The BBC report that the OFT has issued guidelines to lenders and borrowers about when their loans and other credit may, and may not be enforced. The guidelines come in the wake of OFT fears that some debtors may be misled into their ability to have debts written off.

The OFT draft guidance focuses on rules laid down by the Consumer Credit Act and draws on recent rulings by Judge Waksman at the High Court in Manchester. In his ruling the judge ruled that it was acceptable for lenders to produce reconstituted copies of original loan agreements which contain all the original information, apart from the few exceptions that the law allows (which include the signature, signature box and date of signature for the purposes of providing the borrower with information about their debts when challenged to provide a copy of an alleged debtor’s credit agreement.

The OFT believe some debtors are being misled into believing their credit agreement is unenforceable and can have debts legally written off if certain information is missing from the agreement. Debtors have typically sought to challenge their lenders to meet strict criteria as led out in the Consumer Credit Act. One such clause challenges lender to produce a ‘true copy’ of the loan agreement – ie. one that has been signed by the debtor. It is argued that if a signature, date or terms of credit aren’t present then the agreement could be deemed unlawful.

However, the judge also stated that the agreement should contain the borrower’s name and address at the time of signing, while in the case of an amended agreement the lender should provide copies of both the original and amended agreements.

While Cashzilla doesn’t advocate debt avoidance, it can’t help but feel there is a fatal flaw here in that ownership of debt can surely only be determined by the presence of a signature, otherwise it can only be implied? If a reconstituted credit agreement can be considered legal in absentia of a debtor’s true signature, what safeguards does the average person have in these times of identity theft against any enforcement action where a fraudulent credit agreement exists?

As usual the law will give the benefit of the doubt to the lender, leaving innocent peoples’ financial affairs in tatters and that’s wrong. Cashzilla wonders if the Judge and Office of Fair Trading have thought of the implications of giving Identity theft a green light?

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Interesting news stalwart Cory Doctorow at BoingBoing is to be thanked for bringing this to our attention.

Visa have recorded a $23, 148, 855, 308, 184, 500.00 charge on a prepaid card.

The Consumerist, who broke the story, point out that’s 2,000 times larger than America’s national debt of $11 trillion and that the ever-vigilant billing team at Visa remembered to add the $20 charge for being in the red. Yes; the card was also suspended.

Prepaid cards are an interesting idea. They work in a very similar way to credit or debit cards except you can only spend the balance that has been assigned to the card. In theory this means it is impossible to run in to debt (as there’s no overdraft option) and therefore ideal for giving to teenagers.

Cards are usually assigned a PIN number and can be used at ATM machines, online or even over the telephone.

They’ve become popular with travellers as they’re seen as being a handy as plastic but much less of a risk. They’re often more discreet than cash as well. Normally, that is, unless a drug store tries to charge you all the money in the world and the bill ends up on the internet. When that happens they’re not so discreet.

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I have just read the news section of the personal finance comparison site Moneynet, “Credit products should carry so-called ‘wealth warnings’, the ex-chief of Halifax has maintained”, and I cannot say that I am particularly surprised.
This news should also not come as much of a surprise to most people in the UK, however with the continually ever increasing debt problem which this nation is facing, perhaps there is a need to point out such obvious facts.

With credit card interest rates now averaging around the 16%APR mark, this put them on average at over eleven per cent above the Bank of England base rate of 4.75%. This situation is especially bad for many younger people who generally will not have time to have built up a particularly good credit rating and so will generally only be offered credit towards the upper end of the rate scale, and who are often the least well informed to make these types of financial decisions. Combine this with the sneaky raising of fees, charges and rates by many credit providers to compensate for the enforced reduction of late payment charges, alongside the implementation of card transfer fees to counteract the losses experienced due to introductory 0% offers, and then the subsequently bewildering different rates assigned for new purchases, currency conversions, credit card cheques (don’t ever use them!! They are evil!!), etc, and you have a very confusing brew of financial information for anyone to deal with.

The introduction of personal summary boxes, minimum payment boxes, and improved transparency from the banks is a big improvement, but with the constant financial reports showing the huge profitability of the larger institutions, as they claw back any reductions in profits from one area by increasing rates or introducing new fees in other areas, it is unlikely that any real financial benefit will be gained for the average consumer.

Only by constantly reviewing all aspects of your personal finances, keeping an eye on small print and noting any changes that are introduced to the products, and then compare credit cards on a like for like basis of what is available, is it possible to get the best deals.

After all, it is your money, you should keep it, not the banks.

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As part of their latest survey of soon-to-be students, they discovered that about 11% of the respondents were seriously considering the idea of taking advantage of the relaxation of the UK bankruptcy laws to get them out of trouble, should they get into too much debt during their studies.

The trouble is that a bankruptcy declaration will follow them for many years to come, and can often block possible future career options, such as the financial or legal services, where self control and the ability to maintain effective management over personal finance is seen as very important.

A better way to deal with debt is to to be careful and if in serious trouble, contact the Citizens Advice or National Debtline.

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I phoned the card company to enquire why there had been such a large hike in the interest rate, and was told that there was an across the board increase going on. After querying this and stating that 17.9% was already very high and 24.9% was completely over the top, and that I wanted to cancel the card, I was then immediately offered another rate for the same card of just 7.9%. That is a 17% reduction on the overall APR!!

The moral of this story is that with competition for your business within the finance industry as fierce as it currently is, if you start to press the suppliers, you can often get them to make some large concessions, and maybe save a lot of money.

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Mortgage loans currently make up about 83% of the total personal debt level following a 10.3% (£956.3bn) increase over the past year. Both the Bank of England and the Royal Institution of Chartered Surveyors (RICS) have reported a pick up in the property market compared with the previous 12 months. The RICS have seen increases in mortgage approval figures, as well as the number of prospective buyers making enquiries. A spokesman for RICS, commenting on the housing market, stated they believed, “2006 will see the first annual rise in activity since 2002, after three consecutive years of decline”. International property consultant, KingSturge (http://www.kingsturge.co.uk/) is more cautious however, predicting a modest 3% UK residential growth in 2006, while chief economist for the Halifax, Martin Ellis, stated, “Another year of below trend economic growth and the continuing high level of house prices in relation to earnings… should curb housing demand and prevent a renewed bout of high house price increases in 2006″. This will come as good news for the many first time buyers who are struggling to get onto the first rung of the property ladder.

Consumer unsecured lending over the past 12 months has risen by 9.8% which is less than the rate of secured loans. According to Bank of England figures, this represents a slight drop in monthly credit card spending levels from October to November. Growing fears about abilities to repay the debts are seen to have been a major contributing factor in the slowdown. According to Experian three in four Britons worry about financial pressures during the festive season with 20% still paying off the debts accrued over Christmas six months later.

The Creditaction report has however indicated that overall average consumer borrowing through credit cards, motor and retail finance deals, overdrafts and unsecured personal loans, rose to £4,121 per UK adult by the end of November 2005. The average UK household debt was approximately £7,776 (excluding mortgages) and £46,491 including mortgages, with the average sum owed by each UK adult at approximately £24,636 each (including secured loans).

The means of making payments in shops has also seen changes, with debit cards now overtaking credit cards as the most favored card method to account for two thirds of all plastic payments. The switch to debit cards means that shoppers gain tighter control of their spending without wracking up greater debts. There is still more that can be done to reduce unnecessary expenses however, with the average credit card APR at 15.75%. This is about 11% higher than the base rate, and much higher than many widely available cards as shown on the various financial comparison sites.

Following on from a history of increasing personal insolvency rates in the UK, with the period from July to September being the worst on record, the recent figures make for welcome reading. However whilst the current trend seems to be progressing towards a more responsible attitude to personal debt from both lenders and borrowers, there is still much work and education that needs to be done.

Disclaimer:
All information contained in this article, is for general information purposes only and should not be construed as advice under the Financial Services Act 1986.

You are strongly advised to take appropriate professional and legal advice before entering into any binding contracts.

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1. Google Finance – a really serious article for once. Sorry.

I’m sorry, but it had to be said.

Let me explain.

I went to this particular clothes shop this lunchtime to buy my grandpa a shirt for his birthday – he’s 93 you know. Standing in front of me in the queue to pay was a young-ish guy who was also buying a shirt.

As he handed over his card to pay, the assistant said in-a-very-high-and-low-alternating-voice

Would you like to save ten percent with a store’ card?

The young-ish man paused before dazingly saying

“Yes … I think I would”

No! I silently shouted, softly tutting and shaking my head as if I were a reincarnation of Nora Batty, much to the amusement of the other store assistant lurking in the back-room.

And if that wasn’t bad enough, the assistant then advised the youngish man that if he spent over fifty pounds he could get an extra five pounds off. And with that young-ish man went off to buy more products, totally oblivious to the mad woman nervously twitching behind him.

Store cards – don’t do them.

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