Action Needed To Help Avoid Debt Crisis

New policies to educate, inform and protect consumers Deborah Dunleavy, Conservative Parliamentary Spokesman for Bolton North Eastadded her support to a new series of policies to tackle the soaring levels of personal debt and financial exclusion. Consumer debt has now hit a massive £1.2 trillion, bankruptcies and insolvencies are soaring and there are now more credit cards than people in the UK. 

Conservatives have announced a series of practical proposals to help stop people getting in over their head and suffering financial distress. The policies include:

• Financial education in schools for young people between 11 and 18.
• Cracking down on illegal loan sharks.
• Cooling off period for store cards to tackle ‘high pressure’ sales.
• Clearer information for credit card users on the costs involved.
• Stopping irreponsible marketing of ‘bankruptcy-lite’ Individual Voluntary Agreements.

A new online campaign has also been launched - http://www.sort-it.co.uk/ – giving advice on how to plan, budget and manage your money. 

Deborah Dunleavy explained,

“There’s nothing wrong with the responsible use of credit, but an increasing number of people are getting into financial trouble, causing themselves and their families great distress. 

“Tackling personal debt and financial exclusion is an issue of social responsibility. There is obviously a role for government to ensure consumer protection, promote financial education and encourage financial inclusion. I hope that government, civil society and business can all work together and each play their part.” 

Notes to Editors 

GROWING CONCERN OVER CONSUMER DEBT 

• Total Debt. Total consumer debt in the UK is over £1.2 trillion (including mortgages), larger than the UK’s annual GDP. The average consumer owes over twice as much as the average Western European. Britain’s personal debt is increasing by approximately £1 million every four minutes.

• Credit Cards. In the UK, there are now more credit cards than people. There are 32 million credit card holders, with each person having an average of 2.4 cards. The average interest rate on credit card lending is currently 15.7 per cent, around 11 percentage points above base rate.

• Financial Distress. Overall, insolvencies are 55 per cent higher in the current quarter than during the same period in 2005. They are widely expected to top 100,000 for the entire year. In the first three months of this year alone, there were as many insolvencies as in the whole of 1997. In the last four years, the average age of a bankrupt has fallen from 43 to 41, while the proportion of younger bankrupts (aged between 18 and 29) has more than doubled.

• Lack of education. According to a recent FSA survey, approximately 15 per cent of 18 to 24- year-olds think that an Individual Savings Account (ISA) is an iPod accessory, and 10 per cent believe that it is a type of energy drink. 62 per cent of young people said that if they got into money trouble or debt they would not be able to name any advice or support services they could turn to for advice. 94 per cent of 16 year-olds believe that it is important to know how to manage money, but only 53 per cent have been taught how to.

NEW POLICIES ON PERSONAL DEBT & FINANCIAL EXCLUSION 

At a ‘Debt Summit’ on 20 November, Conservatives announced a series of policy proposals to address rising debt problems and to tackle social exclusion: 

1. Financial education should be taught in schools between 11 and 18. A recent study by the Institute of Financial Services found that 79 per cent of the population did not understand APR (Annual Percentage Rate), and 50 per cent did not understand what 50 per cent meant. We will work with the Citizens Advice Bureau and other bodies to promote the teaching of financial capability in schools. For example, we will look at ways of broadening the remit of schools’ enterprise teaching budgets to include financial capability lessons, and providing teachers with financial literacy skills to improve their confidence in teaching these issues. 

2. Cooling off period for store cards pressure sales. We propose a seven-day cooling off period, so that if a consumer signs up for a store card, or other ‘revolving’ credit facility, at the point of sale, this credit cannot be used for seven days. This will give consumers the opportunity to consider whether other forms of credit, such as a conventional loan, might be more appropriate. We will consult with industry and consumer groups over the implementation of this proposal. 

3. Much clearer information for credit card users. Credit card companies must go much further in providing clear information to consumers in bill statements, advertising and other forms of communication. Credit card adverts, application forms and statements should all include “illustrative scenarios” that explain exactly how much credit will cost if only minimum repayments are made every month. They should also include details of how long the credit will take to pay back if only these minimum amounts are repaid, as well as information about how much money could be saved if larger amounts are repaid each month. 

4. Prevent the unethical marketing of “bankruptcy-lite” Individual Voluntary Agreements (IVAs). IVAs are a legal contract between lenders and borrowers to make agreed monthly repayments to pay off a (usually reduced) amount owed. They are often aggressively marketed by so-called ‘IVA factories’ - companies specialising in IVAs - which often understate the negative aspects of an IVA (long-term negative credit record, risk of losing assets etc.) and often fail to state their fees clearly and openly. We are calling on the Advertising Standards Association to enforce the rules governing the marketing of IVAs more rigorously. We are also calling on the relevant professional bodies, such as the Law Society, to examine and police the quality of advice given by IVA advisers to consumers more vigilantly. 

5. Tackling financial exclusion. At the moment, borrowers often have no choice but to stick with their current home credit lender, as only this lender has information about their home credit history. We want to increase competition in the home credit market by forcing home credit companies to conform to the same data-sharing standards as apply in the mainstream banking sector. The Conservative Party will consult over proposals to force these companies share data about individuals’ credit performance, so that consumers are able to switch between companies without losing their credit history. 

6. Crack down on illegal loan sharks. People excluded from mainstream credit because of a poor credit history or other factors, may turn to illegal lenders. These lenders typically charge extortionate rates of interest, and are often connected with illicit activities and anti-social behaviour. We will ensure greater co-operation between the police and other public bodies to crack down on illegal lenders. At the moment, there is too little co-ordinated action against illegal lenders, and the Government’s failure in this area has allowed them to flourish. This doesn’t necessarily mean new laws - just more rigorous policing of existing ones. 

NEW ONLINE CAMPAIGN 

Conservatives have also launched a new online campaign - Sort It. it has been set up to tackle a series of issues based around the theme of personal responsibility. Beginning with the issue of finance, Sort It will give consumers sound financial advice in the lead up to Christmas and beyond.  

The Sort It campaign has been designed around a website http://www.sort-it.co.uk/ where advice on how to plan, budget and manage your money can be found.  The site will be tackling a series of other issues in the coming months. 

ENDS