15th August 2008

This is a summary of a talk given to Sheffield Green Party by Alexa Walker of the Citizens Advice Bureau in July.

The National Picture

Individual insolvencies have been pretty stable over the last 18 months, around 100,000 per year up from 25,000 per year in 1998. People now going bankrupt for much higher levels of debt, still more people going bankrupt than opting for Individual Voluntary Agreements (IVAs).
Debt Enquiries to Citizens Advice are up 20% on last year; 6 months ago debt enquiries overtook welfare benefits enquiries as the main area of advice for the first time since the inception of the service.
Fee charging debt management companies are thriving in the current climate, with many people approaching them under the impression they will receive advice and impartial recommendations, but in fact they are being sold products.

Repossession figures currently around 30,000 per year, much lower than the peak in 1991, but more than double the figures 2 years ago. Citizen's Advice dealt with 58,000 mortgage possession cases in 2007 and this figure is set to rise by around 50% in 2008.

400,000 households are currently in arrears with rent or mortgage payments, and 4 million households used credit cards or loans to pay rent or mortgage payments over the last 12 months.

Sub prime lenders currently account for around ¾ of all cases in the courts, although they only account for around 7% of the total mortgage market. They take possession action more quickly than high street lenders and are less open to informal arrangements for repayment of arrears.

When cases go to court, judges cannot usually suspend possession if the borrower cannot afford to make the contractual monthly payments. The Civil Justice Council has recently consulted on a mortgage arrears pre action protocol which will make it more difficult for lenders to get possession orders if they have not tried to resolve the problem out of court first. The rent arrears protocol resulted in a 15% decrease in claims for possession in the first year, after years of increasing numbers.

Citizens Advice and Shelter are lobbying the government for changes to the Income Support for Mortgage Interest (ISMI) regulations, which currently provide that most people who need to go onto income support or income based Job Seekers Allownance (JSA) have to wait 9 months before the Department of Work and Pensions (DWP) will contribute to their mortgage interest payments. Most lenders will have taken possession action in the courts by that time.

There are currently problems with sale and leaseback companies contacting borrowers in arrears and offering to buy their property at a knockdown price and then renting it back to the occupiers. Borrowers are often misled as to the security of their tenancy, and their rights to buy the property back in the future.

The Office of Fair Trading court case against bank charges has been heard in the High Court, and the judgment was in favour of the OFT, however the banks have been given leave to appeal to the Court of Appeal
It is likely that the case will end up in the House of Lords, this could take 2 - 3 years to resolve. All bank charges complaints have been put on hold, however the OFT and FSA have said that they expect banks to pay out in cases of 'hardship'.

The Local Picture

Sheffield Brightside was recently named as the worst area for non status lending in Britain. Sheffield was identified by the Department of Trade and Industry (DTI) as an area of financial exclusion, with many residents resorting to doorstep lenders, subprime mortgage companies and even illegal moneylenders, or loansharks. Non status lenders lend money to people with unstable personal circumstances or with bad credit records, at high rates of interest and sometimes secured on personal possession such as a car.

Financial Inclusion South Yorkshire is an organisation which incorporates the Credit Union and also Moneyline. They will lend to people with bad credit ratings at lower rates of interest than the doorstep lenders in operation across the city.

The Debt Support Unit (DSU) is currently working with Sheffield City Council on their council tax recovery policy. Wolverhampton Council recently attracted criticism in an Local Government Ombudsman (LGO) report for it's use of bankruptcy as a recovery method - Sheffield City Council also adopts this approach in many cases where people in arrears are homeowners

Recent studies show that people with mental health problems are 3 times as likely to get into debt. For this reason, the DSU is developing partnership working with the Sheffield Care Trust mental health service teams, and the Mental Health Citizens Advice Bureau (CAB) to ensure that individuals with mental health problems are receiving the advice and support they need to manage their affairs.

The DTI, now Department for Business, Enterprise & Regulatory Reform (BERR), fund the debt support unit to provide 10 extra debt advisers in neighbourhood advice centres across Sheffield. Most centres now have at least one debt specialist. The work of the DSU and FISY have resulted in Sheffield City Council achieving Beacon Status for financial inclusion.
Financial Inclusion and Capability have been buzzwords recently, and funding opportunities have arisen from both the public sector and the finance industry. We need to ensure that funding is not transferred away from debt advice to pay for these new services.

There is a worrying trend across the country for transferring legal services contracts from Citizen's Advice to private firms. In Hull, the City Council chose to transfer the CAB funding to Howells along with the LSC. Hull CAB, the only open door advice centre in the city, is due to close at the end of the month. The 60 volunteers have been offered no alternative. Across the country, Citizen's Advice and Shelter have been losing contracts to profit making suppliers who are prepared to lower the quality of advice in order to meet high targets at a low cost. It is crucial for the future of advice in Sheffield that the council support it's advice network and resist the temptation to save money by funding cheaper, poor quality legal services.

Discussion and Actions

Key issues that need to be addressed are

1. Council Tax recovery.
   (see http://www.sheffield.gov.uk/council-tax/if-you-dont-pay-on-time/recovery-policy for the current Council policy)
2. Liberata- poor processing causing backlogs and delays in payment of Housing Benefit.
3. More long term funding for Moneyline and Debt Support Unit.
4. More funding for financial education rather than pushing financial products. Giving the skills to support workers is vital - they know their clients.
   
5. In Leeds Credit Unions are offering current accounts, credit cards, secured loans and mortgages. How can Sheffield Credit Union do this.