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Changes to the Lending Code to be implemented: Will they help debtors?

By Edited Dec 8, 2015 0 0

There are 3 major trade associations of businesses providing credit in the UK. These are the British Bankers Association, the UK Cards Association, and the Building Societies Association. Combined, they are the "sponsors" of The Lending Code which outlines how lenders should behave in certain stages of the lending process (such as what happens when something later goes wrong).

With the sponsors combining together to mediate and "self-regulate" the Lending Code, UK consumers who borrow money from time to time should see the benefits when enhancements and updates have been made. However, sceptics have previously claimed that such self-regulation is in actuality a manoeuvre by industries to avoid potentially tougher regulation should it be handed over to external bodies.

The rules and regulations of the Lending Code have been under review and it's now clear that as many as thirty changes, which are expected to be actioned in the near future. Typically, such changes result from the input of affected observers including debt advice associations and government departments.

"Affordability" has been a main issue for mortgage lenders for some time. Not being able to comprehend the ability of borrowers to be able to keep up mortgage payments has been identified as one of the banking system's main failings leading up to the financial crisis. This is now moving up the agenda for unsecured lenders too. A necessity for increased consideration of affordability as part of the new code will be accepted by IVA providers who often discover that their clients have been given sums of money that they could never have dreamt of repaying.

The issue of giving out overdrafts (or extensions in overdraft limits) is another issue that is under review, in particular in cases whereby the account owner did not even wanted it. Even though it appears doubtful that the new Lending Code will put an end to this, it's expected that additional processes will be implemented for consumers to opt-out of the "service."

The lenders will also be expected to provide extra help where a person seems to be heading towards debt issues. It's yet unclear how such help is to be offered, or what it is, but early intervention in debt problems can only be beneficial whether inaugurated by the debtor themselves or by their creditors. Concerns will however be introduced that there could be a conflict of interests between the lender and the debtor in this area. If not managed independently, the risk is that precedence could be given to debt-relief options that lead to full creditor repayment, even though in some situations debt solutions that typically involve an element of debt write-off ((such as an IVA or bankruptcy) will provide the most beneficial solution for the debtor his or herself.

The "right of set-off" is an issue that appears commonly in every IVA forum. In short, banks typically include terms in the contracts of their clients that can allow them to take money from one account (typically money from a current account) to repay another debt that hasn't been paid (e.g. a credit card bill). New rules to restrict where this can take place are anticipated.

Although lenders and their associations should be applauded for taking action in such important areas, many will remain worried with regards to the issues of interest conflicts and demand for self-regulation to be removed in favour of independent supervision in the future.



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