Mark Snape, managing director, lending at Magellan Homeloans, said: “To date, the financial services industry has tended to fine and punish borrowers who get into financial difficulties with penalties and CCJs, rather than provide help through education and rehabilitation.
“However, if you consider the approach the police have taken to speeding offences, they have found that offering speed awareness courses as an alternative to penalty points has been an extremely effective way to change driving habits. The financial services industry can learn from this experience.”
Snape said unexpected life events like redundancy, divorce or illness are among the biggest catalysts to financial problems.
“The threat of a CCJ is a salutary wake-up call and the opportunity to attend a financial awareness course may have a more beneficial effect than simply giving someone an adverse credit record, which usually prevents them from taking out another loan for up to six years.”
Courts should be given the discretion to offer individuals the option to attend a financial awareness course, instead of a CCJ. If a borrower then continues to default on future payments after taking the course, then a CCJ should be automatically awarded thereafter, said Magellan.
The specialist credit repair lender says that such an initiative needs the support of the whole industry including input from trade bodies, consumer groups, regulators, debt management firms and charities.
Snape said: “Perhaps a sensible starting point would be for one of the industry trade bodies to consider the feasibility of this proposal and suggest what the next steps should be.”
