DEBT AND THE IMPORTANCE OF MINDSET, #6

Previously, on this blog …

I urge you not to conduct a negotiation on the phone. Simply take in what is said and offer to think it over and reply – but in writing.

Always respond both to written correspondence and to phone messages and do so Promptly, Politely, Professionally – and Persistently (i.e. sticking to your guns). In the resources section at the end of my book (see below for link) there are some examples of letter formats you could customise to your situation.

NOW READ ON …

Harassment

It is illegal for creditors to harass debtors. The following official definitions of harassment are taken from the website of the UK’s Office of Fair Trading.

 Physical/psychological harassment: putting pressure on debtors or third parties is considered to be oppressive. Examples of unfair practices are as follows:

  • contacting debtors at unreasonable times and at unreasonable intervals
  • pressurising debtors to sell property, to raise funds by further borrowing or to extend their borrowing
  • using more than one debt collection business at the same time resulting in repetitive and/or frequent contact by different parties
  • not ensuring that an adequate history of the debt is passed on as appropriate resulting in repetitive and/or frequent contact by different parties
  • not informing the debtor when their case has been passed on to a different debt collector
  • pressurising debtors to pay in full, in unreasonably large instalments, or to increase payments when they are unable to do so
  • making threatening statements or gestures or taking actions which suggest harm to debtors
  • ignoring and/or disregarding claims that debts have been settled or are disputed and continuing to make unjustified demands for payment
  • disclosing or threatening to disclose debt details to third parties unless legally entitled to do so
  • acting in a way likely to be publicly embarrassing to the debtor either deliberately or through lack of care, for example, by not putting correspondence in a sealed envelope and putting it through a letterbox, thereby running the risk that it could be read by third parties.

 Source: OFT (Office of Fair Trading, UK) website, “Debt collection guidance: final guidance on unfair business practices.”

 

(However, I know from my own experience that many of the practices referred to above are used by many creditors.)

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To be concluded in my next post …

The above is an extract from Chapter 2 (“Mind Over Matter”) of “Back to the Black: how to become debt-free and stay that way”. [LINK]

 

BAILIFFS: LAW CHANGES PROPOSED

According to the BBC news this morning, the UK’s Justice Minister Jonathan Djanogly says clarity is needed about what bailiffs are legally allowed to do.

New proposals are in the pipeline, including a ban on the use of force. There’ll be detail on what items bailiffs cannot take from homes.

This is welcome news. However, as I say in my book “Back to the Black”, there is already a code of conduct about debt collection; a code that is often broken by debt collecting companies. Let’s hope that the new code of conduct for bailiffs will be better observed, or this will be a waste of time and money.

Here’s what I say in my book about the existing code:

Harassment

It is illegal for creditors to harass debtors. The following definitions of harassment are taken from the website of the UK’s Office of Fair Trading (OFT). Sadly, I know from experience that many of these practices are used by many creditors.

 Physical/psychological harassment: putting pressure on debtors or third parties is considered to be oppressive. Examples of unfair practices are as follows: 

  • contacting debtors at unreasonable times and at unreasonable intervals
  • pressurising debtors to sell property, to raise funds by further borrowing or to extend their borrowing
  • using more than one debt collection business at the same time resulting in repetitive and/or frequent contact by different parties
  • not ensuring that an adequate history of the debt is passed on as appropriate resulting in repetitive and/or frequent contact by different parties
  • not informing the debtor when their case has been passed on to a different debt collector
  • pressurising debtors to pay in full, in unreasonably large instalments, or to increase payments when they are unable to do so
  • making threatening statements or gestures or taking actions which suggest harm to debtors
  • ignoring and/or disregarding claims that debts have been settled or are disputed and continuing to make unjustified demands for payment
  • disclosing or threatening to disclose debt details to third parties unless legally entitled to do so
  • acting in a way likely to be publicly embarrassing to the debtor either deliberately or through lack of care, for example, by not putting correspondence in a sealed envelope and putting it through a letterbox, thereby running the risk that it could be read by third parties.

 Source: OFT website, “Debt collection guidance: final guidance on unfair business practices.”

 

WANT TO KNOW MORE? 

For the BBC News item on the proposed law changes: click here

For a link to my book “Back to the Black,” containing details of the existing UK code of practice governing debt collection: click here

 

 

 

 

 

 

 

 

 

DEBTORS IN DANGER FROM DMP FIRMS, SAYS OFT

A BBC investigation has found that some debt management companies have been holding on to clients’ cash rather than paying it to creditors, The practice has left many debtors thousands of pounds worse off and facing financial ruin.

If a firm goes out of business and client funds have not been kept in a protected account, some or all of the money is likely to be lost and the debtor becomes liable for the shortfall.

The Office of Fair Trading (OFT) has condemned the practice as “totally unacceptable” and has promised a crackdown.

Repossession order

One couple mentioned in the report had to put their house on the market and could face repossession, after responding to a cold-call from a debt management company and taking out a Debt Management Plan or DMP.

That company, Global Debt Solutions, based in Bolton, offered to arrange a repayment plan for £40,000 of credit card debt and loans. However, after having made payments to Global Debt Solutions for several months, the couple found the money was not being handed over to creditors.

Those creditors have successfully taken the couple to court, so they now have County Court Judgements against them. They’ll also have to go to court on their mortgage, so their debt problems have got far worse instead of being solved. It could soon be at a point where they’ll lose their home.

A widespread practice?

Global Debt Solutions, later known as 3 Step Finance, has been shut down by the Insolvency Service, which found that it did not monitor payments properly.

However, it has emerged that other companies have adopted the same tactic of accepting money from people in debt and not passing it on to creditors.

OFT action

A debtor taking out a DMP with a company using this tactic runs a real risk that the company might fail while the funds are in its account.

David Fisher from the Office of Fair Trading is promising action. “We regard the practice as unacceptable,” he warns. “Where we have evidence we will remove a company’s consumer credit licence, which means it cannot operate.

“We will also next month (i.e. June 2011) be issuing stronger rules for the entire sector, which explain what we expect of them.”

That is welcome news but sadly it is already too late for those debtors who are already dealing, or will soon be dealing, with a repossession order for their home.

Conclusion: take impartial advice

I conclude by saying what I always say: before making any important financial decision – including taking out a Debt Management Plan with a commercial company – take advantage of the free and impartial debt advice which is available these days. I stress the word “impartial”, because some advice is advertised as free but is not impartial, i.e. the organisation has a commercial motive for advising a certain course of action.

The advice you’ll get from the three major national charities working in this field – Citizens Advice, National Debtline and Consumer Credit Counselling Services – is indeed both free and impartial.

There are also many similar (i.e. “not-for-profit”) organisations that operate at a local level but check out carefully that they indeed “not-for-profit” before taking their advice. You can also refer to the Resources section of my book “Back to the Black: how to become debt-free and stay that way”; there you’ll find contact details for about 50 advice organisations.

 

WANT TO KNOW MORE?

The full BBC story is at: http://www.bbc.co.uk/news/business-13568152#story_continues_2

My book “Back to the Black: how to become debt-free and stay that way”, is available on the following retail sites:

Kindle Store: http://www.amazon.com/dp/B004PLMAQM

Smashwords store for other e-formats, including .pdf: http://www.smashwords.com/books/view/22886

 

DEBT COLLECTION: OFFICIAL GUIDELINES IGNORED

An interesting article by Jenny Little (“Moneywise”, Nov 2010) reminds me of a problem that can cause great misery for personal debtors. The Office of Fair Trading (OFT) has a ruling that prohibits harassment of debtors. Moreover the OFT clarifies what constitutes harassment by publishing guidelines; however, many lenders ignore them.

According to the article, in some cases lenders have even claimed to be unaware of the guidelines, though it’s the OFT that issues those same lenders with their consumer credit licences.

To see the article, go to: http://www.moneywise.co.uk/cards-loans/credit-cards/article/2010/10/25/credit-card-demons-revealed

Little says that “growing numbers of people struggling with credit card payments complain of creditors bullying them with menacing letters, doorstep visits and threats of court action or repossession.

“In public, credit card and debt collection firms pay lip service to official guidelines protecting consumers, but staff are given financial incentives to recover debt, provoking the sort of harassment that makes millions of debtors’ lives a misery.”

Official guidelines

OFT guidelines require lenders to negotiate with third parties, e.g. debt management companies, and say that debt collectors must give advance notice of visits. Debtors can also request not to be contacted at work.

Debt collection firms pretending to be bailiffs, or falsely threatening criminal proceedings, also risk being fined or having their credit licence revoked.

The guidelines in full:

Physical/psychological harassment: putting pressure on debtors or third parties is considered to be oppressive. Examples of unfair practices are as follows:

• contacting debtors at unreasonable times and at unreasonable intervals
• pressurising debtors to sell property, to raise funds by further borrowing or to extend their borrowing
• using more than one debt collection business at the same time resulting in repetitive and/or frequent contact by different parties
• not ensuring that an adequate history of the debt is passed on as appropriate resulting in repetitive and/or frequent contact by different parties
• not informing the debtor when their case has been passed on to a different debt collector
• pressurising debtors to pay in full, in unreasonably large instalments, or to increase payments when they are unable to do so
• making threatening statements or gestures or taking actions which suggest harm to debtors
• ignoring and/or disregarding claims that debts have been settled or are disputed and continuing to make unjustified demands for payment
• disclosing or threatening to disclose debt details to third parties unless legally entitled to do so
• acting in a way likely to be publicly embarrassing to the debtor either deliberately or through lack of care, for example, by not putting correspondence in a sealed envelope and putting it through a letterbox, thereby running the risk that it could be read by third parties.

Source: Office of Fair Trading, “Debt collection guidance: final guidance on unfair business practices.”

Lenders ignoring guidelines

But it seems the guidelines carry little weight with the lenders, according to Little. Heather Keates, chief executive of Community Money Advice, says: “Card firms are jittery and increasing interest rates. Creditors now go in hard from the outset.”

Citizens Advice (CAB) gives the example of one client’s recent experience. A 42-year-old single mother, she was struggling to keep up with a £7,000 credit card debt on her £589 take-home pay. She made the minimum payments but, when she defaulted, her bank began to phone her up to six times a day, even at work.
When the CAB intervened, the bank’s representative claimed to know nothing of the OFT guidelines and blamed the repeated calls on an automated system.

Automated dialling systems

Little has found that the use of automated dialling systems is commonplace and can result in customers receiving multiple calls every day. Some people resort to buying an extra pay-as-you-go mobile just to avoid harassment.

Alex MacDermott of Citizens Advice said: “It’s always better to talk to the card provider; otherwise your number will stay in the automated dialler, which will keep ringing. But the tone of some calls can be very threatening.”

Mention of telephone harassment and automated dialling reminds me of my own experience when I was in debt. That’s why I say: “try to avoid talking to creditors by phone. Don’t ignore them; respond to the messages … but in writing. Let all your incoming calls go to voicemail, if you are single-minded enough to do so.”

While some providers employ in-house debt collection, others ‘sell on’ debt to a third party. The Consumer Credit Act requires that they first issue a default notice to customers who have skipped payments to inform them which company has taken on the debt but in my experience this rarely happens.

The OFT has criticised debt collection agencies for “making frequent phone calls, threatening court action and not describing the process correctly”, and has also concluded that many default charges are unlawful. It says that £12 is the maximum that anyone should be penalised for missing a payment.
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What to do

As I say again and again in my book: get help, especially if you are being harassed. Apart from the three major national debt advice charities Citizens Advice (CAB), Consumer Credit Counselling Service (CCCS) and National Debtline, there are also Community Money Advice and Debtors Anonymous, as well as Consumer Action Group, which is an online support network. All of these are easily located online. There are also local advice centres, too numerous to mention.

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“Back to the Black: how to become debt-free and stay that way” is now available to sample or buy, as a multi-format e-book, at: http://www.smashwords.com/books/view/22886