Customers of Barclaycard, the nations largest credit card supplier, are steadily defaulting on £1.00 out of every £5.00 they have borrowed, fuelling fears over the extent of indebtedness across the country.

The blow-out in bad debts at Barclaycard, which has 11.2 million UK cardholders, was revealed in a financial statement yesterday from the parent bank, Barclays. It said that first-quarter growth in bad debts at Barclaycard continued to soar at the same pace as last year, when they grew by 44 per cent to £1.1 billion.

*
Extrapolating to all of 2006 produces a possible bad debt charge at Barclaycard of £1.6 billion — almost one fifth of the £8.6 billion lent to all Barclaycard’s extended credit customers. These customers are the minority who fail to pay back their balances in full each month.

Including the majority who pay back in full, Barclaycard has £24 billion outstanding.

Naguib Kheraj, Barclays finance director, said that while the number of people in difficulty was stable, the average balances of defaulters was rising and the recovery rate — the amount of debt got back by the bank — was falling.

He also suggested that welching was becoming less of a taboo. “Clearly, it’s more acceptable for people socially to default on their debts.”

Personal bankruptcies are soaring, partly because of a change to the rules that allows people to walk away from their liabilities after just 12 months.

The Times
http://www.myvesta.org.uk

Barclays otherwise reported strong trading in the quarter.

The level of mortgage debt is just short of £1 trillion, it is reported by the Bank of England today.

An additional £8.5bn was borrowed by consumers to buy homes in last month, bringing the level of outstanding amount of mortgage debt to £999.2bn.

However, the value of unmortgaged property is much higher, at £3.6bn.

With individuals owing another £192bn on credit cards, loans and hire purchase agreements, total personal debt now stands at £1.191 trillion.

Outstanding mortgage debt is now forecast to go through the £1 trillion level next month.

But while the figure stands as a landmark, Council of of Mortgage Lenders (CML) chief Michael Coogan believes it does not have any particular significance in terms of policy-making.

"Although it is a milestone, it will perhaps soon be forgotten as home-ownership and mortgage lending continue to grow further," he said recently.

The CML regards the rising figure as an indicator of growing home ownership: up from 60% of the population to 70% in the past two decades.

The CML also argues that there are few signs that home ownership has reached a natural limit. It says it expects continuing growth of both home ownership and mortgage lending in the foreseeable future.

BBC News
http://www.myvesta.org.uk

Over 70,000 credit union members in Scotland, Yorkshire and London will be able to use ATM machines and direct debits later this year. Their credit unions have been named as the first credit unions to offer banking services by the Association of British Credit Unions Limited (ABCUL) and The Co-operative Bank.

In what is seen as a major step change in the development of credit unions in the UK, the credit unions will be able to offer their members a bank account with a debit card which can be used in shops and to withdraw money from cash machines.

Although there will be no chequebooks or overdrafts, accountholders will be able to set up standing orders and direct debits.

The accounts will be run and promoted by the individual credit unions but the behind the scenes administration is being carried out by The Co-operative Bank. Following the successful completion of this first phase, the service will be rolled out to other credit unions throughout the UK in 2007.

The credit unions concerned are: Capital Credit Union (Edinburgh, Lothian and the Borders), Glasgow Council Credit Union, Hull and East Yorkshire Credit Union, Leeds City Credit Union, Scottish Postal Workers Credit Union, Scotwest Credit Union, Southwark Credit Union and White Rose Credit Union (Wakefield, West Yorkshire).

23 May 2006

http://www.myvesta.org.uk

Recent research by Citizens Advice states that many people turning to them for help are getting deeper into debt from which it will take them a lifetime to escape.

A report published by the charity reveals that CAB debt clients owe an average of £13,153 - almost a third more than they did three years ago, and the equivalent of 17.5 times their total monthly household income. It will take them an average of 77 years to pay off the money they owe at a rate they can afford.

Consumer credit debt problems brought to Citizens Advice Bureaux have doubled over the last eight years, accounting for three-quarters of the 1.25 million new debt cases dealt with by the national network last year.

Survey data involving 567 debt clients from 61 bureaux across England and Wales confirms that CAB debt clients tend to be considerably worse off than the population at large, with household incomes less than half the national average. And more than two-thirds of those surveyed were entirely or partly dependent on benefit income.

The charity is urging the Government to press ahead with plans for a new low cost, out of court insolvency remedy, the Debt Relief Order, targeted at debtors with low incomes and assets. It says this would offer hope to those too poor to take advantage of other debt remedies such as county court administration orders, bankruptcy and Individual Voluntary Arrangements (IVAs).

It says getting the new remedy onto the statute books quickly is especially important if major new Government funding being pumped into providing much more free, independent debt advice for those on the lowest incomes is to be effective.

'Deeper in debt' is published at the same time as a separate report, 'Out of the red', highlighting the range and extent of debt advice already being delivered by Citizens Advice Bureaux up and down the country. The two reports will be launched today at an event at the Department of Trade and Industry.

24 May 2006

People seeking debt help from Citizens Advice owe so much money it would take more than 75 years to clear their borrowings at an affordable rate, the charity said today.

Citizens Advice said the number of people seeking help with credit card and loans debts had doubled during the past eight years and accounted for three-quarters of the 1.25m new debt cases its bureaux dealt with last year.

In a report based on 567 of its debt clients in England and Wales, it said the average debt was £13,153, nearly one-third higher than three years ago.

Most of the clients had incomes that were less than half the national average, with two-thirds dependent on benefits.

As a result they owed 17.5 times their total monthly household income. The charity estimated it would take them almost eight decades to repay at an affordable rate.

With the cost of going bankrupt in England and Wales set at £475, the charity said these clients were unable to afford what is increasingly becoming a favoured option for people struggling with debts.

Neither could many of them pay the costs associated with taking out an individual voluntary arrangement, under which interest on debt is frozen in exchange for a set amount being repaid each month.

Citizens Advice is calling on the government to introduce the debt relief order - a new low-cost, out-of-court insolvency remedy.

The order would be aimed at people on low incomes who owed up to £15,000, had less than £300 of assets and less than £50 a month spare after meeting all their essential outgoings. Like bankruptcy, people would be discharged within a year.

The group said it would offer hope to people who were too poor to take advantage of other debt solutions.

David Harker, chief executive of Citizens Advice, said: "Low income combined with badly informed and poorly understood financial decisions are at the root of many of our clients' debt problems.

"For many there is little prospect of their income increasing or their circumstances changing. The reality is that they are condemned to a lifetime of poverty overshadowed by an inescapable burden of unpayable debt.

"They need to be given some hope that they can turn things around, with a solution that offers them a fresh start, lifts them out of the poverty trap, and gives them a chance to build better financial skills for the future."

Plans for the debt relief order are before Parliament.

A report published earlier this week suggested 1.7 million Britons often struggled to make repayments and that 1 million could be on the verge of bankruptcy.

The research showed that one in five adults had unsecured debt of more than £10,000 and that 44% of people on low incomes were facing debt problems.

The Guardian
http://www.myvesta.org.uk

A million people in the UK are on the brink of insolvency as the credit boom of the last decade has left borrowers struggling to repay their debts.

Research by YouGov has found that one in five of the adult population -- around 8 million people -- has unsecured debt of more than £10,000. Almost 10 per cent of these borrowers -- or three-quarters of a million people -- have problems repaying their debt every month while a further ten per cent struggle "most months" or "quite frequently".

Thirteen per cent said their debt problems had become so bad that they were "quite likely", "very likely" or "certain" to declare themselves bankrupt or take out an Individual Voluntary Arrangement (IVA). One in ten had already approached an insolvency practitioner.

The survey, which questioned 1,366 borrowers, found that people living in rented or council accommodation were most likely to become insolvent, followed by those earning less than £20,000 and divorcees. Borrowers in Scotland were more likely than the English or Welsh to seek insolvency.

Earlier this month the Department of Trade and Industry (DTI) reported that 23,251 people in England and Wales become insolvent in the first quarter of 2006, a 73 per cent increase from the same period a year earlier. The majority of debtors declared themselves bankrupt but almost 8,000 took out IVAs, an increasingly popular alternative to full bankruptcy.

IVAs allow debtors to stave off bankruptcy by coming to an agreement with creditors to pay off a percentage of their debts over a given period.

Collectively British consumers owe more than £1 trillion on mortgages, credit cards, loans and overdrafts. Earlier this month, Mervyn King, the governor of the Bank of England, said Britons’ spiralling levels of debt could create difficulties for the economy.

"The proportion of unsecured debtors reporting their debt as a serious problem has gone up, the number of calls to the National Debt Helpline has risen quite sharply, so I think the signs are that a potentially large social problem, with many households getting into difficulty with their debts, is materialising."

"The rise of the ‘credit junkie’ phenomenon and the ‘spend, spend, spend’ culture is a long term issue," she said. It needs addressing at grass roots level and that means via the educational system," she added.

Frances Walker, a spokeswoman for the Consumer Credit Counselling Service (CCCS), said it was a concern that so many people were considering bankruptcy.

"Sometimes bankruptcy is the best route to take but there are serious repercussions. We would recommend anyone with debt problems to take expert advice from a free debt service like us or Citizen’s Advice before they take such a serious step."

Ms Walker added that the average borrower calling the CCCS for help had debt of more than £30,000 to more than 11 creditors, a 5 per cent increase on the year before. "We live in a society where credit is here to stay so we have to teach people how to use it properly," she said.

Times Online
http://www.myvesta.org.uk

Talk is cheap as this article by Alisdair Milton illustrates......

The Office of Fair Trading has said it has no immediate plans to limit overdraft charges despite its earlier report, which said that high credit card charges were unlawful.

In April, the OFT released a report on UK credit card default charges that ruled that charges in excess of £12 were unlawful and unnecessary. The report also held wider implications for the rest of the lending market in the UK, saying that the principles of fee limits on credit cards could be applied to other areas in the lending market such as store cards, mortgages and overdrafts.

However, the OFT appears to have let other lenders off the hook as it stated that credit card charges are its immediate priority. A spokesperson for the OFT said: “ Our priority is the issue that we’ve been looking at, and that’s credit card charges. We’ve made no commitment to do anything other than that.”

While the spokesperson admitted to having no immediate plans to enforce fee limits on banks she did add that they expected them to apply the principle ‘across the board’.

Financial analysts believe that the OFT’s ruling on credit card charges could cost the banking industry an estimated £1.5bn in lost revenue. They also added that similar limits applied to overdraft fees could result in the end of free banking.

In its April report, the OFT stated that banks could only justify charges that covered the costs incurred through a default. Banks were given to the May 31 to respond to the ruling.

The OFT’s investigation into credit card fees was brought on by UK credit card companies continually raising their default fees during the last several years. Credit card companies maintain these rises were necessary in order to offset the lost revenue incurred by offering 0% interest deals on their cards.

Excessive banking and credit card fees has seen a sharp rise consumer complaints to the Banking Code Standards board, who say that complaints were up 50% last year.

Consumer groups have urged consumers who have been victims of unfair and excessive charges to take court action if necessary as the law specifies the difference between charges that can be levied for breach of contract and penalty fees. This gives any consumer who has suffered through unfair charges every chance of being successful with any court action.

Consumer groups such as Which?, have been campaigning for more transparency from banks on how they can justify charges in excess of £30 per day for been overdrawn by a small amount.


http://myvesta.org.uk

The level of individuals petitioning to be made bankrupt has nearly doubled during the past year, new government figures have shown.

13,897 people in England and Wales applied for personal bankruptcy themselves, as opposed to being forced into bankruptcy by their creditors, during the first three months of 2006.

This was an 85% increase on the 7,528 people who petitioned for bankruptcy during the first quarter of 2005.

However the number of people forced into bankruptcy by their creditors rose only slightly during the year, increasing by 16% to 5,615.

The figures come a week after the Insolvency Service said a record 23,351 people in England and Wales were declared insolvent during the first three months of the year.

It said the number of people declared bankrupt rose by 51% compared with the same period the previous year, while those taking out Individual Voluntary Arrangements (IVAs), under which interest on debt is frozen in exchange for an agreed amount being repaid each month, soared by 142%.

The DCA's figures are different to those from the Insolvency Service, because they represent the number of bankruptcy petitions as opposed to the number of people who are actually declared insolvent.

Steve Treharne, head of personal insolvency at KPMG, said: "Earlier this year we saw a dramatic increase in the number of people calling help lines and asking the Citizens Advice Bureau and other organisations for guidance.

"The volume of callers seeking advice on debt is likely to be a major factor in this latest leap in people accepting personal insolvency as the solution to their problems.

"There is also a rise in the number and size of commercial firms proactively looking to advise those in financial difficulty - which should be taken into account."

He added that the 85% rise in the number of people choosing to go bankrupt suggested that bankruptcy had lost much of its stigma.

The DCA figures also showed that there were 3,150 company winding-up petitions during the first three months of the year - 9% more than during the first quarter of 2005.

Sarah Nancollas, a licensed insolvency practitioner from Nancollas Greer, warned that the problem would only worsen.

"The figures point to longer-term issues that have to be addressed. We are now living in a culture of debt where large amounts of credit are readily available.

"Unless action is taken we can expect these numbers to continue to grow this year and probably into 2007 as well," she said.

The Guardian
May 12th, 2006

http://www.myvesta.org.uk

UK consumers were yesterday informed of the "serious" implications of bankruptcy by the credit agency Experian.

Jill Stevens, director of consumer affairs at the company, warned that becoming bankrupt "is not an easy way out of debt".

She added that finding yourself insolvent would "probably mean you have to give up any valuable possessions you own".

Experian has launched a new credit report basics guide called Your Credit Report and Bankruptcy, offering advice for those who have found themselves in financial difficulty and are looking for alternatives to bankruptcy.

It explains the impact that bankruptcy can have on an individual and provides financial information to those with money problems.

Ms Stevens said: "[Bankruptcy] may be the best option for some people, but it should only ever be considered as a last resort and after receiving professional advice.

"It is rarely a positive solution to money problems," she added.

A recent report from the Insolvency Service showed that there were a total of 15,389 bankruptcies in England and Wales during the first four months of 2006.

More people in the UK are taking out individual voluntary arrangements, which allow debtors to make a deal with their creditors, instead of going into bankruptcy.

BBC Radio 4's Money Box programme states that a total of 28,000 people a year in the UK are now choosing this option.

http://www.myvesta.org.uk

New insolvency laws mean that your debts can be wiped out after just a year - but your credit rating will be at rock bottom for a lot longer, warns Paul Farrow.

Personal bankruptcies in Britain have surged to a record high with increasing numbers of graduates and professional workers overwhelmed by massive personal debts.

On Friday new figures from the Government showed that the number of people becoming insolvent during the first three months of 2006 soared to its highest level since records began. A total of 23,251 people in England and Wales became insolvent during the quarter, 73 per cent more than in the same period last year.

At the same time, the number of people taking out individual voluntary arrangements (IVAs), under which they agree to repay a set amount each month in exchange for interest on their debts being frozen, leapt to 7,961 - an increase of 141 per cent on the first quarter of 2005.

Although more people are buckling under financial pressure, experts also reckon that recent legal changes have made bankruptcy and other forms of insolvency more attractive. Under the 2002 Enterprise Act, which came into force two years ago, a bankrupt's debts can be discharged after just one year, compared with the previous three-year term.

But people who pile on debts thinking bankruptcy or an IVA could be an easy way out are in for a shock. Even when discharged after just a year, a bankruptcy record will stay on a credit file for a further five years, making it difficult if not impossible to obtain even a mobile phone contract, let alone a bank account or mortgage.

"Although bankrupts are now discharged within a year, information about bankruptcies stays on your credit report for at least six years - as does information about an IVA," says James Jones, the consumer affairs manager at Experian, the credit rating agency. "Even after your bankruptcy or IVA has ended, the fact that you became bankrupt or entered into an IVA in the past may still stop you getting credit. It may also stop you getting the best rates."

Mark Ward, the head of consumer services at Call Credit, another rating agency, says: "Bankruptcy seems an attractive option because you are discharged after just a year, but there are massive repercussions for years afterwards."

In the past most people were forced into bankruptcy because their business failed, they got divorced or they lost their jobs. Today, it is being caused by people's spending running out of control, with growing numbers of teachers, police officers, army personnel and young professional graduates among those left saddled with huge debts.

"Years ago people ran into debt problems via divorce or having a business that failed. Now it is lifestyle reasons such as accruing debts, having paid for holidays or home improvements. People having problems repaying a £20,000 debt accrued for landscape gardening is not unusual," says Greg Mullarkey of W3 Debt Solutions. "We are also seeing more people going bankrupt in their twenties than ever before."

Mullarkey tells the tale of a married teacher and a prison officer who had racked up £245,000 of unsecured debt between them and were facing monthly payments of £3,000 excluding their mortgage just to keep the creditors at bay.

"They were literally suicidal having swapped one credit card for another. Because they never missed a minimum payment they never had a problem getting more credit. Their monthly bill has been cut from £3,000 a month to around £680 under an individual voluntary arrangement."

Many graduates are using IVAs to get rid of outstanding student loans because the Government has closed a loophole in the bankruptcy laws that allowed student loans to be written off. Under an IVA the Student Loans Company may agree to write off some of the debt. "The Student Loans Company can decline an IVA, but they often take a pragmatic view," says James Dean of Debtmatters.

Again, experts warn graduates not to be hasty because of the repercussions of writing off a debt. Credit rating agencies say mortgage lenders often ask if you have ever been bankrupt, so even if the order is no longer shown on your credit report you will have to declare past bankruptcy to the lender. Many landlords and employers also check your credit report for court judgements, bankruptcies and IVAs - although they cannot see your credit account information.

So declaring yourself bankrupt or entering into an IVA might also make it difficult for you to rent a flat or get the job you want, particularly if it is a financially sensitive position. "It is essential for people considering bankruptcy or an IVA as a solution to their debt problems to speak to a professional debt adviser before reaching a decision and to consider the serious implications such a decision will have," adds Jones.

If your debts are threatening to get out of control you should, in any case, contact one of the reputable debt advice agencies. Among other things, debt advisers will help you prioritise repayments, thus maximising the chances of avoiding your home being repossessed.

Bankruptcy and IVAs are often the last resort and they may not be necessary. Debt Free Direct says one third of its customers enter debt repayment plans , which are informal arrangements with creditors.

The key is to get advice - you may be better off declaring yourself bankrupt than opting for an IVA, for example. Tony Supperstone, the president of R3, the trade body for insolvency specialists, agrees. "If you have no assets and no income then bankruptcy is probably the best option. But if you are in a professional career you may lose your livelihood by going bankrupt - solicitors and accountants, for instance, will be kicked out. So an IVA may be a better option."

The rise in consumer debt, and the consequent increase in people who risk being swamped by their borrowings, has generated investor interest in debt advisers, with debts.co.uk announcing today that it plans to float on the junior market, Aim.

The Chesterfield-based company, owner of Debtcare and The Debt Counsellors, has carved itself a niche in the rise of individual voluntary arrangements (IVAs), a less-severe alternative to bankruptcy, in which people come to an agreement with creditors on how to pay debts.

Last year, about 16,000 people opted for an IVA, but the figure is expected to swell in the coming years as a result of rising indebtedness and slowing house-price and wage inflation. Last week, official figures showed a record number of personal bankruptcies in the first three months of the year - up 13% at 23,351. Mortgage repossessions were at a 13-year high, with 22,997 in the first quarter, more than twice the number in the same period last year.

Debts.co.uk is looking to raise about £4m of new money to fund expansion of its business to meet growing demand for debt advice. Seymour Pierce brokers will start marketing the firm this week with an eye to a flotation next month.

The move will sort out any money worries for three of the company's directors, including the founder Paul Carter, who will pocket about £4m between them from the deal and retain majority control.

Guardian Newspapers Limited

http://www.myvesta.owg.uk

Bankruptcy UK: Bankruptcies soar to new peak

More than 23,000 people became insolvent in England and Wales during the first three months of 2006 - 73% more than in the same period last year.

The figures from the government's Insolvency Service will add weight to the view that 2006 could see record levels of personal insolvency.

Experts have blamed the rise in insolvencies on greater personal debt and higher unemployment.

About two-thirds of people declared themselves bankrupt.

The remaining people took out Individual Voluntary Arrangements (IVAs) - an alternative to bankruptcy that allows debtors to come to an agreement with their creditors.

Meanwhile, seperate figures from the Department for Constitutional Affairs showed that the number of housholds in the early stages of having their home repossessed was at its highest level since 1992.

Culture problem

The number of companies going into liquidation also rose during the first quarter of 2006. In total, 3,439 firms went to the wall, representing an increase of 17% on the same period last year.

The level of personal and company insolvencies has been rising over the past two years.

According to Pat Boyden, a partner at accountancy firm PriceWaterhouseCoopers, said that consumers were paying for "spend now, worry later culture."

Mr Boyden added that personal insolvencies could "easily" surpass the 100,000 mark in 2006.

BBC News - May 5th 2006
http://myvesta.org.uk/programmes/myvesta_iva.html