsibility, but let us not forget that it is a cornerstone of the UK economy.
ANTHONY HILTON: I think that’s a very good note to finish on this first question, because as you say, we all benefit from the prosperity, and obviously some of us suffer from the downside.
Issue 2: Is there a need for further regulation of the debt solutions industry?
ANTHONY HILTON: Let me move onto the second question then, and this is more cutting to the quick. Is there a need for further regulation of the debt solutions industry? We have a couple of bits of research. How common do you think miss-selling to consumers is in the debts solutions industry?
The answers are pretty damning, very common from 29%, and fairly common from 49%. So the vast majority, more or less 70% of people, think that mis-selling is common or very common. A few don’t know. 1% say it’s not at all common. So that’s a pretty savage indictment in the eyes of those polled anyway. The next one is do you believe – this is, if you like, the other side of the coin – do you believe there is a need for further regulation of the debt solutions industry? An overwhelming 78% say yes, 16% say don’t know, and 6% say no.
So, that's a pretty overwhelming – again – demand a) that miss-selling is rife, and b) that regulation or something should be done about it. Melanie, why don’t I toss that fast ball over to you?
MELANIE GILES: Thank you so much. I think the answers are almost in the question in terms of selling. As a debt specialist, and I an insolvency practitioner I'm just one part of a debt specialist, James I'm sure is going to input into this from the sort of debt solutions industry side. What we shouldn't be doing is selling anything at all, in my opinion. I think we should be offering solutions and offering options to people in financial difficulties. I am rather uncomfortable in actually saying to a client this is what you need to do.
I think the debt solutions industry does still have players within that will push people down one particular solution probably for monetary gain. This is the side that we really do need to regulate. I think we need to have self-regulation from within, and we need to have external regulation looking after people who are setting themselves up as debt specialists. I mean, you don’t need to have any form of qualifications or background experience to set yourself up as a debt specialist. To be an insolvency practitioner, of course you have to go through various hoops in terms of dissemination to actually get to that point, but everybody is being tarred with the same brush at the moment.
In terms of the curbs on advertising that we’ve seen recently with the Department of Trade and Industry stepping in and saying no, you are luring people down one route without clearly explaining implications or explaining other options. We are already starting to see the change in the way that various companies are actually representing their services, and this is going to continue, and I completely support it from my professional side.
ANTHONY HILTON: James, what’s your take on it?
JAMES FALLA: My view of this is that the fact is that we are dealing with people who are in a very vulnerable situation. People who are in debt are desperate, as a lot of people in this room may well have experience of. When you get that situation, you are just desperate to cling onto a solution, whatever that solution may be. So I feel that what we need in the industry is appropriate advice for the right circumstances. That is something that I very passionately believe.
Now of course where business is involved and where people look to be in business to make money, then it is difficult always to make sure that appropriate advice is being given. So I support regulation to a degree. I think that people giving advice in this industry should have a code of conduct, they should be giving the appropriate advice, and they should be doing things correctly, because we are dealing with vulnerable people who need the right advice.
I think at the moment there is a lot of work being done in terms of self-regulation of the industry. I support that fully and I think that I am really agreeing with Melanie in that sense. So, I absolutely do believe that regulation is important. I think self-regulation is working and is helpful at the moment, but the key thing is appropriate advice is required, and where appropriate advice is not being given, then that needs to be stamped out.
ANTHONY HILTON: Thank you. Anybody on the floor that’s got experience?
MALE AUDIENCE MEMBER: I am just thinking about the culture of the country that we live in. In my opinion, I have no statistics, I just have gut feelings about things, and it seems to me that we are a country that’s been driven ever further into the practice of marketing. We are marketing, marketing, marketing. We used to be tradesmen, we used to be shopkeepers, we used to produce a physical product. Now it’s about marketing, in my opinion, and that applies to finance, to loans, to this sort of thing.
You find in the high street banks for example, or building societies, as they were, that staff, their parents may have been in the accounting market and they simply want to be a bank teller or a bank clerk, and they like figures and so on. But now they are finding that they are being forced by their employers to say to prospective customers who just want to come in, like my daughter the other day for example, only wanted to pay £10 into the account, but she’s inundated now with offers and pressure to take out a mortgage, to get insurance or whatever, because the staff get a commission on this.
But what I'm finding is, and I've spoken to people who are, or have been staff in these establishments, and they want insurance or whatever, because the staff get a commission on this. But what I'm finding is, and I've spoken to people who have been staff in these establishments, and they want to leave because they don’t want to push these things. But because we are marketing driven, it’s almost at the stage where if they don’t market then they are not welcome in the premises anymore, which says to me that’s a cultural thing now.
When we see this thing about education, I agree with the gentleman behind me that education, education, education should be the order of the day, but in a marketing community, in a marketing environment, that’s very difficult because everybody makes their money nowadays more through marketing than anything else. So, I still believe there are standards and ethics, but they are very difficult to find because people will sell you things that solve your problems immediately, but the long term effect of that can be very damaging.
For example, in the early ‘90s there was a thing called a low start mortgage, which seemed to solve your problem instantly in that your mortgage repayments were halved, or something similar, dramatically reduced. But within five years you were paying three times what you started to pay, and every year you get further and further into trouble, and then finally you collapse. But the people that would have sold it to you would have been what you would have thought would have been ethical bodies such as Legal and General, or some such large company, but they are from subsidiary companies to go out and push this kind of thing. That, I believe as Joe Public, is wrong.
ANTHONY HILTON: What you say is fascinating, but it’s more on the side of the behaviour of the lenders, whereas specifically on this question we were talking about the behaviour or the need to regulate the debt solutions people.
MALE AUDIENCE MEMBER: But that regulation is reduced by virtue of the fact, as James said, the people are desperate and therefore they are not going to book if their problems can be solved, so the regulation is not as imperative as it might be.
ANTHONY HILTON: No, fair point. I was wondering if there was anybody in the audience who had a specific bad experience, if you like, with debt solutions issues that would have any contribution on this.
MALE AUDIENCE MEMBER: I'd just like to comment on regulation. I think it is invaluable and it’s imperative and it’s essential. I agree with you Melanie, except for you do need to be qualified to set up as a debt counsellor or debt expert. You need to be able to fill out the application form and send a cheque to the OFT to get a consumer credit license, and if you can do that, you are up and running.
MELANIE GILES: But it’s fairly easy to do.
MALE AUDIENCE MEMBER: Yes, but you've got to be able to fill that form out. That’s all you’ve got to do. I think that regulation, it will protect the public and the industry because you will see professional indemnity insurance in there and there will be an excess that people have got to pay, and they will stop doing the wrong thing. It will take years for the education to filter through, but then Joe Public will be aware if they have been given a bum spear or sold a pup, then they will have a right to claim compensation, or be put back into the position that they would have been. So I think regulation, like it or loathe it, I think it is a good thing.
ANTHONY HILTON: Thank you. Can I just bring in the card members who haven’t spoken? Glen?
GLEN BULLIVANT: Could I make a couple of comments? One is back to this question of regulation of the debt solution industry. I believe there is a requirement for regulation, but regulation both external and internal requires buy-in from lender, borrower and intermediary. It requires that. In terms of miss-selling, can I point you to IVAs own website? Some may perceive, when you go onto the website, the big red block that flashes up that says write off 70% of your debts now, or words to that effect, is perhaps misleading in terms of whatever the service is that’s being offered.
Can I just make one other comment as well? I take onboard very much the comment made about the consumer credit license and the OFT. After a meeting with the OFT in January, they are extremely excited, for want of a better word, about the Consumer Credit Act 2006. The bit that affects them comes into force in 2008 where they are, for the first time, being given real teeth when it comes to consumer credit licenses. They have told me that a) it’s going to be more difficult to get one, b) it’s going to be regulated very closely, and c) if anybody misbehaves, quote unquote, they are going to name and shame and revoke their license.
ANTHONY HILTON: Very interesting. Adam Davies, do you want to just sum up on this?
ADAM DAVIES: Yes. From my own point of view, I do strongly believe that there needs to be, as this gentleman said, a very strong regulation within the debt solution industry. I think up until quite recently there was about five or six different regulatory bodies covering IPs. Now, you would think there should be one body covering all the IPs. Just from the posts that I see on the forum, there does seem to be quite a big gap between good providers of debt solution and bad providers.
We had a post today from a member saying that there was a company going to charge £2,000 to basically hold someone’s hand to go through bankruptcy. The person still had to pay the bankruptcy fee, £450 or whatever it is. So they were charging £2,000 just to help somebody fill in some forms. It’s this type of selling that we need to clamp down on, because as has already been said tonight, when people are in debt, they are very, very vulnerable. The first company you phone who gives you a sympathetic ear and tells you they can sort your problems out, you will go with. When you are in debt, to a certain extent you do not think straight, you are very blinded, and you really are open to some poor advice.
So I would like to see very strong regulation, similar to the regulation you have in the mortgage industry, similar to the regulation you already have in the insurance industry. I took out some building insurance for my shop, and this is a £200 policy, and I was asked more questions than I would have been taking out an IVA, when I took my IVA out three or four years ago. So yes, we need very strong regulation.
ANTHONY HILTON: Just to make sure I've got this straight, you’re talking about statutory regulation and not voluntary?
ADAM DAVIES: I would like to see statutory.
MELANIE GILES: I think we are talking about both. I think regulation needs to come from within, and externally.
ANTHONY HILTON: But we need the external force as well, do you think?
MELANIE GILES: Well, certainly in my profession we have a fairly strong regulation, which is not mirrored in the debt advisory sector.
MALE AUDIENCE MEMBER: Can I ask how many IPs have been struck off in the past five years?
MELANIE GILES: I don’t have those statistics.
MALE AUDIENCE MEMBER: I would suspect that it’s very few.
MELANIE GILES: Yes, less than 5%.
ANTHONY HILTON: I wouldn’t think it’s that many.
MELANIE GILES: I don’t have the statistics.
MALE AUDIENCE MEMBER: Claims management now, it is illegal for them, we’ll chase up your bank charges for 10%, 20%, 30%, it is illegal for them to trade now without regulation. It’s being handled by part of the staff of East Staffordshire Trading Standards Office, as if they haven’t got enough to do anyway, and that’s where regulation has gone. It’s crazy, and I think that it’s time that the regulatory authorities put their teeth in and actually got on with it. An IVA is a brilliant thing for someone that is in debt. As Adam Davies said, circumstances change. Okay, so he got it wrong, but the idea is that he can pick himself up and start again.
For other people it doesn’t work, and it’s not just the one answer for everything. I think it’s very important, and what’s happening is that the poor old public are being duped by these 70% to 90%. They may happen, but they may not, and it depends on their circumstances. It’s not just that day, and as you say, people are vulnerable and thinking oh blimey, that’s sorted, it will go away. It doesn’t, and it’s not just there for the two, three, five years of the IVA, it’s there for the credit file. So when they do want to re-mortgage for a better rate, oh no, you’ve had an IVA mate.
Issue 3: Is there a need for further regulation of the credit and lending industry?
ANTHONY HILTON: Right, I'm going to draw a line under the problems, if you like, of the advisors and move onto our third question, which is similar but slightly nuanced the other way. Is there a need for further regulation of the credit and lending industry, in other words, those who supply the money? The question is how common is miss-selling to consumers in the credit and lending industry, I think we’ve already touched on this with some of the comments from the floor.
But very common and fairly common again are the overwhelming majority, 90% thinking that credit and lending miss-selling is fairly or very common. The other side of that particular point, do you think there is need for further regulation of the credit and lending industries, 9% don’t know, 8% say no, but 83% say yes. So again, an overwhelming demand from those who were polled at least, for further regulation of credit and lending. Again, I think the questions probably beg the answers a bit, but Glen, I think this is one for you to kick off with anyway.
GLEN BULLIVANT: I think I have already sort of touched on this. I would not argue at any time about the need for regulation of the credit and lending industry. It’s always ready for regulation and it’s always open for regulation. The Consumer Credit Act 2006 is the first major review of consumer credits in the UK, since the original Act of 1974. Now, that's enforced, but various parts of that Act come in over periods of time. As you know, it takes some time for different things.
There are a number of things, and I won’t go into great detail about them, partly because I don’t know all the full detail, but things like advertising. We will see the end of the little bits at the bottom, whether it’s on television or on a poster or in a magazine. Advertising has got to be larger and clearer so that it’s exactly precise; precisely what people are paying for the loan they are getting.
The scope of the Act in terms of the scope of the transactions to be regulated by the Act is still being discussed as to whether or not it’s expanded beyond the 25,000 regulation, as it was. APR is to be clearer. You ask anybody in the industry about APR and even people sitting at the heart of Lloyd’s TSB or somewhere will scratch their heads to work out exactly what APR is. If they don’t know, how is the consumer supposed to know? The Act is talking about that.
There are to be larger health warnings, rather like the health warning on packets of cigarettes. There are going to be larger health warnings on advertising, on loan documentation, an end to misleading advertising, or what is potentially misleading. A whole raft of things coming in the 2006 Act, so it’s well worth having a look at the website for that to see what is coming.
There are things being looked at as we speak. Only this morning we saw the report about the OFT looking at payment protection insurance, people who take out loans and they are kind of asked about payment protection but find themselves paying for it anyway, even though it may well be inappropriate. For example, Barclaycard or MasterCard, whoever, are quite happy to take your PPI, even though you are self-employed, and PPI doesn’t cover self-employed, for example. All that is to be stopped.
So I would certainly say further regulation is coming, further regulation is in place. It has been a long process, 30 odd years, to completely revise the ’74 Act, and I'm sure being Prime Minister Blair’s lot, it’s not perfect yet. The 2006 goes a lot further than ’74 did, and goes a long, long way to addressing a number of the issues that have been raised here already tonight.
ANTHONY HILTON: I wasn’t aware that there was that much coming in. That was very helpful. James?
JAMES FALLA: It’s an interesting one when you talk about regulating what is lent, what Glen has talked about, and I was particularly interested in the health warning. If we use the same analogy as a smoker, we all know that on every single packet of cigarettes now it says smoking kills, in very big letters. Most people are still smoking. So, when you talk about regulating the lending industry and actually stopping people borrowing money, you could suggest that people should only be able to borrow a certain amount based on their circumstances.
In my view, that would potentially resolve some of the debt problems that we have. I don’t personally think it’s a good idea, because you are then entering into a nanny state. So, true regulation of credit would be you can only borrow so much. The government steps in and says your income is X, that’s how much you can borrow. That would, in my opinion, stop a lot of debt problems. But would it be right? I don't think so.
So I think that all of the tap dancing around the outside in terms of health warnings and APRs and making things clearer, it isn’t going to stop people borrowing money. It’s certainly not going to stop them going out and looking at all the holidays they can have and all the cars they can have and all the washing machines and everything else and saying yes, you've told me all of that but I'm still going to smoke 20 a day and if I get cancer, maybe it’s going to I’ll die in 20 years.
So I think that the only way that regulating the industry will make any difference is by telling people they can’t borrow any more. I actually don’t think that's the way we want to go as a country and as a culture.
ANTHONY HILTON: But to pick up on the point the gentleman in the front row was making earlier about the marketing of these products, could more be done to stop them being marketed to young children or the automatic increasing of credit on credit cards when you hit your ceiling, and the incentive to take a store card because you get discounts on goods in the sales? Is that the sort of thing?
JAMES FALLA: Yes, but I think that goes back to the restriction of borrowing, doesn’t it?
GLEN BULLIVANT: Yes it does, and I think you’ve also got to remember that the people providing the service are providing the service for business reasons. The first priority of House of Fraser in getting somebody to run a House of Fraser card, for them it’s not the fact that somebody is going to run up a big debt owing GE Finance a lot of money. It’s to make sure, or to ensure, that every time you do your shopping, whether it’s for a three piece suit or a pair of knickers, you do it at House of Fraser. That’s perfectly laudable. We could argue about the APR, the charges, we could discuss and debate whether or not that’s a good thing or a bad thing. I happen to agree with most people that it’s a bad thing.
I think the House of Fraser kind of scenario could be improved by saying that that card can only be used for purchases in the House of Fraser and doesn’t actually double up as a cash machine card as well. They could easily do something like that. But I think that’s something that you have to remember. The other thing is of course economies of scale, the actual amount of debt in respect of individuals remains comparatively small, and I use the word sort of advisedly, in the totality of the total amount of lending that is taking place. It is a very serious problem at an individual basis, and we are all individuals. But in the totality of what people are doing, banks, finance companies, store card providers and so on, they still make huge profits even allowing for very large bad debt provisions.
ANTHONY HILTON: Is there a contribution from the floor from someone we haven’t heard from so far?
MALE AUDIENCE MEMBER: It’s to do with this thing of marketing again, and to quote an example, I haven’t had a credit card in a long time, and I don’t particularly want one. But I am an alien in this society, because where I want to pay cash, I can’t. For example, my other daughter, when she took a driving test and we were trying to get a second hand car for her, insurance costs for adults of that age are extortionate. But the likes of one company, I think the Abbey National, were offering an extremely good deal of something like £350 premium for a driver under 20, which I jumped at.
I arranged it with them and they said right, can you give me your credit card details. I said no, I don’t want it on credit, I don’t have a credit card, can’t I just go into one of your branches and pay the cash over the counter, and the fact of the matter is I couldn’t. So the bottom line was if I wanted that car insurance, I did what I had to do, which was I got a friend with a credit card, gave them the £350 and said would you put this on your card please, because that was the only way I could get my daughter insured, because Abbey National do not deal in cash.
In fact, there are a lot of people that don’t like cash anymore, and I find it strange that one of the reasons behind the introduction of credit cards was this idea of security. You don’t want to go carrying a lot of cash around with you. It’s a lot easier if you’ve got a piece of plastic. The fact of the matter is now, again, without statistics, I think the number of people that were robbed for their cash is a small fiddly little amount in comparison to the number of people that are being robbed at the cash point machine because their PIN number is being stolen, or they are being asked did you drop that £10, and as they pick it up, then their card is withdrawn and things like this.
In other words, there is no security in the credit cards at all. But there was a lot of security in cash and you could pay, but again, culturally, we don’t like cash, or the marketeers don’t like cash because it’s an opportunity to charge interest etcetera. I don’t quite know how to deal with that, but I think that plays a part in why people now take it for granted that when you are 16, 17, you should have a credit card or a store card or whatever, and often without the means to pay for it. Students rely more often than not on loans and grants and things. How can they be expected to pay back interest rates on cards that they can ill afford anyway? They are just building up debt. Now that again is a question of education, but it’s not going to do a lot in my opinion because the companies want to market their product so badly and they will overlook these things.
MELANIE GILES: But the point of cash is that as a society we seem to have lost the value of what cash is. If you go into a store and you want to buy yourself a new CD player which costs £150, you are not likely to go and draw cash out of the cash point and go and pay for it, or you are going to think twice, whereas it’s easy just to get a bit of plastic out of the wallet and pay for that. In our younger generation that is becoming the norm. People have lost the knowledge of what cash and money actually is.
MALE AUDIENCE MEMBER: The irony is it says on a banknote, I promise to pay the bearer on demand, which makes that banknote a promissory note, which actually is funnily enough, credit. But it’s just got blown out of proportion now and that we can’t use cash as we did. As you say, it’s easier to use a card, and forget the interest at the moment, as James or I think Glen said, and then at the end of the year when you find out what the APR is, or when you get your statement, you realise just how much you’ve actually paid for that product. It doesn’t make sense does it in a logistic frame of mind, that well, something costs £150 but I've just paid £195 for it. But we accept that.
ANTHONY HILTON: I'm going to stop you there because we need to move on, but just before we do, Adam Davies, is there anything you want to add?
ADAM DAVIES: Yes, I just wanted to tell you about some personal experience. My son is 19 years old. Two things really, one is he banks with Lloyds. He was sold a bank account where he pays so much per month, I think it’s £8 a month. A big part of that bank account is that he gets free breakdown cover, etcetera, but he doesn’t drive, he hasn’t got a car. So, how was he sold this bank account?
He also went into the bank to get an overdraft, I think £150, and he literally walked out with a £3,300 personal loan, over 7 years with all the payment protection thrown in. Now, this is a young chap who is barely earning above the minimum wage. You know, it cannot be right at 19 years old to be able to go and get that sort of facility from a bank. That must come down to education, but you would have thought that having seen what I've been through, that he would be wiser.
So, there needs to be some sort of tightening of the lending criteria by banks and other financial institutions. There needs to be an affordability test. I managed to get loads of credit cards, and obviously a high debt, but I'm not too sure how the banks actually make a decision on lending. Do they actually look at the overall debt, or do they just look at a payment history?
MALE AUDIENCE MEMBER: They don’t look at the overall debt unless it’s a mortgage. All commitments are then taken into account. So they will use an income multiplier, whether it be 3 or 53 times salary, take off the existing commitments or 1 year of them etcetera, or 3%, 5% of the card balance, deduct that from what they would have lent. But that is on a mortgage and on a secured loan. Personal loans, no. They want to lend. Their staff are being paid a bonus or a commission on that £3,300. It wasn’t Lloyd’s was it? Why aren’t I surprised? My goodness. So, they want to lend, and the staff are targeted.
We are a service industry country now. We manufacture very little. If I can just go to what you were saying about advertising, the small print, yes, the small print should be large print, should be legible, but it doesn’t matter. Your home is at risk if you fail to keep up payments on a loan secured upon it, came in years ago, in the ‘80s I think, or the early ‘90s. The only people that benefited from that were the newspaper companies because they charged extra lineage. They are the only ones who benefited, because yes, it’s there as a warning, but they don’t heed it. I want the house, I want the mortgage, I want the loan.
So, making that advertising that larger won’t stop anyone. It really won’t, and you go to PPP or Payment Protection Insurance, Yorkshire Bank, I am now claiming some silly charges, but also they’ve sold a lady who is a pharmacist for the NHS. She gets 12 months full pay in the event of illness, they did her a loan and they charge her £1,800 on PPI, but didn’t do their fact finding. It was only in December last year. It will only pay out for one year. It doesn’t pay out for the length of the loan, it pays for one year. Because she is paid by her employer in sickness, they will say look, sorry, you cannot be better off sick than you are at work. We’re not paying. Really crazy.
MELANIE GILES: But surely she has to take some responsibility for that decision as well?
MALE AUDIENCE MEMBER: Yes, absolutely, but again, it goes back to the old adage – she wanted the loan. She wanted the loan so she’ll go along with what they say.
Issue 4: Is there a need for targeted financial education in Britain today?
ANTHONY HILTON: I'm going to stop you there because our last question is very relevant to all these issues, and it is: is there a need for targeted financial education in Britain today? I would defy anyone to disagree probably, but let’s go to the research because I find the research findings rather depressing. There is only one issue or one slide on this, but it says if free debt advice and education evening classes for adults were offered, would you attend? So, if free debt advice and education evening classes for adults were offered, would you attend?
Note that most people wouldn’t. You have 25% basically who say they definitely would or they probably would. Then you’ve got a third who say they may or may not, which I think implies they won’t but they don’t like to say so, and then you have the majority who definitely would not attend, 21%, or probably would not attend at 22%. So that’s quite interesting, isn’t it, in the context of the other slides we’ve had where people have blamed lack of financial sophistication, financial ignorance, blamed the lenders and so on. But on the offer of free advice, most people won’t attend, and yet I think we’ve all agreed that education is needed. Now, we’ve got a conundrum here panel, so how are we going to resolve this? James, you made the mistake of smiling, so I'll put in the frame.
JAMES FALLA: I'm not sure how we’re going to resolve people saying that they don’t want to attend free money classes, but I mean, my view is that education is key for people in terms of understanding what it means when they are looking at what the cost of living is for example, just simple education in terms of simple budgeting, simple income and expenditure. Where should we start that? My personal view is we should start it in schools. We should start it when people are young, and we should be having classes and teaching people about real world things.
ANTHONY HILTON: But can I interrupt you? Are the teachers competent to teach it?
JAMES FALLA: Well, whether they are or not, I don’t think I'm qualified to say, particularly. But I think they should be. I think there should be elements to the curriculum which help young people understand the financial world that they are going to get themselves into. In personal experience I was chatting to somebody earlier on, and a young person I know just turned 18 and along came an application for a credit from the bank. She was filling that in and she felt for some reason that it was a requirement of the bank that she had to do it. It was an application for a credit card.
Now, had she had some education about what a credit card is and what it means, it may be that the credit card itself is not an evil thing. In my opinion in fact, credit in itself is not bad. The problem is when we can’t pay it back. So budgeting and learning to budget and having that education will help, I think, immeasurably, and I think the younger we get into the schools and the younger we start training and teaching people, the better.
I have personally been to a few schools and talked to 17, 18 year olds about credit and about credit cards and things like that. I think from that experience that they haven’t actually seen it and felt it and touched it yet. Perhaps we should also be going into universities where people are responsible for their money, for their budgets and things like that. Perhaps we should be going into areas of further education where people are doing whatever it is they are doing, apprentice work or whatever, and actually taking them aside and teaching them and helping them to manage their money.
FEMALE AUDIENCE MEMBER: I just wanted to touch on James’s point, and Adam Davies’s in a way, that I had a small understanding of credit from my parents who I have seen what can happen when debt becomes unmanageable. So I understood that credit cards, where some of my contemporaries said credit cards are great, you can go into shops, you can buy that, you’ve got that, have it now culture. Although I saw it slightly and was educated by my parents in the sense that not all credit cards are bad, but just a big warning about them because they don’t do necessarily what you think they can do, from a naïve point of view.
When I turned 18 and went into my bank, before it had just been cash in and cash out and so on. I was given an overdraft and a credit card and a loan, and then from what Adam Davies was saying, I wanted to get a credit card for just a couple of hundred Pounds to essentially use it for – in my opinion – what a credit card should be used for. To get a good credit rating I was thinking later on by way of mortgage and so on you need to have that credit. By not having any credit you don’t necessarily build up a good credit rating.
So I wanted a credit for maybe a couple of hundred Pounds to put a few things on every month, meet the bill, and in an ideal world, build up a credit rating that way. For a Barclaycard, I was told that the minimum I could get was 2,300. So, being 18, I thought that’s fine, I'll still use it for what I thought was its purpose, but obviously being 18, you've got a credit card, £2,300 on it, it doesn’t get rejected.
A year later it’s at 2,300, the minimum repayments are a couple of hundred Pounds a month, I am starting out, renting a place, paying bills, finding my feet, and I'm already on the back foot, if you like, because what started out as naïve good intentions, has been turned to, despite my education from my parents and seeing what’s happened, I have now absolutely capped that. I won’t be getting anymore credit until this is zero, and then I will, if you like, be seeing what can happen. Don’t get the credit card if the minimum is 2,300 and you only want it for £200 or £300.
So I would completely agree that from a personal experience it definitely needs to be going round in schools and more so students, because it can happen tenfold in universities because you are living on much less than if you are working full time, and all of your contemporaries are doing it. Everyone has got a student credit card, everyone has got 3,000 on the credit card, you’ve got the student loan to think about, and so it’s all relative.
So I definitely think had someone like you come into my school, probably I wouldn’t be saying now I'm debt free and isn’t it great, but I think more knowledge is key, especially for young people, from a personal point of view anyway, as well as the education that I've got from my parents, essentially.
MALE AUDIENCE MEMBER: I remember when I was at secondary school – it feels so long ago now for that 30 odd years ago – we were taught how to budget in home economics. They said right, you’ve got a set amount of money; you’ve got to go out and get the ingredients and keep that budget. They used to put it in the maths lessons as well. They used to incorporate budget into the maths lessons. It was always in the background. But we used to do it in home economics. They used to say you’ve got to provide a meal for £1, how are you going to do it? But that was 30 years ago.
ANTHONY HILTON: I think that has largely gone now.
JAMES FALLA: My feeling is that may be the case, but what we need now is real world education. So we need people talking about credit cards, we need people talking about loans. What I do a lot with people is work out how much they have to pay back when they take a loan. It’s very simple to do. Don’t worry about APRs and interest rates and all that kind of stuff. Simply, how much are you paying each month times how many months you’ve got to pay it?
MALE AUDIENCE MEMBER: So you’ve got a loan, how do you figure out the percentages on this and how much are you going to pay back.
JAMES FALLA: It’s not rocket science, is what we are saying. You don’t need massively complicated things, but I think the need is there at the moment.
MALE AUDIENCE MEMBER: As the teacher would say, I'm lending you £10 and I want you to pay it back at a rate of 15%, what's that.
ANTHONY HILTON: Now, we are running out of time, so I want to go down the card on this education issue, as to whether it should be in schools, whether you think it works at the adult level and how it should be done.
MELANIE GILES: I just concur with everything that’s already been said. I mean, there is absolutely no education at the moment, as far as I am aware. I think it should be essential for school leavers, be it the people going into the working place, or particularly for people going onto further education. I am seeing more and more students coming to my office for advice, or people starting out, carrying £20,000, £30,000 worth of debt before they even start to work.
That is going to take an awful long time for them to pay back, and it is actually stopping young graduates going for decent positions because they know that when they hit that £15,000 mark they are going to start paying that student loan. So particularly for the student environment, it’s vitally important.
MALE AUDIENCE MEMBER: You say school leavers, and I think it is totally wrong. It has to be from age 13. They can do a paper round then, and it’s from then it should be at least an afternoon every month on little bits. I think the people most suited are not the staff, but an IFA or a mortgage broker, debt management, insolvency practitioners, going in and telling them real stories.
Now, I go to one school on Burton on Trent and I give these lectures from the 13s upwards and I do it once a month, and they grew up with it. It’s a great source for referrals because the kids that my mum and dad are in the proverbial. I say well, take a leaflet and get them to ring me if they want to. It’s from 13 on, because otherwise if you leave it to school leaving age, the mindset is already there.
ANTHONY HILTON: I'm not sure I fully agree. I think that school leaving is better than nothing at all, but I take your point. Glen, last call from you?
GLEN BULLIVANT: I am actually on the ICM Education Committee. I chaired that committee for quite some time. I have been teaching at a local college now for nearly 30 years. If I may, I'm going to say something terribly politically incorrect. I am appalled, increasingly appalled, at the lack of awareness of people, people maybe even in this room, young, old, middle aged, whatever, who just do not seem to be aware of what’s going on in the world around them.
I will ask a question in a business environment session for example, and I'll say what's the bank rate today. I will guarantee that at least half the people there will not know what the bank rate is today, and the other half will say what's it got to do with me anyway. We are really financially illiterate at the moment, and that does worry me. Now, I'm not bothered about what age we start. It’s a bit like sex education. It doesn’t really matter when we start, but let’s do it. Let’s make people aware.
ANTHONY HILTON: Adam Davies, a last word from you.
ADAM DAVIES: Certainly education needs to be done at a fairly young age. But the things that need to be told are the facts, something to the effect that a £500 debt on your credit card, on a credit card with an APR of about 27%, if you paid the minimum payments, will take you 11 years to pay off. It’s those sorts of facts that young people need to know and they need to know the effects of debt.
ANTHONY HILTON: Well, thank you. I'd love to let this run on and on, but I'm afraid that’s all we have time for this evening. So, can I just offer my thanks and your thanks again to our panellists, to Adam Davies, to Melanie Giles, to James Falla and to Glen Bullivant. I am Anthony Hilton, and good night.