Archive for September, 2008

Negotiating With Creditors for Changes in Terms and Loan and Debt Schedules – 5

September 27, 2008

There are just a couple more thoughts I would like to share with you on this topic. These relate to what changes any debtor might ask a creditor to grant.

But first let’s consider how much room a creditor has to grant variations. Well, look at their terms and conditions. The creditor assumes the right to change any terms and conditions.

So they can change practically anything in light of a negotiation. Unless of course they want to admit force majeure, unfair practice and any other weaknesses in their position.

So ignore any ‘we can’t do that’. You can point out to them that they may wish not to follow some path, but they themselves declare there is no actual restriction on their action – let alone in a reasonable negotiation.

I think the actual amount of repayment is a fairly obvious matter we have dealt with. But I do wonder if the frequency is carved in stone or set in concrete. Whether it might make sense to alter that is for a particular debtor in a particular circumstance. But don’t be afraid to seek it if you need it.

Any debtor is going to be in default or risking default because of changes; there can be so many of these I won’t list or example them.

But the solution to the new situation can be any one of a number of things or a combination of some of them.

It may be that the only route you can see is having all your debts written off. Now this is expressly mentioned in the Banking Code Guidelines as an option. So don’t be afraid to suggest it if it is appropriate.

It is more likely that your problem is a lowering of expectations and so a lowering of the sum available for repayments. It may be that you have a ‘between jobs’ situation with an assured income to start ahead.

Think what that requires from your point of view, don’t worry about the creditors’ view – any creditor is well able to worry for themselves.

You might need a break from payments for some months. You might feel able to meet the repayments on the sum as it is, but fear the worry of interest costs. Your proposal should reflect such need.

The balance can be frozen. Payments delayed. Interest rates reduced. Payment amount varied.

You may be going into hospital, or have some other serious interruption in your normal life. Or you may have to deal with the effects of such an interruption afterwards. Talk to the creditor. There are many provisions which protect you in these circumstances.

And the creditor is not excused from due diligence just because there is an outstanding debt.

Negotiating With Creditors for Changes in Terms and Loan and Debt Schedules – 4

September 25, 2008

Let’s now talk about the repayments and the charges from creditors.

So far this set of blogs has covered the basic thinking for a negotiation, what the companies are like and the need for understanding the rules, and my ever-critical view of interest rates.

Repayments are a contractual obligation, and nothing I say should be seen as altering that basic point. There are however many different ways of viewing what this means in practice. Especially bearing in mind the matter of force majeure.

When the debtor – you and I – are able to pay without any problems there is no reason for varying the payment schedule, unless it is to match changes on your own income receipts or to put right a change made by the creditor using his supposed right to vary any terms unilaterally. There are reports of this being done to trigger late payment charges.

There are also cases of increasing repayments by 50% by upping the monthly percentage, which obviously causes budget stress and increases the likelihood of triggering charges.

More significant in the call for repayment variations is the reduction of personal disposable income. There are many ways this can happen. I would suggest that among these is loss of bonus, loss of job and taking lower paying jobs, the effects of inflation, additional family commitments and accident or ill-health problems.

The majority of creditors will discuss lower payments, though they have their own ideas of what lower means. For you this is a matter of redoing your budget and seeing how that places you. This is the information that will inform each of we debtors and this will also inform them.

Since it is my view that inflation is about to show some serious muscle I advise frequent and regular personal budget reviews.

You do need to think in terms of treating all creditors equally, so the usual way is to establish what you might be able to afford and apportion that in relation to each debt. If you have any difficulty sorting it out any of the online charities will give help. Maybe the excellent fora – forums if you prefer – will have mathematical geniuses who will put a little time in to giving you the answers.

Don’t take no for an answer and don’t let the creditors bully.

And then… and then… and then is the matter of penalties and special charges. These are applied in all sorts of ways and are purely profit centres for the creditors.

In a ruling early this year the Office of Fair Trading determined that charges should relate to the actual costs that the charges relate to. anything above that becomes a fine, and there is no legal support of companies to levy fines.

Unfortunately the OFT also stated a maximum level for a bundle of different charges and set it at £12. this was less than the previous figure of £20 – and sometimes £25 0r £30. Of course putting it this way was a gift to the creditors who immediately made all charges £12 [and I would be interested in any evidence of new types of charges being levied at that time].

Now it is my contention that these charges are mostly illegal fines. The reason rests on the rules of fairness and the point in the ruling about relating to costs. I will talk only about late fees, but this will stand for others as well.

Examine the way a late fee is determined and levied (as a fine). The computer – yes, the computer – has a program written by groups of clever fellows to do all the paperwork, calculate interest, instantly apply changes of all kinds, and react to the time a payment is received.

If the deadline is midnight and the payment comes in a one minute past – maybe one second – the computer automatically triggers the late fee script and sets it for the following statement. On the statement this requires a miniscule amount of bulk-purchased ink or powder and enough extra time on the automatic printing system to print one extra line.

If you have ever seen those in action you know we are talking about a fraction of a second. The script action requires no extra time since it is a choice of options. At a guess we are talking 0.0001p for the ink and 0.001p for the time.

So by my estimate a £12 levy includes a justifiable charge of 0.0011 and a fine of £11 99.9989p.

If anyone has figures to disprove this estimate I welcome them. The idea floated by one senior executive that there is a little man in a smoke-filled back office checking every charge is not just risible, but an obvious …er… mis-statement.

Joseph Harris
Debt Control Man

Negotiating With Creditors for Changes in Terms and Loan and Debt Schedules – 3

September 22, 2008

‘Terms’ covers a multitude of sins. It is really a reference to the small print. Bear in mind that there has been no real negotiation in setting up the loan. There is a take it or leave it view about this.

Among the things that are in the terms are ones about the creditor making changes without your agreement. This probably is in legal gobbledegook and covers almost every condition in the contract. Were I to face the need to argue any of this I would almost certainly look for the force majeure argument to be a major defence.

It really is part of the fair treatment argument, and thee are several areas where I am itching to get public debate started. But this will be after I have produced a good help for all those with debt worries.

In that situation you have almost certainly been charged unreasonably high interest rates. I am putting ‘unreasonably’, but the creditor would obviously argue the opposite. Yet if your rate has been increased and you phone to ask for it to be put down again it is almost certain that there will be some movement in your favour.

Even if you do not have debt worries and your credit rating has not changed it is likely that your interest rate has been increased. Bank of England interest rate has been at or below 5% for months, or longer! I can see a strong case for a rate of 8%, 10% – at a pinch 12%. But tell me if you can how 15%, 18%, 22%, 29% and even 40% can be justified.

With these rates i am making reference only to the big name banks, credit institutions and loan companies. I abhor, but am not here dealing directly with, the Mail Order companies that charge interest at all. as for those which charge a point below 30% and 40% I have no polite words.

And I am not directly talking of the appalling of the outfits like the Money Shop that charge rates northward of 100% p.a.; I have heard there are ‘payday’ loans that work out at up to 600%. For any rate that is above 20% I declare the regulators are asleep at the wheel. Indeed I would want enquiries into any rate that is more than 5% above Bank Rate.

So there are my markers. Interest rates are not simple, and confusion is deliberately employed. It is relatively simple to ensure that complex methods are simply not permitted. I know of no reason for having them.

Be absolutely clear that interest means you pay back to the creditor more than you originally borrowed. The higher the interest rate the more you pay back. In some cases, where the repayment sum is low and the interest rate not low, the debt can continue for ever!

If you do not understand interest rates believe me that a lot of people do not. If you are one you are not alone. Then seek advice. All the charities will be pleased to work out for you how you are placed with your own debt.

So do not accept that you must suffer unreasonable interest rates. You may have to argue it all the way to the Financial Ombudsman Service, but I hope that any creditor guilty of charging unreasonable rates will have their licence revoked, however big they are.

Joseph Harris
Debt Control Man

Is This Just a Financial Crisis?

September 20, 2008

Of course I ask the question because my answer is no! It is a crisis that has been gestating a long time and fingers in to every corner of activity. It all seems very arcane, very distant, and hard to understand how things can change so suddenly – in just a couple of years – from euphoric good living to threats of disaster.

The answer of course is that it has been going on a lot longer. Add to that that we are experiencing rapid changes in many aspects of life. There are many situations and conditions that have never been experienced before. And that means we have no prior understanding of how they fit in.

One of the effects has been that there has been credit sloshing around all over the place. And that is where we have come in. Debts of all kinds have boomed and one way or another we have all been caught up in the credit crunch.

The serious question has to be what effect the current crisis will have on that. And the best way I can give an answer is to give a broad idea of what has happened and what might put it all right.

It is my belief that the current text books of economics are not – cannot be – up to the new task. It is not that fundamental laws have changed, but that the complexities have become too great for easy understanding. In essence though, like a group of climbers ascending an icy sheer rock face, all nations are now tied together; each time one loses footing we all feel the strain and risk losing our own footing.

On top of this we are, like Atlas carrying the world, burdened with the great bubble of arcane derivatives that is the financial world, and overspent in the great debt crunch; as we should really call the credit crunch.

And our biggest problem is that, rather than pass out better quality pitons to hammer into the ice for safer footing, our oh-so-wise leaders and civil servants are trying to preserve the heavy weights of the derivatives. They might just as well be throwing sacks of money into a fast flowing river.

In fact the volatility of the exchanges round the world is a sign of the fast flowing river and the spinning boats caught in its flood. So far as I can see the only people benefitting from this are the crooks and gamblers who have already milked the system dry.

There are hard decisions to be made and part is to cut out the financial sector as one would throw away a barrel of apples that have gone rotten to the core. Hard? Of course. Possible? In the current climate probably not. But if it is not done, then a little way down the road the decision will be bigger and harder.

The actual mechanics of doing it are not obvious, but the first essential step is to stop throwing good money after bad. And that should be today’s resolution for Mr Paulson and Congress in America, and for Mr Brown and Mr Darling in Downing Street.

I do not paint a pleasant picture. And like the Cassandra you are already calling me, I forecast that it is not likely to get better. But the reason I am putting all this in this blog is because I believe that everyone, and in particular those worried about debt, should be keeping a constant eye on the situation and making their decisions about their own best route through bad times.

Normal blog service will be resumed as soon as I have stopped spitting tacks.

Joseph Harris
Debt Control Man

Negotiating With Creditors for Changes in Terms and Loan and Debt Schedules – 2

September 18, 2008

Everything now is going to depend on which creditor you are dealing with. They vary in ways that are not really logical, and can have differences according who you are speaking to and what section of the company is dealing with your account.

You might think this is a bad thing, I would rather say it shows how important it is to be confident in the knowledge you have made sure you have.

A good company will respond to what information and figures you have given them. It will try to find an answer that suits both you and them. Here you are able to talk in a more relaxed way and with less feeling of guardedness. But that doesn’t mean you should leave the decision up to them.

It is your life; you still need to be sure the outcome is realistic for you.

But then there are the companies that seem to have no interest in what you say to them and simply want their money back willy nilly.

These companies are going to behave unreasonably, and try to sidestep the rules which apply to them. They will prove obdurate, unyielding and take the matter to the bitter end. That end should be the Financial Ombudsman Service, which does insist these companies do the right thing. The FOS has the power to force compensation payments as well, and does.

But all this can be a long road. It can be over a year before there is a resolution, and these companies do try to bully you. I encourage you to not only resist but tell the companies quite bluntly that you will complain as appropriate to the regulators who decide on how to regulate, those who enforce the regulation and issue the licences to trade in credit, and the FOS itself.

The rules are clear and bad behaviour should be reported so the companies may be censured, fined or have their licences revoked.

You are not without power in this.

Once you have grasped what the rules are – by research and advice – you will see how my methods work, and why this is the way is should be done.

As time goes on you may find the companies offer deals that may be very helpful. I have, for example, been offered 50% write offs for payment of the other 50% – usually as a lump sum, of course. With such offers there may be mileage in consolidation, but it is as well to bear in mind you also have obligations.

Among what is expected of you is the general rule to treat all creditors the same. That is subject to common sense and reasonableness of course. Never refuse a full write off, for example, just because only some creditors have offered it.

And if you want to agree to a 50% deal, as I describe, you should strictly offer the same deal to other creditors. It certainly needs thinking about and it is worth checking with one of the charitable advisors how you should handle it.

Joseph Harris
Debt Control Man

Negotiating With Creditors for Changes in Terms and Loan and Debt Schedules – 1

September 16, 2008

When you have sent you creditors your second letter, or if the matter of your having trouble keeping up payments has come up another way with them, you are deep in negotiation territory.

Even if you choose to use an intermediary—with a debt management plan, or an IVA, or consolidation—you must take charge of how it is to be done and what it will cost and how long you will be tied to repayments; and all the other changes of terms these moves entail.

It is because you become at the mercy of a routine system through this that I strongly advise doing it all yourself. The best of the intermediaries still have you as only one of a large number of clients. And they can tie you to something that can in turn become difficult to maintain. So at least make sure you understand exactly what is on offer. Always ask questions—and insist on an answer you understand.

If you watched the stream of of highly paid workers being summarily dismissed by the collapsing banks you should note how easy it is to go from easy control of your finances to loss of control. Was it Lehman Brothers in New York whose workers average a monthly pay cheque of $330,000; that’s about £160,000 or £1.9m a year.

You can imagine what rents or mortgages they pay, cars they drive, clubs they belong to. How they eat and pass their day is easy to adjust, if uncomfortable, but these call for many judgements abut their future objectives; staying in the loop or making a life change!

Suddenly they are going to have no income, and their insurances may well be on the line too. These were regarded as safe, well-paying jobs with prospects. When disaster strikes it usually comes unheralded or with little notice.

It is things like this I urge you to think about when deciding how to negotiate. What objectives to set yourself, how to think through your living costs, what the size of the debt is and the realistic chances of repaying it

Always remember you are the only one who really knows your position and needs. Your wants may have to be revised. But you should think of living a reasonable life even in this situation.

And seeking all the advice and information you can.

Joseph Harris
Debt Control Man

Getting Good Information on Debt, Debtors and Creditors

September 7, 2008

I sought to have my affairs handled by a commercial company and by a leading charity in debt advice. To say both made a hash of the information I gave over the phone is to be very polite about it!
One charity, which handles debt management for you if you wish, told me I would not get debts written off. So far I have five of my debts written off and another two put on ‘no chase’.
So you see why I say ‘do it yourself’.
I know this will not suit everyone, but I do urge you to learn all you can before you make any decision about what to do. This means you will be more certain that your action is right for you. Today the emphasis is on the debtor – that’s you and me – being treated with respect and with sympathy.
There are rules about what these creditor companies and debt collecting companies can do. Primarily their behaviour is in the hands of the Office of Fair Trading, which issues licences to trade in credit, and in May 2008 set up the Consumer Protection Regulations, and in the voluntary code—the Banking Code.
To outline them here would be impossible, but just a few things to bear in mind. However unpleasant any representative of the creditor or of the debt collector behaves they have no right to enter your premises, much less take any of your property. To reach this stage there must be a court case and you must be notified of that and have the right to be present in person and/or be represented by a lawyer to present your case.
Only the court can give permission to distrain your goods or your home, which latter would normally be only in a mortgage matter or where you are deemed to be able to pay but refusing.
That would be a long way down the road. Only an authorised bailiff has the right to physically enter your home and possess anything that is yours. And he must be formally appointed by the court. If, let us be quite clear, a creditor or a representative does behave with any unpleasantness or aggression (or with threats or pretending to have official documents when they do not) they place themselves in the wrong. And they can face penalties – including losing their licences to trade.
Always keep your nerve in these situations – easier said than done, I know – and always be honest and seek a fair settlement.
Making sure you seek information and advice has an important use, reassuring you of your right to be treated fairly and with respect. When you deal with creditors you need to be able to demonstrate that you have sought advice. And you will find a lot of genuine advice and help from the organisations mentioned, and from others.
Chief among them is your local Citizen’s Advice Bureau. Now you are not going to enjoy this experience, but grit your teeth and set to. The interviewers at CABs are volunteers – trained – but volunteers, so do treat them with respect and thank them for their help. There are so many of us (and so many others with other problems) that they are not going to be able to give you a lot of time.
But there is a lot of useful material available on their computers and it is a good idea to ask them for print outs of what the interviewer thinks might help you.
Definitely get as much information as you can and ask as many questions as you need. It is your life you are dealing with, after all.

Joseph Harris
Debt Control Man

Matching Debt Repayments to the Budget

September 4, 2008

A vital part of the process of contacting creditors to negotiate a new arrangement is the income and expenditure statement. They need it to assess what they can ask for and you need it to assess what you can afford to pay.
Usually you will receive a budget form from the company. My advice is ignore it. Not the need to present a completed form, but the actual form they send. The reasons for this are many, among them the fact that each company has its own layout, and none are about you; they are about the company!
Now more important is the fact we are facing difficult times. Living costs will inflate for some time, and it is likely that incomes will decline. A squeeze.
So long as you describe your needs clearly in this income and expenditure account it will provide the essential and accurate point for discussion.
I favour this accompanying your second letter, when you have had time to review all your affairs carefully. It might be worth setting it out roughly and putting it aside to come back to for review and correction. When you finally send this off it is vital that you have all items of expenditure included.
This is the 21st century; you are expected to continue to live without starving and without being homeless. In pursuit of this there are certain priority debts and payments. These must be deducted from your income before any attempt to assess what you might be able to pay towards settlement of non-priority debts.
If this gives a debit position—in other words if you need more money than you have to meet your needs then your creditors cannot expect payments.
As you investigate further you will learn of the options for managing your position: IVAs, bankruptcy and so on, and be told about bailiffs and court action. Court action—which rarely happens—will in any case be a long way down the road, and bailiffs can only be involved after court action.
You have research to do of course and trying to work out your personal best course of action. As you seek advice as well you will probably find your first fears recede, and options which you can handle with little discomfort becoming realistic.
That is exactly what I found. Because those who might have been intermediaries gave me advice that was not very sensible for me and made hashes of the figures I gave them I determined that it was up to me. And I am glad I took the step to control my debt crisis on my own terms.

Debt, PMs, Chancellors and Interest

September 3, 2008

If you hang a round in your job too long your mistakes come back to haunt you. That must be what Gordon Brown has been learning!
Unravelling them—specially when the luck turns against you—can be not just daunting, but reveal weaknesses in the thinking. Just so, in my opinion, with our Dear Leader.
That weakness was initially revealed in 1997 when, as Chancellor, he virtually destroyed the regulatory system for the finance sector and the banks. It is a matter of personal satisfaction that I recognised his mistake then. Now we are all paying the price for the excesses that has permitted.
As Prime Minister the millstone of that financial policy is even more firmly round his neck. And, just as the publicity machine was building up to his big announcement on mortgages two more blows struck!
First his new Chancellor and long time helper, Alistair Darling, revealed an attractive attachment to honesty, explaining that the crisis before the world is certainly the most severe for 60 years—i.e. Since we all started picking ourselves up after WWII. The PM has been strenuously denying this truth. The Chancellor’s view was widely misinterpreted as applying to only this country.
And no sooner were the words of the PMs package of ‘help’ out of his mouth than the OECD, a very powerful voice in world economics, declared this country worst placed to handle the downturn—to be rather mealy-mouthed about the crisis ahead.
For reasons which escape me—except that GB’s luck has turned—the further OECD point, that the Eurozone was almost equally affected, escaped mention and seemed not to impact the foreign exchanges where the proud pound was further humbled.
The package itself shows further the inability of the PM to grasp the needs of starting to bale out, just as he didn’t take care to see there was balance in the markets 11 years ago. His moves are a costly way to bring help to a few people, and are largely not very effective in altering the slide in house activity, prices or rising debt problems.
Had there been serious thought about the most effective moves to ease and stabilise Britain’s financial woes, and I mean mostly those of the ordinary people upon whom the modern economy depends, his attention would have been on interest rates.
I have written at length in this blog, and have set up a page on my critique of interest rates and what we should all be doing about it. What he should have done about it is to give the increasingly more aware regulators [the FSA, the OFT] the power to control interest rates and demand a reduction in the rates charged by banks and credit card companies through those powers.
That would actually have cost the country rather less for a far more effective contribution to the difficult process of stabilisation and the rebuilding that will have to follow.
Being Gordon, however, he will be looking round for another grand gesture, another risk-taking bank to save, and be committing another £100bn to the bottomless pit that is The City.

Joseph Harris
Debt Control Man