May 3 2007
A call for regulation of the credit and debt solutions industry was expressed by both experts and consumers as research conducted by IVA.co.uk, the UK’s biggest online IVA community for information and advice about Individual Voluntary Arrangements (IVAs), was presented at the IVA.co.uk Debt Evening on May 2nd.

Held two days before the release of the Department of Trade and Industry's insolvency statistics for Q1 2007, the IVA.co.uk Debt Evening saw the presentation of new research conducted for IVA.co.uk by Ipsos Mori, followed by comments from a panel of experts and questions from the audience.

The research and debate looked at the key factors to blame for rising insolvencies and evaluated the need for regulation of both the debt solutions and credit and lending industry. The need for financial education was also discussed.

The expert panel was made up of:

Andy Davie, site manager and spokesperson for IVA.co.uk who has successfully completed an IVA
Melanie Giles, an Insolvency Practitioner with over 20 years experience in the insolvency industry
James Falla, a debt expert and author with over 10 years experience in helping people with debt
Glen Bullivant, VP of the Institute of Credit Management with over 40 years experience in the credit industry

The audience was made of IVA.co.uk community members, press, and the general public.

The key findings of the research, along with comment from the expert panel, follow below:

Key factors to blame for rising insolvencies

A combination of poor lending and poor borrowing practices were blamed for Britain’s worsening debt crisis. According to the latest research conducted by IVA.co.uk, 43% of consumers believe that the key factor to blame for the national debt crisis in Britain is irresponsible lending by creditors. However, 32% considered irresponsible borrowing by consumers to be the key factor. Lack of financial education and lack of government action were rated as key factors by just 18% and 4% respectively.

Looking at the crisis on the level of the individual, consumers were also asked to identify the main reasons people get into debt. Over half those surveyed (52%) identified poor money management as the main reason for personal debt, with factors such as unemployment and ill health, coming top in just 11% and 2% of cases respectively.

The panel responded by highlighting the responsibility of both borrower and lender:

Andy Davie: “I would certainly agree it’s a live now pay later culture. Years ago my parents didn’t have credit, didn’t use credit, used to save up for anything to do with the house. Now it’s so easy to get credit.”

Melanie Giles: “There are faults on both sides. I think lenders need to become far more aware than individuals over all circumstances in deciding to lend, and determining whether somebody is providing adequate security for those lendings. But also […] there is far too much reliance on credit out in the marketplace. […] A lot of the clients that come to my office don’t actually realise how much they actually do owe on credit until they sit down in the cold light of day.”

James Falla: “Banks need to take some responsibility for the money that they lend, and they, in my view, need to take more time and put more effort into looking at somebody’s circumstances, perhaps working more closely with individuals who want to borrow money, and actually getting underneath their income and expenditure and saying can you really afford to repay this money, rather than just saying well, let’s lend it to you anyway and worry about the consequences later.”

Glen Bullivant: “UK GDP is driven by consumer spending. It accounts for about 68% to 70% of gross GDP. If that slows down, as a nation we are in trouble. There's no question about that. So there is considerable pressure to keep the consumer economy going at full steam in the UK […] everybody has a responsibility, but let us not forget that it is a cornerstone of the UK economy.”

Is there a need for further regulation of the debt solutions industry?

A lack of consumer faith in the debt solutions industry, and a strong call for regulation was revealed by the research. Over three quarters (78%) of those polled considered mis-selling in the industry to be common (28% ‘very common’, 49% ‘fairly common’). Mis-selling covers such issues as advertising, marketing and advice.

In addition, when asked about the possibility of further regulation in the debt solutions industry, over three quarters of respondents (78%) were in support of increased regulation.

The expert panel uniformly agreed that regulation was needed, but varied in their preference for internal or external statutory regulation:

Melanie Giles: “I think we need to have self-regulation from within, and we need to have external regulation looking after people who are setting themselves up as debt specialists. […] In terms of the curbs on advertising […] we are already starting to see the change in the way that various companies are actually representing their services, and this is going to continue, and I completely support it from my professional side.”

James Falla: “I support regulation to a degree. I think that people giving advice in this industry should have a code of conduct, they should be giving the appropriate advice, and they should be doing things correctly, because we are dealing with vulnerable people who need the right advice. […] I think self-regulation is working and is helpful at the moment, but the key thing is appropriate advice is required, and where appropriate advice is not being given, then that needs to be stamped out.”

Andy Davie: “I do strongly believe that there needs to be […] a very strong regulation within the debt solution industry. […] Just from the posts that I see on the forum, there does seem to be quite a big gap between good providers of debt solution and bad providers.”

Is there a need for further regulation of the credit and lending industry?

To add fuel to the fire, the poll also revealed a skeptical consumer view of the credit and lending industry, again in terms of mis-selling and regulation.

91% of respondents rated mis-selling to consumers as common (49% ‘very common’, 42% ‘fairly common’) and 84% indicated support for further regulation of the industry.

Calls for tighter regulation and curbs on lending were further reiterated by the panel members, though opinions differed on the best approach:

Andy Davie: “There needs to be some sort of tightening of the lending criteria by banks and other financial institutions. There needs to be an affordability test. I managed to get loads of credit cards, and obviously a high debt.”

Glen Bullivant: “The Consumer Credit Act 2006 is the first major review of consumer credits in the UK, since the original Act of 1974. Now, that's enforced, but various parts of that Act come in over periods of time. There are to be larger health warnings, rather like the health warning on packets of cigarettes. There are going to be larger health warnings on advertising, on loan documentation, an end to misleading advertising, or what is potentially misleading.”

James Falla: “Regulation of credit would be you can only borrow so much. The government steps in and says your income is X, that’s how much you can borrow. That would, in my opinion, stop a lot of debt problems. But would it be right? I don't think so. […] All of the tap dancing around the outside in terms of health warnings and APRs and making things clearer, it isn’t going to stop people borrowing money […] I think that the only way that regulating the industry will make any difference is by telling people they can’t borrow any more. I actually don’t think that's the way we want to go as a country and as a culture.”

Is there a need for targeted financial education in Britain?

With government initiatives in the pipeline, the poll researched how popular free debt evening classes would be if they were made widely available. Perhaps surprisingly, just 1 in 4 (25%) indicated that they would consider attending (7% definitely; 18% probably)

The panel members unanimously agreed about the need to equip young people with an understanding about credit cards, mortgages and the consequences of debt:

James Falla: “I think there should be elements to the curriculum which help young people understand the financial world that they are going to get themselves into. […] I think the younger we get into the schools and the younger we start training and teaching people, the better. […] what we need now is real world education. So we need people talking about credit cards, we need people talking about loans.”

Melanie Giles: “I think it should be essential for school leavers, be it the people going into the working place, or particularly for people going onto further education.”

Glen Bullivant: “We are really financially illiterate at the moment, and that does worry me. Now, I'm not bothered about what age we start. It’s a bit like sex education. It doesn’t really matter when we start, but let’s do it. Let’s make people aware.”

Andy Davie: “Certainly education needs to be done at a fairly young age. But the things that need to be told are the facts, something to the effect that a £500 debt on your credit card, on a credit card with an APR of about 27%, if you paid the minimum payments, will take you 11 years to pay off. It’s those sorts of facts that young people need to know and they need to know the effects of debt.”

The event was filmed and will be available to view on IVA.co.uk’s online television channel, IVA TV (tv.iva.co.uk) from 3rd May.

A full transcription of the IVA.co.uk Debt Evening debate can be viewed here: http://www.iva.co.uk/debtevening/transcript.asp

Further information can be found by visiting http://debtevening.iva.co.uk/.

About IVA.co.uk

IVA.co.uk is the UK’s biggest online IVA community for information and advice about Individual Voluntary Arrangements (IVAs). It is a leading authority on debt and finance in the UK. IVA.co.uk was formed in 2005 to help improve understanding of debt and debt solutions in the UK by providing expert advice and a live forum alongside a regular roundup of the latest news, statistics, and research from the world of debt solutions.

The ‘IVA Forum’ (iva.co.uk/forum) was launched in Jan 2006 to enable the community to discuss IVA issues. The IVA forum now has 1,700 members and over 16,000 posts. Online TV channel ‘IVA TV’ (TV.iva.co.uk) was launched in December 2006 to report on issues surrounding IVAs and debt. ‘IVA Community Blogs’ (blogs.iva.co.uk) was launched in January 2007 to provide free blogging space for anyone from the IVA community.

IVA.co.uk is owned and run by Net121 (net121.com), industry leaders in building online community sites. Net121 runs over 50 community sites across a wide range of sectors and industries, including accommodationforstudents.com, the UK’s largest student accommodation portal.