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FACTSHEET and Frequently Asked Questions (FAQs) Subject: Over-indebtedness Relevant or Related Legislation: Consumer Credit Act 1974 (CCA) and Consumer Credit Bill. Current PositionA White Paper was issued 8 December 2003 outlining a full package or reform for the Consumer Credit Act 1974 incorporating all aspects of the review and containing a timetable for implementation. This was accompanied by a consultation on proposals for the regulations – Establishing a Transparent Market: Early Settlement, Consumer Credit Advertising, Form and Content of Credit Agreements, APRs on Credit cards, and On-line Agreements. The Consultation closed on the 15 March 2004 and a response has since been published. The last section of work detailed in the White Paper, was to address over-indebtedness. On 4 August, we published ‘Tackling Over-indebtedness – Annual Report 2005’. This looked at the options for increasing financial awareness and reducing the cost and suffering associated with problem debt. It sets out a comprehensive program of work across Government, the industry, and the voluntary sectors, ultimately seeking to minimise the number of people who become over-indebted and to improve the support and process for those who have fallen into unsustainable debt. The report can be found at http://www.dti.gov.uk/ccp/topics1/overindebtedness.htm. Relevant ConsultationsFor the most recent consultations see: http://www.dti.gov.uk/ccp/topics1/consumer_finance.htm - review Frequently Asked Questions (FAQs) Q1. What is the
Government doing to tackle the high level of debt?
Ensuring responsible lending is a central plank of the Government’s work on developing a fair, clear and competitive consumer credit market. A key priority is to provide consumers with the information that they need at an appropriate time to allow them to make informed financial decisions about their borrowing, in a competitive credit market. In order to achieve this, we set out in the Consumer Credit White Paper – published December 2003 – the most ambitious programme for the reform of consumer credit law, since the Consumer Credit Act came into force more than 30 years ago. A number of significant changes have already been made, including the introduction of regulations on advertising and on the form and content of pre-contractual material agreements. However, more remains to be done. The Consumer Credit Bill www.dti.gov.uk/ccp/creditbill/, which is presently before Parliament, will further strengthen consumer protections and create a fairer, more competitive credit market. Among the changes that the Bill introduces are a new unfair relationships test to replace the old extortionate credit test, a significant strengthening of the licensing regime and an alternative dispute resolution scheme.
Neither Ministers nor officials are able to become involved in individual disputes, which must be resolved by agreement between the parties, or by recourse to the courts. There are a number of providers of free debt advice who can help you deal with your difficulties. These include: National Debtline – Freephone 0808 808 4000, or at www.nationaldebtline.co.uk; or Consumer Credit Counselling Service (CCCS) - Freephone 0800 138 1111 or http://www.cccs.co.uk. In addition, your local Citizens Advice Bureaux (CAB) have trained financial and legal advisers, available either by telephone or in person. The support provided can be as simple as working out how to manage any debts, alternatively, they can speak to your creditors and discuss how to handle the debts in the future. You will find contact details for your local Bureau in your local telephone directory, or via their website at www.nacab.org.uk.
Government is particularly concerned to ensure that consumers are able to access timely and appropriate advice. We have been working closely with the free debt advice sector to improve its capability and capacity to deal with clients. We have worked with the credit industry to introduce sustainable and increased funding, so preventing the uncertainty currently experienced each year and improving standards within the sector. Increasing capacity is a vitally important part of this work We have been supporting the development by the free debt advice sector and credit industry of a Gateway to free debt advice services, particularly telephone-based services. The Gateway will direct consumers to the most appropriate service for their circumstances, reducing pressure on already overstretched services. Alongside this, the Financial Inclusion Fund announced in the 2004 Pre Budget Report, included £45 million for the expansion of free face-to-face debt advice in England and Wales. Work is currently underway to spend this money and details can be found on the DTI website at http://www.dti.gov.uk/ccp/topics1/overindebtedness.htm#face2face
As part of the Financial Inclusion Fund announced in the 2004 Pre Budget Report, a sum of £45 million has been allocated to increase the provision of free face-to-face debt advice in England and Wales. The funding will be split over a two-year period - £15m in 2006-7 and £30m in 2007-8. The primary aim of this project is to deliver an increase in the number of advisers, and in the number of hours of advice provided, within financially excluded areas and to disadvantaged social groups. More details can be found on the DTI website at http://www.dti.gov.uk/ccp/topics1/overindebtedness.htm - face2face.
The majority of borrowers continue to benefit significantly from credit arrangements. Consumer credit provides individuals with flexibility in how they choose to access the marketplace and manage their finances. Payment of bills after receipt of goods – for example in the case of utilities – is both practical and efficient. However, a minority of the population is experiencing difficulty due to problem debt: 4% of the population above the age of 18 are in arrears for more than 3 months on either consumer credit or utility bills, and 5% of borrowers consider their repayments to be a ‘heavy burden’. Over-indebtedness can be a significant problem for the vulnerable, and Government believes it is a problem which it is important for us to tackle. To this end, we are working closely with the credit industry, consumer groups and others to reduce the cost and suffering associated with problem debt. The work we are doing aims to minimize the number of people who become over-indebted and to improve the support and processes for those who have fallen into unsustainable debt. Last year, the Government published ‘Tackling Over-Indebtedness - Action Plan 2004’ which set out an approach across Government – with inputs from the credit industry and consumer groups. On 4 August 2005, we published ‘Tackling Over-indebtedness: Annual Report 2005’ which updated on the large amount of work which has already been done by Government, the credit industry, academia and consumer groups to support individuals in avoiding or escaping problem debt and set new targets for 2005/6. Over the past year, achievements include:
the work of the DWP to drive up the standard of housing benefit and council tax benefit administration.
The right to early settlement also came to force 31st May 2005 under the government proposal to establishing a transparent market, as stated in the Consumer Credit White Paper. Industry estimates are that 70% of loans are settled early. The previous system (Rule of 78) always favoured the lender, and so it is estimated that consumers pay 100s of £millions p.a. in unfair charges. Some consumers found themselves locked into existing loans because the cost of settling early was too high; this can be seen as anti-competitive. The new system reduces the periods of deferment that lenders can insist on which delays when consumers can settle loans. It details a new actuarial formula for calculating what is owed, which is fair to both lenders and consumers. The effect will be to make it quicker and less costly to switch between better value loans thereby encouraging more competition from new entrants with better products. Enquiries
For more information, please see the DTI website www.dti.gov.uk/ccp/topics1/overindebtedness.htm Further information
is available from the Consumer Credit Review website: Consumers should contact their local Citizens Advice Bureau (CAB) who can give them legal advice about their rights under the current law. (The local CAB can be found by reference to a consumer's postcode on this website: www.nacab.org.uk) Enquiries on consumer credit licensing should be referred to the Consumer Credit Licensing Bureau, Office of Fair Trading (OFT), Fleetbank House, 2-6 Salisbury Square, London EC4Y 8JX (Tel: 020 7211 8000; Fax: 020 7211 8800, Website: www.oft.gov.uk)
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