Posts Tagged ‘negotiation’

New Lending Code 12 – Financial difficulties section.

November 24, 2009

 It has undoubtedly strengthened the content of the new Lending Code to put the previous guidelines into the body of code. In this section it has not only been incorporated, but the order and groupings have been made more logical.There have been some changes that limit the extent to which debtors were supposed to comply, and this is wise. I don’t think it removes the duty on a debtor to behave responsibly, but since few debtors will see or read the code before falling into arrears it makes no sense to appear to place an obligation on them in the code itself.There are nearly 50 paragraphs altogether in this part and, if they are enforced well, make a good basis for negotiation.Most interesting of all, perhaps, is the inclusion of a paragraph on treatment of micro-enterprise borrowers. I shall discuss this next time, and then cover the parts of the financial difficulties’ section, before describing the rest of the code.Joseph Harris – Debt Control Man

Author: Control Your Debt Crisis on Your Own Terms


A Word For Debt Collectors

October 5, 2008

Preparing part of the step by step book I am hoping to have ready for you very soon I had to think about debt collectors.

And, in a way, I do have some sympathy for them. And moreso perhaps for their staffs.

There are, after all, one or two areas where their activities are useful. These are where the people who they are chasing really are out to cheat and maybe involved in scams of one sort or another. And they seem to have an expertise in hunting down people who move around.

That is a word for them in support. There is another word for them when they are making the lives of people trying to do their best a misery.

Putting aside the scurrilous game of chasing debts that are out of time or already paid, they cannot get involved unless the creditors call them in.

Now in my experience creditors call in debt collectors inappropriately. They call them in when there is a negotiation on the table. I have seen them called in when the creditor tells me I have eight weeks to respond to a letter.

I have seen them called in when a negotiation has moved on the the FOS. Once there, until the FOS reaches a decision the matter is in arbitration.

I have seen them called in erratically during early exchanges of a negotiation. And I have seen them called in even after an agreement has been reached.

And I have seen recovery teams within a creditor formed into an inhouse debt collection agency, with all the pretence of being a separate company.

So, while there are many things to be said about the manner of debt collectors, they really should be in the mix only after all negotiation, including the FOS arbitration, has been completed AND if here remains real reason to believe that default is deliberate; and that means NOT by assumption, by rote or by procedure.

And there are many things to be said about the manner of debt collectors. Here the regulators are very weak in enforcing fairness. But that deserves not just another post in this blog, but a whole book!

Joseph Harris
Debt Control Man

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 – 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

Filling in Income and Expenditure Statements

August 15, 2008

When you hit a problem with repaying debts it is almost certain that, soon after contacting your creditor, you will be asked to fill in an income and expenditure statement. After all you owe and the creditor wants the money back somehow. And the creditor wants to get the best deal it can.

But so do you.

Which is the basis of all negotiation.

In theory there is a common financial statement agreed within the financial and financial advice community. But all those I have seen differ from one another. On the other hand you, the debtor, are expected to offer the same information to all your creditors; hence a common income and expenditure statement makes sense.

My experience is also that the prepared statements are strong on declaring income and weak on room for expenditures.

You do need time to think through how the change you are experiencing is going to affect you and how you live in the future—a new future for you.

This is why I recommend two initial letters to creditors. The first revealing the fact of a debt problem. This allows time to consider what your debt is and means to your life, what your needed expenditures are and what the future expectations are, and similarly what your income is and will be, and how much flexibility uncertainty about the economy needs to be built into the agreement which this is only the start of negotiating.

That second letter can then explain your situation in more detail and offer a proposal to deal with your debt. It will be soundly based and you will be confident that you can maintain whatever debt repayment schedule you are offering the creditor.

Different creditors have different attitudes to handling debt—some are obviously good at customer relations, others seem to lack any sense of how to negotiate the new debt situation. So on the phone you may well be pressured to a deal quite at variance with what you have worked out. Never agree anything on the phone. Ask them to put their proposal in writing.

And always take time to think through what your debt position is, what any proposal means to you, and how much you need to spend weekly to maintain a reasonable life.

Joseph Harris
Debt Control Man