Coming straight out of University to volunteer for Citizens Advice was an incredible and eye-opening experience. However, as I took on a paid role as a Debt Caseworker, I was opened up to the murky world of the Credit industry — a sector I now have even less respect for after leaving the job. With the 2019 election result offering little hope that there will be any positive changes in terms of the welfare system, wages or creditor regulation, household and personal debt looks set to continue to spiral out of control.
Before drifting into the debt advice industry, I had a base of knowledge regarding the role that the credit industry plays in our communities. I knew that since the financial crash we have had stagnant wages, horrendous cuts to our local services and immoral reductions to the amount those in need receive in benefits. The obvious result of all of this has been, with the cost of the living consistently on the rise, that many in our society are forced to turn to the credit industry for help with essential bills and everyday living costs. As a result, we now stand at the point where the level of unsecured debt in Britain is now the highest we have ever seen.
The post-2008 financial crash saw the explosion of firms that have been commonly referred to as Payday Loan companies. The likes of Wonga and Quick Quid offered those feeling the squeeze financially at the end of the month some financial relief and an almost stonewall guarantee that those who apply would get approval. The restrictions on these companies in recent years has improved, with some companies such as Wonga going into administration, but much of the talk about the credit industry seems to have gone quiet. The fact remains that even though the lead has been shortened on Payday Loans, our economy is built upon personal unsecured debt. This debt is crippling our communities and weakening our economy — to the piercing tune of £900 million a year.
If You Throw Enough Shit, Some of It Will Stick
I can’t think of any other way of describing the adopted psyche of the credit industry other than if you throw enough shit, some of it will stick. From my time working in the Debt Advice industry one thing is clear – creditors are not doing enough to ensure credit agreements offered to debtors are affordable or realistically payable. The most blatant example of this is your friend and mine, Amigo Loan. You’ve seen the adverts, the little blue Plasticine men jumping around the screen as a softly spoken voice tells you ‘not to worry if you have a bad credit rating, just get a guarantor for your loan.’
Every time I conducted an initial Debt interview and a client said the words ‘Amigo Loan’ my heart sank. Amigo are a company who offer those in need the opportunity to get a friend or a family member to be a guarantor for a loan, meaning that person would be liable if the original debtor fails to keep up with the agreed payments. To claim that the due diligence conducted by Amigo to establish whether this guarantor actually had the financial ability to pay the loan is sketchy would be an understatement. I have witnessed those on means-tested and disability benefits (extremely basic living money) be approved as guarantors for loans of over £10,000.
Amigo seem to have absolutely no interest in negotiating with the original debtor if they are struggling to make payments as they simply threaten to pursue the guarantor, who could be a parent, sibling or family friend. Then to add to the stress of the situation if the debtor does miss a payment, Amigo will start to harass the guarantor straight away including through messages on Facebook. The lack of negotiation on Amigo’s part forces many debtors and their guarantors to seek an insolvency option. This obviously means that Amigo ultimately are unable to collect the loan back, so why do they do it? It goes back to the credit industry thinking: ‘if you throw enough shit, some of it will stick.’ For every written off loan or bankrupt debtor, there’s 5, 10, 100 debtors that decide, due to the stress and pressure exerted by companies such as Amigo, to start missing essential household bills to try and keep up their loan repayments, and that might mean missing rent or, more commonly, Council Tax.
Amigo are one of the worst examples but there are plenty of others. I had clients with serious mental health illnesses be allowed to rack up debts of £20,000+ with multiple creditors. Gone are the days when loans are approved by the local Bank Manager. Gone are the days a budget is drawn up; a discussion is had, and the loan is approved or denied. To get credit you must simply pass the algorithm and you can get an unrealistic loan in seconds — and why not? Why not when you are stuck in a cycle of insecure work? Why not when you and your family are being forced to use foodbanks? So many in our society are stuck in a vicious cycle, and creditors prey on that fact. Whilst those being exploited fall deeper into trouble, the credit industry is laughing all the way to the bank, with new Amigo CEO Hamish Paton receiving £2.2 million on his arrival to his new job — on top of his pre-bonus annual pay of £1.8 million. All of this is made even more horrific when you consider half of people in problem debt also have a mental health problem.
Can’t Pay? We’ll Take It Away!
So then the problems begin to intensify. The predatory nature of these creditors leads the debtor to cough up what little they’ve got, probably with whatever family and friends can contribute on top, to repay a loan. The big question then is what bills miss out on payment as a result? More often than not the first debt to build is Council Tax.
Non-payment of Council Tax is ultimately a criminal offence meaning that debt advisors give this debt a priority status along with the likes of rent, gas, electricity and Magistrate Court fines. The way Council Tax is calculated, administered and executed is completely backwards and archaic. For a start, your property’s Council Tax Band is based on the valuation of that property when the Local Government and Finance Act 1992 was passed… just let that sink in for a second. There have been plenty of great pieces written about the fact the Council Tax system requires radical reform including The Progressive Policy Think Tank’s research who simply label the current arrangement as ‘A Poor Tax’.
Once Councils have secured a liability order for unpaid tax, the wheels of the collection process start turning. It was my ignorant belief that surely the Council would hold itself to a higher standard in terms of its collection practices — oh how I was wrong. Whilst companies like Amigo etc exhibit bad practice all over the shop, their use of bailiffs is constrained to the County Courts (who generally are willing to negotiate on reasonable terms with debtors). The majority of Local Authorities and Councils, however, outsource their collection process to private bailiffs who, in my and many Debt Advisers experiences, are aggressive, obnoxious and deploy every intimidation and harassment tactic in the book. In 2018, there were 1.4m referrals to bailiffs for the collection of council tax with 83% of callers to National Debtline indicating Council Tax bailiffs were having a negative impact on their well-being.
It is also a common misconception that Council Tax bailiffs can force entry into a debtor’s property. Whilst this is not true, and debtors are under no obligation to let them into their property, bailiffs certainly prey on the idea that they can kick a door down if needs be. The line of ‘they told me to pay up or they’d come back with a locksmith’ was one I commonly heard from clients. One of my clients who was forced to seek refuge at a local Women’s shelter saw bailiffs loitering around the shelter, despite the location not being released to the general public. This sort of behaviour was common within both the local authorities that I had to deal with. There has been some talk of local authorities altering their approach with regards to bailiff action, with Bristol City Council claiming an end to ‘hired muscle’ bailiffs. However, there are some concerns that this shift is in fact towards Councils simply bringing bailiff action in-house. Refreshingly, a Liverpool City Councillor informed me that any resident that contacts them regarding inability to pay Council tax, for whatever reason, have their liability temporarily lifted — a power which all local authorities have under the Local Government Finance Act 1992.
One of the major injustices of Council Tax debt for many is that a significant amount of those owing money to the Council weren’t even aware they owed any money. For someone living on the breadline, it is hard enough to keep your head above water normally. However, imagine being hit by a Council Tax Support Overpayment letter which requires you to pay miscalculated Council Tax stretching back three, four or even five years. This is what many in our society face every day, especially with work becoming more precarious, more infrequent and less structured. If you forget to declare any penny you’ve earned to the Council, whilst simultaneously trying to raise a family and keep a roof over their head, you can be punished and asked to pay back any outstanding amount at an unrealistic rate. I even had a client that – despite submitting a payslip to the Council every month – was hit with Council Tax Support Overpayments. To top this all off, for no apparent reason Council Tax Support was not included in the general benefit roll over to Universal Credit, making the whole process increasingly muddied and confusing to some of our most vulnerable.
The Options Between a Rock and a Hard Place
So what options are available to those who have constant letters through the posts, bailiffs at the door and money lenders on the phone? Many who seek help with their debts have a plethora of problems in other areas, such as benefits, relationship breakdown, immigration or housing. However, once those problems are either dealt with or successfully referred, the debt advice is generally a simple one: if you have surplus money after essential bills you can do A, B or C; if you don’t, you can try D, E or F. The problem lies with the fact there are major flaws with all of the options available, leading in the most part to many choosing to make the sometimes fatal decision of doing nothing.
The options if you do have the surplus income every month essentially boil down to either making one-off payments, reduced offers or negotiating an Individual Voluntary Arrangement (IVA). An IVA, whilst still a form of insolvency, holds the benefit of allowing the debtor to make one monthly payment to an insolvency practitioner, who negotiates with your creditor on your behalf. On paper, an IVA is a great way of securing your assets (in some cases) and making a simple monthly payment to keep your creditors away from the door. The IVA lasts for four or five years and once completed you won’t owe your creditors a penny, despite only paying back a fraction of what you owe.
Sounds great, right? Kind of. There is a reason in my time in debt advice we would only advise clients to start an IVA if they had £100 surplus income every month. Sadly, many insolvency practitioners don’t follow this line of thinking and force many unsuspecting people into IVAs they simply can’t afford to keep paying. Debtors have been known to have paid months and months into an IVA for it to fail when payments are missed, leaving them back to square one with their debts. Many a client called me asking about a scheme where ‘the Government would clear 70% of their debt.’ What they were referring to was an IVA and this simply isn’t the case. Those providing the service of setting up an IVA for those in debt seem to be completely unregulated and are tying debtors to agreements they never realistically can stick to. Just search IVA into google and it’s a cesspool of misinformation. Jane Tully of National Debtline said people are being led down debt solutions that aren’t appropriate for their circumstances, leading to the free debt advice sector to pick up the pieces, and help people recover their financial situation after inappropriate IVAs fail.
Then come the options for those with no spare income to be found between the rising rents, the diminishing of the social safety net and the stagnation of wages – a familiar story for too many. The options boil down to either bankruptcy, a cheaper form of bankruptcy, or hope creditors will accept a token offer of something like £1 a month as a goodwill, “we’ll come back for you another time”, sort of gesture. Bankruptcy still is a dirty word for many and carries many negative, and not always factual, connotations. There are serious hangovers still lingering in people’s minds when bankruptcy meant a date in court and your name in the paper. Luckily those days are gone, and the bankruptcy process is, largely, simplified. The application to be declared bankrupt can be made by anyone online and is relatively straightforward. However, the black cloud lurking over the whole process is the cost — an eye-watering £680, with no expectations for those on low pay or not in work. For those out of work or unable to fit the bill for bankruptcy there is the off chance that a charity may pay, but results in this regard have been few and far between. Sadly, we live in a society where people literally can’t even afford to go bankrupt.
The next potential step is the ‘cheaper’ bankruptcy — the Debt Relief Order. The DRO is tailored to those on lower pay or out of work and will wipe out people’s debts as long as the total amount is below £20,000 and they don’t own any assets under £1,000. All this for the price of £90 means it is the bread and butter work for any debt caseworker. However, the issue lies in the fact that it is nowhere near as easy to get a DRO approved as it is to start a bankruptcy application. For a start, a DRO application must be approved by an ‘approved intermediary’. These intermediaries are normally experienced debt caseworkers who have then taken a course with the Insolvency Service. With the demand to see a debt adviser growing and growing, the chances of seeing an approved intermediary quickly to ensure you can deal with your debts in a timely fashion becomes a pipe dream. When I was a debt advisor, the process was that a client would enter our walk-in centre, discuss their problem with a volunteer, and we as advisers would call them at a later date to make a face-to-face full debt appointment. This process alone could take up to two months, meaning getting a DRO approved is then much longer. This means, despite being an excellent option for so many, the idea of a DRO process dragging out for months leads to many debtors walking away from the debt advice sector.
What Needs to be done
Whilst debt is an issue which effects pretty much all of society in some way, there is little political talk directly about the issue. Aside from wage rises, benefit payment increases and the tackling of increasing living costs, the first point of call has to be greater regulation of the credit industry. This means a complete review of the FCA, and stronger disciplinary powers across the credit industry. Lenders should be fined if found to give lines of credit to vulnerable people who simply have no realistic way of paying the debt, debtors should be able to enact a two-month freeze on their account to give them breathing room when they fall on hard times, and there need to be stricter rules with regards to IVA providers. This also goes hand-in-hand with the reduction of the bankruptcy fee to something more affordable to those in need. Whilst some would say this would encourage a culture of claiming continuing bankruptcy, this would be counteracted by stronger rules against offering unaffordable lines of credit to those that have previously gone insolvent.
In terms of reforms to the collection of debts, there needs to be a bailiff ombudsman set up immediately. Citizens Advice have called for this for some time and have lobbied the Government and the FCA to set an independent complaint procedure for debt enforcement officers. These calls need to go further and demand the use of private enforcement firms by Local Authorities be banned and there be a complete overhaul of Council Tax Debt collection. All of this has to be understood in the context of the savage cuts to local government funding, but nonpayment of Council Tax should be decriminalised and investment should be put into helping those in need, not towards punishing them. In line with this thinking. Local Authorities should be encouraged to use their Section 13A powers, which give Councils the ability to reduce the Council Tax owed by a resident, to ensure that Council Tax is affordable for all.
Vital to all of this is the need for extra funding for Debt Advice Services immediately. At Worcester CAB, who do amazing work for the city and further afield, they only have one full-time Debt Advisor, meaning that the wait time to get face-to-face detailed advice is ever-increasing. This is why the waiting time to get a DRO completed has become so long. However, the problem lies in the fact that this government isn’t interested in aiding these institutions to the extent where they will begin to pressure them and the FCA into making changes to the credit industry. In the year of what would have been his 95th birthday, these words from Tony Benn seem as poignant as ever: ‘the people in debt become hopeless, and the hopeless people don’t vote… an educated, healthy and confident nation is harder to govern.’ The Debtor’s Prison is gone, but its been replaced by an exploitative system of control which fuels the British and global economy – and it should be at the heart of our political discourse.
Where to get Debt Advice:
If you find yourself struggling with your finances and/or debts then please seek expert help and guidance.
- Worcestershire Adviceline – tel: 03444 111 303
- Text on 0786 00 77 311 stating (i) your name (ii) your postcode (iii) the type of advice needed (for example DEBT, HOUSING or BENEFITS). We will then call you back on your mobile phone.
- Online at firstname.lastname@example.org for initial contact by email.
- Call on 0800 138 1111
- Call on 0808 808 4000