:: Announcement

Following an enthusiasm bypass, this blog is redundant and has been suspended indefinitely. There are, or no doubt will be, other similar sources of information out there in the blogosphere & Googlers shouldn't have too much trouble finding them. Any similarity to this blog is entirely coincidental. Goodnight.

:: Fine enforcement - new powers

This article talks about the new fine enforcement measures that became law at the beginning of the year. Enforcement can now include:

• Deductions from wages

• Car clamping

• Credit blacklisting

More info as and when it becomes available.

:: Court fees increase

Some County Court fees increase as of today. The main one that effects our clients is the increase in the bankruptcy Court fee from £140.00 to £150.00. Fuller details can be found here.

:: 'PPI' - protecting profits indefinitely?

An excellent series of articles in this weekend's Guardian about their (and our) long-running 'moan-about' favourite - Payment Protection Insurance. The Banks are making vast profits are being made from this scam. More often than not, similar cover is available much cheaper elsewhere, but it is made to appear almost compulsory and/or a pre-requisite for a successful loan. This invariably hugely inflates the overall cost of the loan. But if you do need to make a claim, you may well find you are not covered. That's the article in a nutshell, but I would encourage you to read it in full, alongside the case studies that are featured.

If you think you have been mis-sold insurance, you should get further advice. Otherwise, complain to the creditor and, ultimately, the Financial Ombudsman Service if you are unhappy with their response.

:: Community Banking Partnership

Moneybox also featured an article on the launch of a 'Community Banking Partnership'. In a press release, NACUW (National Association of Credit Union Workers) foresees "a seamless service of: money advice and support, help with bill and debt repayments, savings facilities, affordable loans and access to basic banking services" via a "one stop shop" approach to "Financial Inclusion" (Jargon alert). This is a good idea, and seems to mirror much of what is missing from the Consumer Credit Bill.

:: Consumer Credit Bill

The government have published the Consumer Credit Bill, the first proposed serious amendments to Consumer Credit Law in 30 years. In recent months we have seen much talk about the need for Credit agreements to be more transparent, and the government says that this is partly what this bill sets out to achieve. Progress in other areas that Citizens Advice highlight in their response, are to be welcomed. But there is no proposal to place a ceiling on credit interest rates, as became clear earlier this year. In addition, talk of transparent credit agreements is fine for those who have choices about where to go for credit. Indeed, on last weekend's Money Box programme, Gerry Sutcliffe, the Consumer Affairs minister, argued against interest rate ceilings using much of the same propaganda that the Home Credit Industry itself employs when defending itself - talk of small businesses making small loans at high cost to themselves, and high interest rates being needed to recoup that cost.

But that doesn't explain away the fact that the 'big fish' that dominates this market is Provident Financial, a former FTSE 100 company making vast profits from 'small loans'. Maybe some lobbying of the relevant ministers has occurred?

:: Festive fun and frolics...

Citizens Advice have a seasonal online survey to try out. Hardly a fun-filled Christmas quiz, but it's worthwhile if you answer it seriously and take the result seriously. The beauty is that you can go back and look to see how to improve. Along similar lines, the BBC also have an article with tips about spending and debt at Christmas.

:: Possession/Repossession

Advance warning of a programme tonight on Radio 4 about house repossession. The programme promises to look at the issue from the perspective of those facing repossession and those enforcing the action (i.e. a Bailiff). As with most BBC radio shows it's possible to listen after broadcast, online (link opens Realplayer or similar program).

:: Tax Credit overpayments

Another good article in the Guardian about a much ignored problem, creating desperate problems for those affected.

The main problem, which many groups like Citizens Advice foresaw before the introduction of Tax Credits, is the fact that this scheme is calculated on the basis of annual income. When income and entitlement is re-assessed at the end of the tax year, a claimants entitlement can be increased, but it can also be reduced, as many have been finding, and if overpayments have been made, then the entitlement can be reduced further. The effect has been devastating.

A Citizens Advice evidence report will be published soon, and we will provide a link to it at that time.

:: Could do (much, much) better

Published yesterday, a report from the Banking Code Standards Board (BCSB) about the provision of Basic Bank Accounts (BBA) by the 17 banks and building societies that provide them (read the press release here). The results have been compiled from three 'mystery shopping' exercises (encompassing 396 separate visits) that the BCSB conducted in the last year.

The overall tone is 'improving but could do better', although some of the statistics make it clear that that a lot is left to be desired generally, and any improvement is somewhat limited. However, one needs to bear in mind that this creditors talking about themselves (the BCSB
is a Creditor organisation).

Some revealing facts:

• Only 54% of assessors were able to achieve their objective without difficulty

• 47% of mystery shoppers had difficulty in obtaining information about a BBA, or were unable to obtain any information at all.

• Literature was not available about BBAs in 38% of cases. In the last survey, it was 26%

• 27% of bank staff in the survey were unable to identify the need for a BBA.

• 23% of applicants in the survey were 'actively dissuaded' from opening a BBA.

As a reminder, Basic Bank Accounts are much as they sound - they provide the most needed banking facilities (direct debits, standing orders, cash card) for almost all applicants. Because they are 'basic' accounts, they rarely feature debit cards, overdrafts and/or cheque books. They are most useful for people who already have overdrafts or overdrawn accounts and need to protect their income, people who do not have a bank account, people who have debts and need banking facilities and client's who are already bankrupt and need a new account.

:: The name's Bond, Baby Bond

A good article in the Guardian recently about the new 'Baby Bonds' or 'Child Trust Fund' which is the official title, which are due to be launched on April 6th 2005. Free money from the government for your children. Essential reading for parents or parents to-be. Introductory letters for the parents of eligible children should be arriving soon.

The 'Baby Bond' is available to all children born on or after September 1st 2002. It is a cash handout from the government of £250.00 (£500.00 for low-income families) in the form of a voucher which can be used to open a trust fund in the child's name which only they will be able to access at age 18 (and do what they like with!). If the voucher isn't used to open an account, the Inland Revenue will open one anyway. The government will contribute another payment again at age 7, and the child's relatives can contribute up to £1200.00 per annum to the fund. Any income and capital gains will be tax free, and there is no affect on any benefits the family may receive (i.e. it is not counted as capital). The idea is that when invested, the money will grow over 18 years to give young people a start in life. Those of us who are more cynical may feel that it is small consolation for making young people shoulder the costs of their own higher education at age 18.

As the term 'trust fund' suggests, the money will be invested in the stock market, which may give many people cause for concern, although the projected rates of return look tempting. For more information, it is worth reading the Guardian article, and BBC's 'Money Box' featured an item on it recently.

:: "The agreement is bad and cannot be cured and that is the end"

Perhaps the biggest news of the week for us has been the story of London North Securities v Mr & Mrs Meadows at Liverpool County Court.

In this case, the Meadows had borrowed £5750 in 1989, which was secured on their home. At some point, they fell into arrears, but the agreement was couched in such terms as to allow 'hidden' compound interest to accrue on the arrears and the interest itself. This meant that over 15 years, the debt grew out of all proportion to eventually reach the staggering sum of £384,000 - the famously quoted 67 times the amount originally borrowed.

What has not been appreciated until now is that the true outstanding balance of the loan was kept from the Meadows all along by the creditor. Indeed, at certain points, they were misled into believing they owed much less than the actual oustanding amount, which at that time was £140,000. As is common with many Consumer Credit Act loans, there is no legal obligation on the lender to issue regular statements.

What appears key in this case is that the creditor made it a condition of the loan that some of it was used to repay arrears on the main mortgage. The loan also included payment protection insurance that the Meadows did not want. This and the arrears payment represented a 'charge' which the District Judge considered to invalidate the entire agreement. Judge Howarth's final comment is priceless:

"The agreement is bad and cannot be cured and that is the end"

With this case, a lot of attention has been paid as to what is and what is not 'extortionate' credit. Some have argued that the APR (Annual Percentage rate) of 34.9% was not extortionate - indeed, many store cards have comparable APRs. Provident Financial's 'Vanquis' credit card has a massive 64.9% APR, as reported by us in April.

But the legislation makes is clear that extortionate credit is not just indicated by the APR. Other factors include: security provided by the debtor; the risk taken by the creditor; financial pressure that the debtor was under at the time; the total charge for credit etc.

In law, the legislation that surrounds extortionate credit is old (1974), complicated and obscure - very few experienced advisers we know have ever brought such a case (including us). It relates only to agreements regulated by the Consumer Credit Act 1974, so conventional mortgages are excluded, but not 'secured loans' like the Meadows case and yet, over the years, very few cases have been won by debtors. And it's by no means certain that this case will lead to lots of other victories by people with similar cases, though no doubt many will be brought.

London North Securities have got all they deserved in this case. Companies like them prey on vulnerable people who often have nowhere else to go in terms of credit and are forced to sign up to agreements that are extremely disadvantageous and invariably 'bound to fail'. As we have seen, they often contain clauses and terms of questionable legality that are often 'hidden' from scrutiny. Furthermore, in our experience, when arrears arise many of these companies seem to purposely avoid court action for long periods in order to allow the oustanding balance to mushroom via compound interest and arrears charges, swallowing up any equity in the client's properties upon reposession.

Needless to say, Money advisers will be reviewing all their cases with this creditor, or indeed any similar credit agreements. Provided there is not a successful appeal by London North Securities, the Meadows brave stand in this case will be valuable 'case law' that is useful in many individuals fight against such usurious crooks.

Campaigning organisations should also take up this case and argue for changes that are overdue.

What will it take for governments to take a long hard look at existing legislation and consider how to draft better law that offers debtors protection against the extorters and *quickly*?

Giving evidence on behalf of London North Securities, Ronald Bamberg a 'money lending expert' commented revealingly:

"The lender in this case has not done anything which is unusual, it is standard practice in business and commerce"

(A follow up post with more detail about this case will appear as soon as we have more detailed information)