Lending Code Changes To Be Implemented: Will They Assist People In Debt?
There are three major trade associations of businesses providing credit to the UK. These are the British Bankers Association, the UK Cards Association, and the Building Societies Association. Together they are “sponsors” of The Lending Code which outlines how lenders should carry themselves in specific stages of the lending process (including what happens when something later goes wrong).
With the sponsors joining together to mediate and “self-regulate” the Lending Code, UK consumers who borrow money from time to time should see the benefits when enhancements and updates are made. However, skeptics have previously claimed that such self-regulation is in fact a manoeuvre by industries to escape potentially tougher regulation if it’s passed over to external bodies.
The rules of the Lending Code have been under review and it is now understood that as many as 30 updates, which are expected to be implemented very soon. Such changes typically result from the input of affected observers including debt advice associations and government departments.
A big issue that has affected mortgage lenders for a while is “affordability,” with one of the banking system’s main inadequacies in the run-up to the financial crisis being the incapability to take into consideration borrowers’ mortgage payments upkeep. This is now moving up the agenda for unsecured lenders too. These changes to the new code in particular will be applauded by IVA providers who regularly find that their clients have been loaned sums of money that they could never have possibly repaid.
Also under the microscope is the issue of handing out overdrafts (or extensions in overdraft limits) regardless of the fact that the account holder didn’t even wanted it. It looks unlikely that the new Lending Code will put an end to this, but it’s anticipated that extra procedures for customers to opt-out of the “service” will be put into effect. Overdrafts are typically included in IVA creditor lists and an extended overdraft limit can boost increasing debt, often ultimately requiring major insolvency measures such as an IVA.
Additional help will also be anticipated from lenders, in situations where the borrower seems to be hurtling towards debt problems. Even though it isn’t clear what type of help will be provided, or how it will be offered, early intervention in debt problems can only be beneficial whether initiated by the debtor or their creditors. However, a conflict of interests between lender and debtor is likely to be seen as a problem in this instance. The risk is that precedence is given to debt-relief options that lead to full creditor repayment, even though in some circumstances debt solutions that usually involve an element of debt write-off (e.g. bankruptcy or an IVA) will provide the best solution for the debtor his or herself. The alternative is for these types of situations to be handled independently.
The “right of set-off” is an issue that appears repeatedly in every IVA forum. Basically, banks usually include terms in the contracts of their clients that enable them to take money from one account (usually money from a current account) to repay another debt that has not been paid (like a credit card bill). New rules to restrict where this should happen are anticipated.
Even though lenders and their associations may deserve praise for taking action in these important areas, many people will still be worried with regards to the issues of interest conflicts and would like self-regulation to be erased to make way for independent supervision in the future.
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