Debt has made the headlines over the past few months. Be it the troubles across the Atlantic within the non-conforming market, or closer to home with the financial plight of football teams, such as Leeds United and Crawley FC, and the growing concerns over individuals’ debt levels in the UK, it is clear that debt is an issue, and concern, in all walks of life. With expected interest rate rises throughout the year, a number of industry commentators have issued stark warnings as to the future of the economy and the burden of debt on individuals.
Rising concerns
With consumer debt continuing to remain at a high level
despite recent dips, concerns have risen about the amount of people experiencing some level of debt, and how borrowers expect to repay outstanding loans or debts that they have incurred. The British Banking Association (BBA) revealed that consumer credit card debt levels had slowed, with net credit card borrowing falling by £0.1 billion in March. The BBA statistics also showed that new lending on personal loans and overdrafts in March was well down on the previous year’s findings, and after seasonal adjustment, net lending fell by £47 million compared with a recent monthly average rise of £127 million.
Despite the BBA review indicating a slowing level of consumer debt, it is evident that more needs to be done, and as a result of the continued debt crisis, a number of industry experts have called for tighter regulatory control of the debt solutions industry, while increasing awareness and financial education has also been mooted as a way of reducing the problem.
Speaking at the IVA.co.uk Debt Evening, Melanie Giles, an insolvency practitioner, admitted that, as an industry, the problem of rising debt laid with both consumers, and lenders. She said: “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, there is far too much reliance on credit in the market.”
Paul Hunt, head of marketing at Platform, agreed, but stated that those who had experienced financial difficulties still had solutions in the market. He said: “The debt solutions market is very sensitive and the borrowers have previous issues resulting in adverse credit. However, from a lender’s perspective, operating in the non-conforming market, we lend in a responsible way and look at borrowers’ credit information, so I don’t think that all lenders are to blame.”
Reinvigorating the economy
Despite a strong reliance on debt, Glen Bullivant, vice president of Credit Management, admitted that the level of debt was helping to reinvigorate the UK economy. His warning suggested that if debt levels were to deteriorate, the economy would undoubtedly suffer. “UK gross domestic product (GDP) is driven by consumer spending. It accounts for about 68-70 per cent of gross GDP. If that slows down, as a nation we are in trouble.”
He added: “Everybody has a responsibility, but let us not forget that it is a cornerstone of the
UK economy.”
While Bullivant admitted the need for debt, 43 per cent of respondents to an IVA.co.uk study indicated that lenders were to blame for the number of people in debt. 77 per cent also believed that mis-selling within the debt solutions industry, to consumers was common.
77 per cent of respondents to the IVA.co.uk survey also indicated a need for further regulation of the debt solutions industry, while 83 per cent called for greater guidelines and regulation for the credit and lending industry. Hunt admitted that regulation had aided the mortgage market, but was unsure of its role within the debt solutions industry. He said: “In situations within the debt solutions market, borrowers need help and advice. I am not sure if regulation is the key, but it has definitely helped the mortgage industry.”
Moves to improve
Following a separate report by KPMG, which indicated that 30,000 people became insolvent during Q1 2007, Steve Treharne, head of personal insolvency at KPMG, admitted that the industry was making moves to improve its reputation. He said: “Creditors are taking a harder line in deciding which Individual Voluntary Arrangements (IVAs) to accept and debt solution companies are wary of putting forward IVAs which may not meet the approval of creditors.”
It is clear that some form of debt in the economy is good for business. However, despite slowed growth, the fact that consumer debt is continuing to grow, engulfing a greater number of borrowers and leading to increased bankruptcies, insolvencies and property repossessions is a worrying sign that looks far from being a passing fad. Until a solution is found, be it through increased education, or through tighter regulatory controls of the credit and debt solutions industries, the market could see further changes, as lenders seek to provide solutions and firms seek to gain an advantage in this growing market.
