There are three major trade associations of companies providing credit in the UK. They are the British Bankers Association, the UK Cards Association, and the Building Societies Association. Together they are "sponsors" of The Lending Code which sets out how lenders should behave in specific areas of the lending process (including what happens when an issue later goes wrong).
A prime example of "self-regulation" can be seen in some regards with the Lending Code. The sponsors have combined together to take action that should be beneficial to consumers across the UK with a need to borrow money from time to time. Sceptics however sometimes warn that such self-regulation is actually a manoeuvre by industries to avoid considerably tougher regulation if it’s passed over to external bodies.
The rules of the Lending Code have been reviewed and it is now clear that up to 30 updates, which are expected to be actioned in the near future. Such updates typically result from the input of affected observers such as government departments and debt advice associations.
"Affordability" has been a major issue for mortgage lenders for a while. Not being able to take into account the capacity of borrowers to be effective in keeping up mortgage payments has been identified as one of the banking system’s major inadequacies leading up to the financial crisis. This is climbing up the agenda for unsecured lenders too. A necessity for the continual consideration of affordability as part of the new code will be welcomed and appreciated by IVA providers who often discover that their clients have been loaned sums of money that they could never have dreamt of repaying.
The issue of handing out overdrafts (or increases in overdraft limits) is yet another issue that is under scrutiny, in particular in circumstances where the account holder did not even requested it. Although it looks doubtful that the new Lending Code will put a stop to this, it’s expected that extra procedures will be introduced for consumers to opt-out of the "service."
Additional help is to also be expected from lenders, in circumstances where the borrower seems to be heading towards debt problems. Although it is not certain what kind of assistance is to be provided, or how it will be provided, early intervention in debt issues can only be advantageous whether introduced by the person in debt or his or her creditors. However, a conflict of interests between lenders and debtors is likely to be raised as a concern in this area. The risk is that priority is given to debt-relief options that result in full creditor repayment, even though in some situations, debt solutions that typically involve a part of debt write-off (such as bankruptcy or an IVA) will offer the best solution for the debtor themselves. The other option is for these types of situations to be taken care of via means.
The "right of set-off" is an issue that arises repeatedly in every IVA forum. In short, banks typically include terms in the contracts of their clients that enable them to seize money from one account (typically pay from a current account) to repay another debt that has not been paid (e.g. a credit card bill). New rules to restrict where this can take place are expected.
Although lenders and their associations should mostly be applauded for taking action in such important areas, many people will remain concerned with regards to the issues of interest conflicts and would like self-regulation to be erased to make way for independent supervision in the future.
