UK credit crisis: Are there any answers?
With consumer and commercial debt reaching record levels, the marketplace for managing business and personal financial risk is growing
It is not surprising that as the economy dips the numbers of instructions for risk management and investigations specialist London House are increasing. London House's franchisees are busier than ever credit checking, managing payments and recovering overdue accounts. We are also working with solicitors and assisting with litigation, serving legal documents and repossessing assets in lieu of cash.
There is a strong future for London House franchisees servicing the UK's debt problems. There are, however, longer term answers which could help the UK in resolving its credit crisis.
More Efficient Debt Collection means Less Debt
- The Government must abandon its current 'one-size-fits-all' approach to regulation - the 'won't pays' need to be treated differently than the 'can't pays'.
- If there was more of a balance between the rights of the consumer and their duties to fulfil their financial obligations, fewer people would find themselves in financial trouble.
- The 'can't pays' must have measures in place which seek to prevent them getting into excessive and unaffordable debt.
- For those who can pay, but won't, the Government should ensure efficient channels to help facilitate the recovery of monies.
- The largest problem is the lack of access to information about debtors and their whereabouts. As there is currently no legal requirement for people to register changes of address with their creditors, it makes it easy for them to relocate or disappear to avoid their debt obligations. In 2006 some three million debtors had to be traced. This has three major adverse effects:
- Innocent people in a property formerly lived in by a debtor receive phone calls and visits by agents chasing monies owed. This at the least causes embarrassment and sometimes worse complications arise.
- Debtors who have moved and who are not traced for some time feel that it is safe to take on more debt as their existing creditors have not been in touch for a while.
- Companies such as utilities, incur very large expenses in tracing people which adds to their overall costs, increasing charges paid by everyone, which is clearly unfair.
- There needs to be a legal requirement as part of the Consumer Credit Act for debtors to register any change of address with their creditors. Within the EU, only the UK, France and Greece do not have such address registration legislation with the vast majority of the others allowing at least limited access, if not full access to population registers.
- There needs to be a change in the restriction on access to the Voter's Roll and other data results to increase the ability for debt recovery and prevent avoidable mis-traces.
- There needs to be better access to the Register of Disqualified Directors and more consistency in the recording of data as it is often difficult to track down company directors who may be personally responsible for the payment of business debts.
- Increasing numbers of consumers are using the Enterprise Act, which was designed to remove the stigma of failure for people starting businesses, as a way out of excessive debt so reducing bankruptcy as a deterrent and encouraging debt and lack of responsibility.
- And last but by no means least, we strongly believe in educating young people in schools about handling money and the pitfalls of debt.
The scale of the problem:Personal Debt
- Personal debt in the UK stands at a record high of £1.4 trillion - up by 10.5 per cent or £116 billion over the previous 12 months. It is increasing by £1 million every four minutes.
- Over the same period, unsecured consumer credit lending to individuals increased 5.9 per cent to £214 billion, including a record £60 billion of credit card debt.
- The level of UK debt is 104 per cent of GDP compared with 92 per cent in the USA.
- The average debt for a CCCS (Debt Management Charity) client starting a debt management plan in 2006 was £31,370.
- 106,645 Britons were declared insolvent in 2007 with 300 new personal insolvencies every day.
- The total debt passed to Debt Collection companies has risen from £5.2 billion in September 2000 to £21 billion in September 2006 and is expected to reach at least £23.9 billion by the end of 2008.
- Outstanding commercial debt in the UK is around £659 billion.
- The average amount outstanding to Britain's smaller companies has risen by £5 billion in the last two years, to a massive £16 billion with 43 per cent of owners taking legal action against a customer for non-payment.
- 68 per cent of businesses regularly suffer cash flow problems as a result of delayed payments, causing an estimated 10,000 business failures in the UK each year.
Text: Godfrey Lancashire