Debt & Bankruptcy Issues in the UK

A survey by credit card company Morgan Stanley claims Britain's credit card spending in the last three months of 2006 is to go up by 35 per cent.

Despite credit card debt increasing through Britain, Morgan Stanley states people are increasingly making repayments – giving spending confidence to the public and retailers alike.

Britain's credit card spending is set to go up by over a third this Christmas, according to a new survey.

A report by credit company Morgan Stanley, released on November 6th, claims that Britons are planning to spend an average of £1,270 on their cards between October and December – an increase of 35 per cent compared to the £940 spent in the same period last year.

Marketing director Patrick Muir said: "People are increasingly comfortable with using their credit cards to buy everyday items such as groceries, as well as for larger purchases like their Christmas gifts."

The survey claimed the majority of people's credit card transactions will be spent on the home, car and grocery shopping.

Morgan Stanley is also expecting men are to put £1,417 on plastic over Christmas – around 20 per cent more than the £1,131 women are predicted to spend.

Although research released by Credit Action on November 1st showed Britain's credit card debt was standing at £55.6 billion, Morgan Stanley indicated regular repayments on credit cards are increasing.

"The findings of our research are the first to give an impression of an increase in confidence for Christmas 2006 – a time when credit card spending traditionally rises. With repayment figures steadily increasing, this is a good sign for both consumers and retailers alike," added Mr Muir.

According to the survey, people in London are to spend the most as Christmas approaches, putting £1,467 on their card.

People in the north are predicted to spend £1,037 - the least in the country.

[Figures released by the Department for Constitutional Affairs show Bradford to have the worst debt problems in West Yorkshire, as numbers of people claiming bankruptcy through the entire region increase. Bradford West MP Marsha Singh has claimed financial companies should be more responsible when lending money.]


A Bradford MP has argued financial companies should be more responsible when lending money, as a new report claims the city has the worst debt problems in West Yorkshire.

Figures released by the Department for Constitutional Affairs on November 10th, show 125 individual bankruptcy petitions were filed in Bradford between July and September – an increase of 238 per cent from the same time last year.

Bradford West MP Marsha Singh told the Bradford Telegraph and Argus: "People have got themselves into debt but at the same time the financial institutions are not blameless for continually allowing people to have credit when it is not appropriate.

"It is about time they woke up to their responsibilities they have in the community."

A report by the newspaper blamed the county's problems on "rising utility bills and credit card debt".

The total amount of bankruptcies in the region rose from 256 to 416.

Leeds was shown as having the second - worst individual debt problems in West Yorkshire, with bankruptcy claims rising to 108 from 74 over the three-month period.

However, bankruptcy claims fell to 21 in Halifax – it was the only town in the area to report a decrease.

The news follows a report released by Citizens Advice on November 7th, which claims the number of people it advised on debt problems has risen by 11 per cent to 1.4 million.

[A report by the Treasury select committee has claimed Britain's poorest people are "financially excluded" and risk getting themselves into further debt to get bank accounts and loans.]

Britain's poorest consumers are at increased risk of getting into debt, a new report has warned.

According to a study released by the Treasury select committee on November 16th, increasing amounts of people are financially excluded from bank accounts, credit cards and mortgage loans.

Chairman of the Treasury select committee John McFall said: "Many of the financial services that most people take for granted are either not available to many of the most vulnerable in our society, or are only available at a premium.

"The burden of debt blights the lives of far too many people in our society."

As a result, these people are often faced with higher charges for loans and other financial services, the report claimed.

The news follows an announcement by First Direct on November 14th that it will charge current account customers £10 a month unless they earn at least £25,000 a year.

ClearDebt chief executive David Mond claimed: "If banks start to refuse to provide free accounts for people paying in less than £1,500 a month, more people will end up in the arms of unethical lenders.

"This is likely to make debt an even bigger issue for some."

Individual Voluntary Arrangements are very popular today with more an more people acquiring them and as comes with increased demand, there a number of companies that have begun to offer IVAs. These arrangements allow those in debt to get a deal with their lenders where they will pay off part of the remaining debt on a fixed schedule as negotiated by the lender and the one in debt. As a result, those in debt only have to pay off part of the debt they owe and creditors will know when to expect loan repayments.

IVAs have gained popularity over the past year and already there have been dozens of new companies that have entered and found success in providing IVAs with many of these companies listed in the stock exchange.

However, this is bad news for banks who earn from bankruptcies and they have been lobbying against IVAs for the last few months in an attempt to curtail their growth. Government reports that will be released this Friday show that there has been another surge in the number of IVAs filed in recent weeks.

Leading IVA provider firm Accuma is one of the fastest growing and most successful firms offering IVAs. Yesterday, they reported a 250% surge in turnover leading to a profit of £1.7m. This is especially amazing considering they did not make a cent in profit in 2005.

Chief executive Charles Howson said, “The market is very buoyant because of the huge increase in consumer debt. Even with some lenders tightening their lending criteria now, frankly moving forward the damage is done. A lot of people are on a knife edge, which is why we are growing.”

Accuma and other IVA providers such as rival Debt Free Direct are saying that banks are getting what they deserve and it is the bank’s fault that they allowed anyone who wanted a loan to get one, without taking the proper steps to determine whether the one taking a loan would be able to pay it back.

One of the main reasons IVAs are so popular is because it allows people to keep their assets such as their house and / or car and those who get the best arrangements can end up paying just 37 cents for every pound of debt allowing them to be debt-free in about five years after starting IVA payments.

KPMG partner Steve Treharne, says that people are getting to personally involved as they have much to gain from suggesting IVAs and are looking out for themselves, not those whom they are advising.
'There is an issue over the quality of the advice being given. The providers do have a vested interest in pushing people down the IVA route,' he says. 'The banks are sitting up and taking notice.'

Still, many expect the message that IVAs are sending, “spend now and reduce your debt later” will lead to major problems in the economy. This combined with the fact that the Bank of England is planning on raising interest rates to rates to 5% next month could prove problematic. It will be interesting to see how this plats out over the next few months and what banks do if more and more people begin to take out IVAs.

Record numbers of people have claimed insolvency over the past three months, new figures have shown.

In a report released on November 3rd, the government's Insolvency Service said a total of 27,644 people went either bankrupt or entered individual voluntary arrangements (IVA) in the period between July and September.

The government claimed 15,416 people went bankrupt during this time, an increase of 27 per cent from the same period last year.

Numbers of people opting for an IVA leapt to 12,228 - a rise of over 117 per cent from 2005.

Chairman of Consumer Credit Counselling Service Malcolm Hurlston said: "If the current trend continues, the number of IVAs will overtake the number of bankruptcy next year and that is an indication that the IVA solution is becoming more popular than is good for people."

The news follows reports by two debt companies that they have made significant increases in turnover.

Figures released by Accuma on October 31st show the group's turnover leapt to £9.98 million, an increase of 250 per cent from their 2005 figures.

The numbers of IVAs the company handled increased from 734 to 2,537 in the year up until July 31st – a rise of 245 per cent.

Debt Free Direct reported similar figures, as the company reported first-half turnover of £12.2 million, while issuing an average of 536 IVAs every month.

It also predicted 100,000 people will claim IVAs by 2010.

[A debt counsellor has claimed creditors are putting stricter budgets on people claiming individual voluntary arrangements (IVAs) following suggestions that around 20 per cent fail before the end of their five year tenancy.]

Creditors are becoming stricter with debtors entering individual voluntary arrangements (IVAs), a debt counsellor has reported.

James Falla from Thomas Charles has claimed credit companies have imposed tougher budgets on people over the past 12 months.

He said: "Often the creditors will look at the income and expenditure of the individual and they will really tighten down on the amount that they will allow people for housekeeping and things like that.

"They will not allow them any room for manoeuvre at all and I think that this situation is going to cause a problem."

He added this could lead to an increasing amount of people becoming bankrupt.

A Thomas Charles survey, published on November 2nd, suggested one in five adults - or 8.4 million people – had unsecured debts of over £10,000 during October.

The report claimed around 1.4 million felt they were 'likely' or 'certain' to declare themselves bankrupt or take out an IVA.

Mr Falla warned people thinking of IVAs that: "You have to stick to pretty strict budgets and that's not something that should be taken lightly by anybody."

His comments follow suggestions from Debt Free Direct that between 20 and 30 per cent of IVAs fail before the end of their five year tenancy.

Egg has reported a 40 per cent rise in debtors resorting to debt management companies in the last three months.

Internet bank Egg has reported a 40 per cent rise in the number of debtors resorting to debt management companies over the last three months.

Levels of debt in its loans and credit card businesses have been worse than expected over the last third of this year, Egg reported.

Prudential, which owns Egg, reported similar levels of bad debt in relation to loans .

The company stated: "There has been a marked increase in consumers using individual voluntary arrangements, debt management companies and in some cases bankruptcy to alleviate their debt burden.

"These arrangements typically result in lower recoveries from customers than have historically been achieved view Egg's collection strategies."

Prudential only took control of Egg this year and expects the losses for the second half of the year to be approximately £39 million.

Meanwhile, debt management company Debt Free Direct has called a summit of banks and lenders to discuss the increasing popularity of IVAs, which wipe out the bulk of the money that a debtor owes.

IVAs have seen a massive upsurge in popularity in the past year or so, as the UK's personal debt problem spirals out of control.

Total consumer credit lending to individuals in August 2006 was £211.8 billion, according to debt charity Credit Action.

[A debt counsellor has claimed creditors are putting stricter budgets on people claiming individual voluntary arrangements (IVAs) following suggestions that around 20 per cent fail before the end of their five year tenancy.]

Creditors are becoming stricter with debtors entering individual voluntary arrangements (IVAs), a debt counsellor has reported.

James Falla from Thomas Charles has claimed credit companies have imposed tougher budgets on people over the past 12 months.

He said: "Often the creditors will look at the income and expenditure of the individual and they will really tighten down on the amount that they will allow people for housekeeping and things like that.

"They will not allow them any room for manoeuvre at all and I think that this situation is going to cause a problem."

He added this could lead to an increasing amount of people becoming bankrupt.

A Thomas Charles survey, published on November 2nd, suggested one in five adults - or 8.4 million people – had unsecured debts of over £10,000 during October.

The report claimed around 1.4 million felt they were 'likely' or 'certain' to declare themselves bankrupt or take out an IVA.

Mr Falla warned people thinking of IVAs that: "You have to stick to pretty strict budgets and that's not something that should be taken lightly by anybody."

His comments follow suggestions from Debt Free Direct that between 20 and 30 per cent of IVAs fail before the end of their five year tenancy.

Former Work and Pensions secretary David Blunkett has called on the government to provide more advice and help for those in debt.

In his first policy proposal since he was sacked, David Blunkett has called on the government to help those trapped in the UK's ever-worsening debt swamp.

Disparities between the wealthy and those stuck in poverty must also be addressed by the government, the former work and pensions secretary stated.

Mr Blunkett set out his proposals in a pamphlet, called A ladder out of poverty: From state dependence to self reliance, which was published by the Resolution Foundation, in which he stated that tackling debt must be based on "rights and responsibilities".

He said: "A progressive agenda for social inclusion and greater equality must assist people in permanently lifting themselves out of dependency and reliance on costly credit

"This pamphlet seeks to initiate and contribute to discussions about a modern anti-poverty programme which has an emphasis on rights and responsibilities at its heart. We must assist people in building their own assets to truly narrow the divide between the haves and have-nots."

The government is soon to set out its 10-year strategy on how it will ensure consumers are better informed about managing their finances.

Britain's overall level of personal debt increases by £1 million every four minutes, according to debt charity credit action.

Imagine the shock of getting a 4 figure debt repayment letter for a purchase you did not make. That is how Desmond Phillips felt when he received a letter demanding the repayment of a £575 loan he never took out.

The letter was actually meant to be for a Daniel Phillips, and in the days following this reporting, multiple other residents in the United Kingdom area received erroneous debt letters.

When Desmond contacted the company who sent the letter, JB Debt Recovery, everything became clear.

"I wondered what was going on. I phoned them and said 'look this isn't me - I'm not Daniel Phillips, I'm Desmond Phillips. They said 'don't worry about it, just forget the letter'," he told BBC Radio 4's Money Box.

JB Debt Recovery told Desmond Phillips that they would not contact him again and that they got his personal information to send the letter from service known as Equifax Locate.

There are three major companies, including Equifax, that have the credit history information of millions of UK residents. This information, along with that stored in other databases is used to track down those who may have taken out a loan and ran, with no intention of paying it back.

Neil Munroe, its external affairs director, said that Equifax only had a listing for Desmond Phillips, not Daniel Phillips, resulting in the mix-up.

"What we provided was that a Mr D Phillips with the same date of birth resided at that address. What we do say is it's Mr Desmond Phillips," Mr Munroe said. "JB Debt Recovery should have taken further steps to validate if it was worthwhile still contacting and sending any information to Mr Desmond Phillips's address," he added.

A few of Desmond’s friends and colleagues had also received wrong debt collection letter from different debt companies.

In some cases, like that of Penny English, the letter was sent to a person of the wrong gender.

"It was about £88 which was owed by Paul English to a water company," Penny said. I opened it as I was the only English in the household. I phoned up the debt collecting agency and said this wasn't the right person but they sent a second letter a couple of weeks later."

Essex and Suffolk Water, who were responsible for the letter, apologized to Penny for sending the debt letter to the wrong person.

Kurt Obermaier, an executive director of the Credit Services Association, helps to represent debt recovery and tracing agents. He said that Credit Services Association Code of Conduct required them to confirm one’s identity before contacting them. Something just went wrong.

"We have a code of practice and it says members are required to take all possible steps to verify that the person being pursued is in fact the debtor," he told the program.

The Office of Fair Trading also recently issued guidelines, which was meant to warn debt recovery companies to not send out letters of those in debt to try and determine who to bill. If you have received a false debt letter, Citizens Advice says,” anyone who receives a letter in error should contact the debt recovery company and tell them they are not legally liable for the debt.”

Stretched Britons are preferring to don warm clothes rather than switch on the heat according to a new survey.

As energy prices remain high, many Britons are choosing to delay switching on the heat in favour of putting on warm clothes, according to a survey from moneysupermarket.com.

A full 56 per cent of the population are delaying putting on their heat because of the expense and 61 per cent said that they would rather bundle up than spend the extra money.

According to the "jumper rating" from moneysupermarket.com, British Gas has the highest bills, with its customers being able to save a full £144.38 per year if they switched to Scottish Power.

Paul Schofield, head of utilities at moneysupermarket.com, said: "It is clear that people are worried about their energy bills, particularly in light of the utilities companies putting prices up so frequently this year.

"It's concerning the public is being deterred from turning on their heating, particularly the old and vulnerable."

Some may have been reassured by widespread reports of falling wholesale gas prices, however it is uncertain whether the power companies will let this benefit the consumer, added Mr Schofield.

Moneysupermarket.com advises consumers to invest in cavity wall insulation which can save up to 35 per cent of heat loss.

Winter and high heat bills come as the county struggles with an ever-worsening debt problem.

Currently the overall amount of personal debt for the UK stands at £1.25 trillion, according to debt charity Credit Action.

A survey by the Debt Counsellors has revealed credit card debt forms 91 per cent of people's "serious debt problems", as Britain's total credit card debt for the end of September stood at £55.6 billion.

Money owed on credit cards has been revealed as the country's biggest contributor towards serious debt - as Britain amassed a total credit card debt of £55.6 billion by the end of September.

A survey by the Debt Counsellors, published on October 30th, revealed that money owed on credit cards formed 91 per cent of individual's "serious debt problems".

Store cards were found to feature in 41 per cent of cases, although these usually carry higher interest rates than normal credit cards.

John Porter of the Debt Counsellors said: "It's clear that credit card debt is a major problem and there are literally millions of people who need help with their debt problems."

"Too many people are just paying the minimum amount on their bills every month and kidding themselves that this is keeping control of their debt when in reality the interest simply negates those payments," he added.

National money education charity, Credit Action, stated Britain's average interest stands at 16.46 per cent, over 11 per cent higher than the base rate.

The charity's statistics, produced on 31st October, revealed consumer credit lending had risen to £212 billion in September 2006, an increase of 6.3 per cent in the last year.

The most recent blame for the financial situation of many citizens in the UK has been placed on the shoulders of credit card companies and lenders who many claim are "grossly irresponsible" for the massive debt that has been amassed by many UK citizens. A new report showed that more credit card companies and lenders were giving away loans on a "lend now, ask questions later" basis which resulted in major debt for many and is a serious concern.

The research study was conducted by the site uSwitch.com and showed that 88% of those who received a credit card over the past year were not asked for their income level and almost 95% of all those who received credit cards didn’t have to give evidence of their outgoings, so lenders had no idea if they would be able to repay the debt or not.

In fact, what is even more shocking is that in many instances, a borrower’s credit limit was more than their annual income, a recipe for financial disaster.

"These findings are alarming," said Keith Tondeur, chief executive of Credit Action, the national money education charity. Lenders need to ensure that figures given to them by potential borrowers are accurate, especially for those in the lower income bracket, who are much more vulnerable should things go wrong and who might be desperate because of existing problems."

Currently, all UK consumers have a debt in excess of £1 trillion, and credit card debt makes up £56.35 billion of that amount. UK citizens make up more than 66% of all credit card debt in the EU., and UK consumers account for two-thirds of total credit card debt in the whole of the EU.

The spending rampage has led to record levels of personal insolvencies, which are still on the up.

Bryan Jackson, managing partner at insolvency practitioner PKF in Glasgow, said that he was "not surprised in the slightest" by the report. It makes sense; consumer debt in Scotland is fit to bursting. Competition in the credit market means lenders are throwing credit at people. But it's grossly irresponsible lending".

The debt situation in the UK could continue to spiral out of control of the government does not take serious action to make sure that citizens are only borrowing what they can pay back

The debt of young adults and those in their twenties has been getting a lot of attention over the past few years, but now, the debt of those who are approaching retirement age is also making national headlines as according to a new report published this week by a leading debt charity, the debt among those in their sixties and older has been rising steadily over the past two years.

According to the report, the average 60+ year old person who contacted the Consumer Credit Counseling Service (CCCS) had a debt of £33,568.This is a 25% increase from last year.

Still the level of debt that many who are within the ages of 18 and 24 is getting the most attention. Over the past two years, the average amount owed by 18 to 24 year-olds has increased by 26 per cent over the past two years, from an average of £11,934 in 2003 to £15,079 in 2005.

The report went on to saw that those who ordered a CCCS debt management plan, where “interest on debt is frozen in exchange for a set amount being repaid each month”, had an average debt of £30,763 in 2005. This is a increase from £29,340 just the previous year. TRhe report said that more people are in extreme debt as well. In 2005 2.7 per cent of all CCCS customers had a debt of £100,000 or more, while this statistic was just 1.4% in 2004.

Stuart Glendinning, Managing Director of www.moneysupermarket.com, the price comparison website, said: "It’s no surprise that debt levels are rising and that increasing numbers of people are getting into difficulty, but it is disheartening to discover that it is the older age groups whose debt is rising the fastest. This report is a fresh reminder that debt crisis is becoming more and more of an issue."

Debit card use is rising and more borrowers are paying back their credit cards in full every month, according to APACS.

The number of people who are paying off their credit cards in full at the end of every month is rising, according to the UK payments association, APACS.

And debit card spending overall continued to rise, the association found in the results of its annual review.

The amount of money UK consumers spent on credit cards in 2005 is one per cent more than they did in 2004, APACS found.

Sandra Quinn, director of communications at APACS said: "Our figures show that UK credit cardholders are reining in their spending and concentrating on repayments - a trend which has continued throughout this year.

"In fact the latest figures released by the Bank of England in September 2006 show credit card repayments overtaking spending for the first time."

Lack of confidence about the growth of the economy could have contributed to lack of credit card spending, as well as higher repayments and the media, Ms Quinn added.
For the first time ever, in 2005 debit spending overtook cash spending with £89 billion being spent on debit cards.

In 2005, the debit card holders numbered 40.8 million, according to APACS.

Currently the Office of Fair Trading is investigating banks, after widespread complaints about late charges for overdrafts.

Nationwide figures replicate Bank of England indications that house price rises have slowed down.

However, increasing personal debt prevents first-time buyers from getting on property market, the research reveals.

Figures released by Nationwide on October 31st have shown 'firm' house price growth in the past month - despite debt problems stopping many first-time buyers from getting on the property market.

According to the bank, the average price of a house rose by 0.7 per cent in October, whereas September saw an increase of 1.3 per cent.

The three-month rate rose to 2.6 per cent, the biggest increase the bank has seen since September 2004. This caused the average price of a house to rise to £169,623 – more than £12,500 from the same time last year.

Fionnuala Earley Nationwide's group economist said: "Recent housing market indicators have been firm, and the latest approvals data from the Bank of England show that the August rise in interest rates did nothing to curb demand."

However, Ms Earley predicted property demand would eventually slow.

"Rising interest rates, worsening affordability, falling yields on housing investments and lower expectations of future house price growth are all factors that we expect will slow the market in the coming months. However, the momentum that has built up in the market means that we can still expect to see relatively strong annual rates of growth in the short-term," she said.
The news comes as first-time buyers increasingly find themselves priced out of the property market.
A Bank of England report released on October 30th showed mortgage approvals were at their highest rate in two and a half years - despite credit card borrowing across Britain rising to £365 million.

Meanwhile, Alliance & Leicester has said parents are increasingly helping their children get a foot on the property ladder and out of debt.

A report by the bank showed parents are lending an average of £18,000 to help their children make mortgage repayments and avoid debt.

The amount of people claiming IVAs with debt consolidators Accuma Group has increased to 2,537 – a rise of 245 per cent – over the last twelve months. The group's turnover has also more doubled as Accuma looks to increase its status on the financial solutions market.

The number of people claiming individual voluntary arrangements (IVA) with one debt consolidator has more than doubled in the past 12 months.

Figures released by the Accuma Group on October 31st show the numbers of IVAs it has handled in the year up until July 31st has gone from 734 to 2,537 - an increase of around 245 per cent.

Chief executive Charles Howson said: "The 2006 financial year was transformational for us as we now have a full consumer financial solutions platform enabling us to provide best advice to people in financial difficulty."

"Unsecured consumer lending continues to increase, and with […] anticipated increases in interest rates, the economic outlook provides significant growth potential for the Group," he added.

The group's annual turnover came in at £9.98 million, an increase of 250 per cent from last year.

Accuma have also reported a pre-tax profit of £1.78 million for the year leading up to July 31st. The company had a loss of £473,000 in the preceding 12 months.

The consolidator is looking to take on another 337 cases by the end of October.

IVAs were set up in 1986 as an alternative to bankruptcy. The individual agrees to settle their debt within a specific amount of time, with interest rates and debt charges frozen.