And if they choose to do so should this be instead of incurring a CCJ or black mark against their credit profile?
In this week’s Marketwatch we ask our experts if penalising borrowers with fines and judgments is the best way to deal with poor payment performance or whether they should be given the chance to make amends?
Mark Snape, managing director of lending, Magellan Homeloans, thinks that borrowers who have incurred CCJs have already learnt a tough lesson and should be given a second chance.
Tracey Bleakley, chief executive of financial education charity, Personal Finance Education Group, thinks there is no one-size-fits all approach to borrowers who have not paid
Mark Graves, head of Pink Network, thinks educating borrowers after the event is not the most effective way of tackling the prroblem
Mark Snape, managing director of lending, Magellan Homeloans
The majority of borrowers take out credit with every intention of repaying it.
There are a minority of habitual debtors who are happy to keep on applying for credit with no regard for how they are going to repay their debt.
But most borrowers encounter financial difficulties because of an unexpected life event such as losing their job.
Their problems are often then compounded by the ‘head in the sand’ syndrome and, before they know it, they are either in arrears or in possession of a County Court Judgement.
Most will tell you they have learnt a tough life lesson from the experience and would respond differently if given a second chance. So why don’t we give them that chance?
The Police Speed Awareness Course, from which my idea for a Financial Awareness Course derives, targets only those who are most likely to benefit i.e. those who were driving within 10% of the prevailing speed limit.
My suggestion is that the financial industry takes a similar approach and targets borrowers who have, for example, gone into arrears for the first time and are less than say three months in arrears.
I suspect the majority of those with a CCJ who don’t repay their debt within a month and therefore have the CCJ deleted from their credit record have the desire to repay but not the means. An adverse credit record results in them either paying a lot more for credit in the future or worse still being denied access to it.
So why not give them the opportunity to attend a course, agree a repayment schedule and give them another chance to have the CCJ deleted? If they default again then they must accept the consequences.
There may be other ways to crack this nut but I do believe the principle of education and rehabilitation has to be better than fines and punishment.
This is a good opportunity for the industry to show that not only does it care but it’s willing to do something about it.
Tracey Bleakley, chief executive of financial education charity, Personal Finance Education Group
Managing money and making decisions about your personal finances, including managing your credit commitments, are skills that we all need every day.
After years of campaigning by pfeg, the All Party Parliamentary Group on Financial Education for Young People and Martin Lewis, financial education will be taught in secondary schools from this September.
This is an essential step towards ensuring that all young people are given the skills, knowledge and confidence they need to manage their personal finances through their lives.
Financial planning can be daunting but it is especially crucial that people plan ahead when taking out credit or a mortgage.
Of course many consumers who default on their financial commitments have a good level of financial awareness but may have been affected by circumstances beyond their control, such as redundancy or illness.
This is why there is no ‘one size fits all’ approach and a financial awareness training programme, delivered after the event, may not always be appropriate in every case.
Financial education should be seen as a preventative measure, not an afterthought. In many cases, a more appropriate post-default intervention will be free debt advice from a charity such as National Debtline, StepChange or Citizens Advice.
Financial education in the classroom, however, must play a key role in efforts to reduce the number of consumers defaulting on their credit or mortgage commitments.
And this September’s National Curriculum changes will contribute significantly to this goal.
Mark Graves, head of Pink Network
Borrowers should be educated before the event not afterwards.
Talking of giving people financial advice after they have defaulted is like closing the door after the horse has bolted.
The issue is making sure, at the point of sale, that the person is made fully aware of the commitment they are taking on and this involves ensuring that everyone who takes on a debt has the insurance to protect it.
People don’t usually go into arrears through choice. They go into arrears because their circumstances have changed.
If they’ve missed a mortgage payment they have probably also missed other payments which mean that they will have received a number of reminders.
Someone only gets a CCJ when it gets really serious. Financial advice is readily available for those who want it through a financial adviser or the Citizens’ Advice Bureau or via their bank.
All will sit down with the client and help them to restructure their payments.
The problem is that in our market advisers are still arranging mortgages without the proper protection in place even though we know that a proportion of all the people borrowing money will fall ill or lose their job.
We also know that the average person has, at best, one month’s mortgage payment in reserve.
