Jubilee Campaign could write off millions of Consumer Debt stars-five-icons

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06.03.2018

Jubilee Campaign could write off Billions of Consumer Debt in the UK

The charity behind 2000’s Drop the Debt Campaign has now set its site on the UK, and hopes to usher in financial regulation which could save consumers up to £1.3 billion every year, and initially write off £40 billion. The charity is working alongside the Centre for Responsible Credit, and will be heard in Parliament today (6th March 2018).

A Debt ‘Crisis’?                                                          

Jubilee believe that the UK is in the midst of a debt crisis, as personal borrowing hit £239 billion last year, and 8.3 million UK adults face problem debt.

Jubilee believes that these measures are necessary in order to relieve lower income households from the burden of ‘unjust’ debt. According to figures gathered by the charity, three million UK households are currently paying over a quarter of their income towards debts. On top of this, the amount of debt owed by the poorest fifth of households has doubled in the last two years alone. For Sarah-Jane Clifton, Director of the Jubilee Debt Campaign, “The UK is facing a severe household debt crisis that is hitting the poorer families the hardest”. Clifton cites “Low wages, insecure work and rip off-lending” as factors contributing to less well-off households spiralling into unmanageable debt.

The Jubilee Campaign’s Solution

The measures proposed by Jubilee would reduce the debts of consumers such as these to a level where they could pay them off within three years, using no more than 10% of their total income each month. For others stuck in lower levels of problem debt, the charity suggests that lenders should not be able to ask for payments of more than 30% of the person’s income. Finally, the Campaign will also suggest that interest costs on credit are limited to the total initially borrowed, meaning consumers would never have to repay more than twice what they borrowed.

According to Clifton, this debt relief is necessary to give struggling families “a fresh start”. For swathes of the population, this fresh start cannot come quickly enough – last autumn, the Money Advice Service found that one in six people in the UK struggle with the money they owe. The Jubilee Campaign group have suggested that much of the debt owed by low and middle income households is “unjust” – trapping people in debt with exploitative, unaffordable interest and charges.

The cost of these measures would predominantly be borne by creditors, but the Jubilee Campaign has also suggested that the state could finance a proportion of the write-off. It is hoped that lodging the responsibility for writing off unaffordable debt with creditors will encourage more responsible lending, which is affordable to its customers. Lenders currently rake in an estimated £21 billion in interest payments every year from private consumers alone.

Current Regulations are changing

The campaign comes in the wake of new regulations which the Financial Conduct Authority (FCA) hopes will improve the experience of consumers who struggle to pay back what they borrowed. People with “persistent debt” – who have paid more in interest and charges than the value they originally borrowed – which lasts 18 months, will automatically be contacted by creditors, and informed that increasing their payments would be cheaper in the long run, as well as being told where they can go for help and advice with problem debt. If their circumstances have not changed at the 27 month mark, the creditor must remind them of their options, and warn them that their account could be suspended, if applicable. Finally, if a customer is in persistent debt for 36 months, the company must offer them a way to repay what they owe within a reasonable period of time, which is likely to include the waiving of interest and fees on their debts. The FCA predicts that half of customers with persistent debt would move to faster repayments before the 36 month mark, if appropriately informed by their creditors.

The regulations came into effect at the start of this month, and full compliance is expected by September. Between these new rules, and the Jubilee Campaign, it appears that the widespread issue of problem consumer debt is being taken seriously. This could be vital, as consumer borrowing has reached levels unseen since the 2008 financial crisis. On top of this, interest rates for consumer credit are expected to rise later this year, meaning paying back debts could become even more difficult for the many people who depend on credit to plug gaps in incomes which are uneven, or overwhelmed by years of inflation.

Solutions to Problem Debt

Worrying as some of these statistics are, it is important to remember that solutions are in place for people struggling with problem debt. For people who are unlikely to be able to pay off what they owe in full, Protected Trust Deeds offer a way to write off a proportion of the debt, and pay the rest in affordable instalments.

For more advice about unmanageable debt, call a friendly Carrington Dean advisor on 0141 326 0391.