Archive for the ‘credit’ Category

What is microfinance about?

December 6, 2009

Tim Harford writes in the Financial Times Weekend Magazine about Microfinance. He is the author of Dear Undercover Economist.

This is a neat little survey of the field, but left me distinctly disturbed. Now I understood the origins of Microfinance to be affordable small loans to help the underprivileged in poor countries to start the process of lifting themselves, and so contributing to their nation.

Affordable to me describes the whole package. Small sums that are enough to purchase stock for the initial trading of a small business, or loans to households to supply needs. The repayments would be small and might not start for a while. And the interest rate would be very low.

In the UK this is not a new idea and was operated by the Midlands Tallymen, who loaned the money to buy clothing and domestic cottons and linens from sometime in the C19. They would lend about £10 at a time and seek repayments of about ten shillings (half a pound) a week for 21 weeks.

That is dear enough at 5% on a twenty week loan, an APR of about 12.5%, certainly not cheap for the time in question. But it dwarfs and pales beside the figure quoted by Harford from a study of a South African project with charges equivalent to 200%.

No wonder he says that the value of the system is questionable.

In Kenya a savings accunt paid no interest and charged ‘hefty’ fees for withdrawal. That just seems an activity run by sharks.

That is a killer charge; it makes no sense to me if its purpose is to help the less fortunate. But in my research over the banks across the world, and the profit seekers who treat no one with sympathy it is all too familar.

In analysing the new Lending Code I find that Microfinance has become a word for the banking community. But they define a micro-enterprise as a business employing fewer than 10 people and with a turnover or asset total approaching £2million.

That certainly seems small, but Micro?

Actually it is a European Union definition! This suggests some confusion of understanding about the idea, though the effect that the smallest businesses should be treated with more care and responsibility than the bigger ones is a positive approach to the learning curves faced by those developing them.

I wouldn’t want to discourage any of this, but I am sorry to see so much opportunism creeping in.

Perhaps it needs a while longer to settle down into a sound international system.

Joseph Harris – Debt Control Man

 http://www.controlyourdebtcrisis.co.uk

Control Your Debt Crisis on Your Own Terms

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New Lending Code 13 – Micro Finance

November 25, 2009

It is perhaps ungrateful of me to start with a gripe. But I do not like the idea of major lenders being involved with micro-finance. Somehow it seems to deny the very purpose of the idea.  But  perhaps I am more minded of the origins of micro-finance, in developing countries, to aid those needing small sums to start a truly small business.

However the code has the BBA Statement of Principles as Annex B. It is a pity, that the British BBA, quotes figures in Euros and not good British pounds in this.

First the principles make clear that the bank has an obligation to ensure clarity for the borrower, and that it should advise the customer to seek advice on the bank’s proposal. Certainly a desirable approach.

The obvious exchanges of information through the finance period are set out, and this makes for clarity. There may also be independent reviews of the micro-business – though without clarity about how the reviewer will be chosen.

While it can be painful where it happens the principles wisely state that any harsh realities need to be faced and acted upon. this can, of course, include closing the business. Facing it when the signs are clear will be better for the micro-finance borrower, I agree.

As a sort of mixed ‘we are on your side’ message there is also the statement promising no legal action if… essentially closing the business when advised. Again it looks quite harsh, but it does make better sense to ‘live to fight another day’.

The banks clearly reserve the right to confirm that appointing a receiver would be the right action, and I can’t see them arguing against it; I’m not sure what that provision is for, since it would be in the contracts anyway, I would have thought.

The complaints procedures are similar to the individual borrower’s and I will deal with that in a later blog here.

But there is particularly a requirement on the lender to enable moving an account to another bank.

Joseph Harris – Debt Control Man

Author: Control Your Debt Crisis on Your Own Terms

http:www.controlyourdebtcrisis.co.uk

New Lending Code 4:mental health, third parties

November 11, 2009
175. Where it is appropriate and with a customer’s consent, subscribers should work with advice agencies and health and social care professionals in a joined-up way to exchange information and ensure an effective dialogue. [Reproduced with the kind permission of the British Banking Association -see link below]

Many creditors, and some debt collectors, may well prefer to work with representative agencies. Always much easier to work to a routine and have someone else work out the details, and do all the questioning and examining.

Especially if that intermediary, that third party, because of its own pressures, needs to pigeonhole and classify elements of the debtors finances and problems.

Often this is presented as a requirement. To my mind this is disgraceful, and a breach of the terms under the defunct Banking Code, the new Lending Code and under the Consumer Protection Regulations.

Of course this third party representation can work sometimes for the debtor. But many cases have unique elements that are quite difficult to satisfactorily understand, let alone resolve.

For that reason among many others, such as the individual’s rights in a democracy, it is important that the right to represent oneself is again emphasised.

By implication the institutions are told that they are dealing with an individual, and that individual will decide whether to use an intermediary or not.

Notice also the reference to a ‘joined up way’ and ‘effective dialogue’. One hopes this is more effective that Tony Blair’s joined up government. But putting that humour aside, it does mean that the obligation is on the creditor to ensure proper collection of information and making inclusive judgement after all the to and fro discussion.

Creditors are also, by implication, required to inform themselves on mental health issues. This is why a specialist department for the vulnerable cases is not just a good idea, but sound practice. The creation of such departments should be treated both as a matter of urgency, and enforced by the OFT.

Joseph Harris, Debt Control Man

Author: Control Your Debt Crisis on Your Own Terms

http://www.controlyourdebtcrisis.co.uk

The new Lending Code is here http://www.bba.org.uk/bba/jsp/polopoly.jsp?d=1758

The MALG 2007 submission to the review of the code is here http://www.moneyadvicetrust.org/download.asp

And the Treasury Select committee view is here http://www.publications.parliament.uk/pa/cm200405/cmselect/cmtreasy/274/27406.htm#a18

New Lending Code 3: mental health, responses

November 10, 2009
174. The appropriate response will differ in each case and could involve a range of approaches, including:
• working positively with an advice agency
• promptly carrying out agreed actions
• being flexible in responding to offers or schedules of repayment
• sensitively managing communications with the customer (for example preventing unnecessary and unwelcome mailings). [Reproduced with the kind permission of the British Banking Association -see link below]

 

Paragraph 174 has some useful pointers to the creditor on how to handle its dealings with vulnerable debtors.

These terms: ‘positively … promptly … flexible … sensitively’ give a clear indication of the manner in which companies should gear these particular contacts. This is in sharp contrast to the normally aggressive and harassing manner of most debt collection departments and debt collection agencies.

Sensitive in the context of this matter is defined as finely aware of the attitudes and feelings of others [The Penguin English Dictionary].

While I suggest the companies rethink their whole collection procedures in light of this advice, it will be a big advance if they do so at least for the vulnerable. Since the Consumer Protection Regulations already feature the idea of differences of approach to vulnerable consumers, there is now no excuse for creditors not making this policy for their internal procedures.

Those who prefer to handle their own affairs should note that the use of advice agencies remains an option, not a requirement. While the specialist charities do know their own fields, and offer more awareness, you should be careful about the awareness of any intermediary over your own situation.

Never allow yourself to be harassed over this by agents. Remember it is not your job to make the companies’ lives easier, but to get fair treatment – and to yourself behave fairly!

If companies fail to show this level of care in a case of mental health disorder they should be reported to the monitoring agency – The Lending Standards Board. If you feel the matter is serious I suggest you also report it to the Licences Section of the Office of Fair Trading.

Joseph Harris, Debt Control Man
Author: Control Your Debt Crisis on Your Own Terms
http://www.controlyourdebtcrisis.co.uk

The new Lending Code is here http://www.bba.org.uk/bba/jsp/polopoly.jsp?d=1758

The MALG 2007 submission to the review of the code is here http://www.moneyadvicetrust.org/download.asp

And the Treasury Select committee view is here http://www.publications.parliament.uk/pa/cm200405/cmselect/cmtreasy/274/27406.htm#a18

How Will the New Lending Code take effect?

November 9, 2009

One can probably trace the genesis of the new Lending Code, from FSA bombshell about taking over the Banking Code, to realising parts belonged under the OFT, to realising that means rewrites, to thinking the best people to write it would be the current possessors, to conveying that information and then to actually confirming.

Only after that could the British Banking Association deal with the severe truncation of its code and the Lending Standards Board, as the prior Banking Code Standards Board is now known, start reorganising.

It was a severe disappoinment to me that he result of this meant the code was not ready for examination and comment long before it came into effect. Indeed it was not in sight until the moment of becoming The Code.

So it is no surprise to any of us if understanding how the changes in it will be worked is not yet extant.

In my discussions with the FSA, the BBA and the OFT – I have not attempted to ask the FOS yet – I have asked the following questions and made the following points.

1. How will the mental health section, pars 173-183, which is entirely new and very important for affected debtors, apply to existing cases

2. It seems likely that a court would interpret its application to an existing collection at any point of change; but what would be the relevant criteria for ‘change’?

3. Where a complaint has reached final response and is then either on its way to or with the FOS how does the FOS utilise pars 173 to 183. There are many ways to do this, including returning the complaint to the creditor or agent with instructions to reconsider it in light of the new pars.

4. In par 183 reference is made to the MALG advice of 2007 as further guidelines, virtually bringing the whole of them in to the code. These are about all vulnerable debtors ]probably including borrowers whether in financial difficulties or not. As this ties in firmly to the CPRs on vulnerable customers, adding a definition in part, to what extent are all vulnerable debtors assisted by the new paragraphs.

5. As the OFT is the enforcing agency, the FOS, and all debtors and their advisors, will need to know your position on them. Will you advise when the necessary advice is issued, and give details of that advice?

I would point out that the creditors, as large and powerful institutions and with various industry bodies, lobby intensively both on legislation, rules and codes, as well as interpretations. While there are seriously over-stretched charities who represent debtors they either do not specialise or are not big enough to offer a strong countering voice in this area.

6. The voice of the actual debtor is simply not heard and his lobby is weak. Even the ombudsman, the FOS, is actually funded by the industry, and its influence is very clear in process.

7. Through the credit licences the OFT has considerable power to ensure better observance of rules and a more balanced judgement by the FOS; yet from the debtor’s point of view that power is used very lightly.

8. The OFT is the body upon which the debtor must rely to make sure the rules there are effective. This is a matter I will return to.

Joseph Harris, Debt Control Man
Author: Control Your Debt Crisis on Your Own Terms
http://www.controlyourdebtcrisis.co.uk

 

New Lending Code 1: Lending, Debt and the Vulnerable

November 5, 2009

At the end of section 9, Financial Difficulties, there are eleven paragraphs headed ‘Debt and mental health’.

Inclusion of this is a huge departure from the previous section 14 of the Banking Code [most of which is now wrapped up in the FSA BCOBS]. It is about time this recognition of the vulnerable started, since the Treasury Select Committee was urging it in 2005 and the Money Advice Trust [a charity supported by the industry] in 2007, the two previous reviews of the code.

As the Lending Code includes guidance on treatment of micro enterprises this applies to these as well as personal customers. Fortunately the right of customers to represent themselves is not challenged here. As with debtors we have indeed moved a long way in understanding since the nineteenth century.

While this in no way puts the MAT or Treasury advice as part of the code, there is an instruction to British Banking Association members to take note of the guidelines published by MAT on behalf of the Money Advice Liaison Group, which is a forum with representatives from all parts of the finance industry, charities and government sections concerned.

While the more negative admission that the Lending Standards Board [new name for the Banking Code Standards Board] will neither monitor nor enforce them, the expectation of observance is clear and of value.

This is excellent news for vulnerable debtors, the mental health charities, the advisors and plain common sense.

Still a-ways to go for the full laying out of how to treat all vulnerable customers, but a welcome and cheering start. Such understanding bodes well for all debtors and all borrowers; perhaps paradoxically for all creditors as well.

Joseph Harris, Debt Control Man
Author: Control Your Debt Crisis on Your Own Terms
http://www.controlyourdebtcrisis.co.uk

Lending Code secrecy ‘is a disgrace’

October 12, 2009

I have just released this press release; as you see it is a matter of some seriousness

The new Lending Code, which replaces the credit and financial difficulties sections of the defunct Banking Code, is due to come into effect on November 1. Some nineteen short days away.

There is to be no public sight of these changes, nor any consultation process before these changes come into effect.

Specialist author Joseph Harris – Debt Control Man – has been trying to get sight of these changes since June. He has been told they will not be released until they are in effect on November 1 by Paul Ross, the man who is writing the new document for the British Bankers Association, in an email.

“This is a clear case of dictatorial behaviour,” declares Mr Harris. “It is a disgrace that no one concerned with the field, nor any debtor – whether defaulting or not – has any idea how the changes will affect them.

“Vince Cable was wrong when he said Gordon Brown had changed from Stalin to Mr Bean. On the basis of this secrecy and undemocratic behaviour he remains Stalin.”

Phone calls and emails to the FSA and the OFT result in classic Civil Service dropping the query into the new virtual filing bin.

“Even though there are many rules to help debtors negotiate the treacherous waters of finding the best way for their needs, too many creditors and debt collectors – including the biggest companies – do their best to sidestep them.

“Lack of a clear knowledge of what is happening among debtors and their advisors leaves these worst companies a window of opportunity to harass and bully particularly the poorest and most vulnerable debtors,” adds Mr Harris, author of Control Your Debt Crisis on Your Own Terms http://www.controlyourdebtcrisis.co.uk/book-cydc/cydc_Book_intro.shtml .,

“It is also a tragedy that the opportunity to include the requests of the Treasury Select Committee in 2005 and of the Money Advice Liaison Group has been lost.”

While most of the Banking Code is being operated as statutory Code of Practice directly by the FSA, the credit and financial difficulties sections move to the The Office of Fair Trading to sit beside the OFT’s duties controlling issue of Consumer and Business Credit Licences.

Joseph Harris, Debt Control Man

Banking Code Changes Update

July 27, 2009

In trying to sort the changes out, particularly in how they affect defaulting debtors, I have been led a merry dance.

I think I have emailed or phoned or both, almost every player in this game of musical chairs.

Finally I remembered that the last time I needed to make sense of this area I got sense from the Banking Code Standards Board. So my thanks to them once again.

I have since spoken to others to try to get detail of how exactly the changes will take effect from November 1. That is pretty close for all those who will be affected, especially the helping organsiations like the CABs and Law Centres.

It seems that while most of the Banking Code disappears into the winding corridors of the Financial Services Authority, the parts dealing with lending move to the Office of Fair Trading – except they don’t.

The wording of the new Lending Code [possibly that is the title] is to be managed by the British Banking Association, which has always done it, and it will be monitored by the Standards Board, which has always done that!

And the OFT will, er, enforce fair treatment, and it has always done that!

So welcome to the new-old, different and unchanged system.

Well the changes have to be re-written, but it seems there will be little time for picking up any errors in wording or possible interpretation. And I understand nothing new will go in before 2011.

Not the advice of the Treasury Committee of 2005, nor that from the Money Advice Trust on behalf of MALG in 2007 – nor anyting else.

Well nothing of help to debtors, anyway.

Let you know what more comes to light.

Joseph Harris
Debt Control Man
http://www.controlyourdebtcrisis.co.uk

Does the FOS Work for Us?

April 14, 2009

I have earlier praised the Financial Ombudsman Service for its very existence.

My thinking is that it will act as a check on creditor failures to observe the rules, and that findings would take into account these rules in dealing as ‘piggy in the middle’.

Well I’ve been in ‘the waiting room’ of the FOS now for over a year and I am far less certain of this. Even more important I am very concerned at the extent to which the debtor has still to fight to get a proper hearing.

I cannot give you full details of the cases involved, since to mention the companies could well bring those savage legal departments sniffing like the monsters in any one of a thousand science fiction films! I can say that the process of the FOS is wearing for the debtor.

That process is three-stage. More if you take the delays into account.

The queue does of course relate to the changes in the volume of work, and the time it takes to train up; no basic criticism over that since it has to take the banks’ unfairness on its shoulders. and we know there is plenty of that.

First stage of actual process is with the adjudicator. Here one is dealing with a new process, so in essence it is necessary to repeat the arguments you have given to make sure they are fully understood, together with one’s perceived faults in the bank or credit card company response.

If you don’t like that – and from my experience don’t expect to – you can ask for the adjudication to be reviewed. If you don’t like that you can request your case go to an actual Ombudsman. Each time you need to re-present your case to some extent.

Now I am sure many people are happy with their experiences at the FOS so I am not going to dismiss its work out of hand, but sometime this year I will be dealing with an actual Ombudsman and that will certainly tell me whether I still have praise for the process.

Any way, for the umpteenth time now I am having to prepare my response to what I consider an appalling adjudication which reads to me almost like a letter from one of the companies.

I plan to write more on the service, and on the whole process, here, in my book, and on my website.

Joseph Harris
Debt Control Man

Mortgage Relief? For Gordon…

December 3, 2008

 

For a moment I think we all believed the Government had actually wanted to help mortgagees. We should all have known better.
And talking of Better, it seems outside the financial casino no one gets real help.

Anyway, I know mortgages are not my speciality, but the fading, like the fairy dust it was, of the substantive part of the promise was remarkable.

First it seemed homeowners were going to be really, really helped with a six month – something or other with the banks holding fire on giving defaulters a hard time. Though I was never clear if it was a moratorium, a halt to rude phone calls, or just a six month delay before the repossession papers get served – any way eight banks said they’d do it.

That’s our curate’s egg of owned, part owned, and almost owned banks. Nationalised, as any self respecting linguist might say!

Then it seemed that homeowners at risk of having problems on their payments were going to be really helped by some long arrangement to give them breathings space. And that turns out ot be a mouse’s squeak of a ‘part’-deferral of interest payments for up to two years.

Which might be fine for those with interest only payment policies, but may be a tiny sum for many others.

And then it seems only one in ten would be helped at all by the final proposals…

Smoke and mirrors anyone?

Still it has all successfully hidden the laws for totally random stop and prove identity to be given to the police. And that one about lie detector tests for benefit claimants.

Er… will that be some miracle test that is reliable that we have never heard about, and will the identity proof turn out to be only these dodgy identity cards that Gordon loves so much?

Ah well, you don’t want to know about that anyway. But make sure you read the small print if you feel you would like some of this help with your mortgage.

Unless you want billions, in which case Gordon will mortgage you and I and several generations of our dependents, I suspect this tuppenny-halfp’ny aid on mortgages will come with chains…

Good luck.

Joseph Harris

Debt Control Man