Lending credit control
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Lending & Credit Control. Current Issues & Best Practice Solutions Northern Ireland version. A Perfect Storm!. Economic meltdown Rising unemployment Incomes falling Taxes increasing Repayment capacity reduced More to come Banking system not operating Legacy of over-indebtedness. Agenda.

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Lending credit control

Lending & Credit Control

Current Issues & Best Practice Solutions

Northern Ireland version


A perfect storm

A Perfect Storm!

  • Economic meltdown

    • Rising unemployment

    • Incomes falling

    • Taxes increasing

    • Repayment capacity reduced

    • More to come

  • Banking system not operating

  • Legacy of over-indebtedness


Agenda

Agenda

  • Introduction

    • Our Business Environment – what has changed?

    • Legislation to protect consumers / borrowers

  • Lending

    • Issues

    • Solutions

  • Credit Control

    • Issues

    • Solutions

  • Questions, Comments & Suggestions


Introduction

Introduction

  • What’s different about today’s lending market?

    • The economic situation

      • Level of personal debt

    • Focus on Responsible Lending & Borrowing

      • Consumer Protection

      • The need for full information

      • The need for objective evidence

    • Current Lending Issues

    • Credit Control issues & techniques


Responsible lending borrowing

Responsible Lending & Borrowing

  • Personal Debt in the Republic of Ireland

    • €158 for every €100 earned *

    • In 1995 it was €50 per €100 earned

  • UK average unsecured debt per household is £7,000

  • Lifestyles funded by borrowing

  • Clear evidence of irresponsible lending

  • Borrowers must take some of the blame

  • But – unequal relationship – the lender is the dominant party!

    * Goodbody Stockbrokers 2008


Legislation lending

Legislation & Lending

  • Focus on the consumer / member

  • Consumer Credit Directive

    • Adequate information for borrowers

    • Obligation to assess creditworthiness

    • Database consultation

    • Right of withdrawal

    • Right to make early repayments

  • Not applicable – but good practice


Ability to repay

Ability to Repay

  • Responsible lending – our primary role is to assess ability to repay

    • Secondary role – financial advice

  • Information is the key

    • Objective evidence

    • Strong case for credit referencing


The need for full information

The need for full information

  • We can’t assess ability to repay without having the full picture

  • Borrower’s “word” is not enough

    • Borrower’s generally don’t disclose all debts

  • Can’t ignore any source of information

  • Courts require objective evidence


Objective evidence

Objective Evidence

  • Independent sources

    • Pay Slips

    • Bank Statements

    • Credit Card Statements

    • Financial or Management Accounts

  • Don’t ignore any source of information

  • Use your common sense, don’t ignore your instinct

  • Don’t be afraid to ask

  • Take your time!


The case for credit referencing

The case for Credit Referencing

  • Experian / Equifax

    • All other financial institutions are members

    • Only a part of your decision, but a vital part

    • Credit reference can be good or bad

    • Anecdotal evidence – invaluable!

  • Other referencing sources

    • NCU Database

    • Stubbs Gazette


Assessment techniques

Assessment Techniques

  • Stress Testing – can the borrower repay if / when interest rates rise?

    • What if the borrower’s income falls?

  • Look at loan balances as well as loan repayments

    • How long is left on the loan?

  • The 40% Guideline – useful, but limited

  • How much does the borrower need to live on?

    • How much is left to repay loans?

  • Ratios


The credit card time bomb

The Credit Card “Time Bomb”

  • 70% of adult members have (at least) one!

  • Limits can be high - £15,000 not unusual

  • UK card debt exceeds rest of EU combined

  • Being used to “bridge the gap”

  • Loans to clear credit card debt

    • Compare proposed repayment to minimum balance

    • Pay loan out in stages

    • “Force” member to reduce limit

    • Member must co-operate!


Belfast telegraph april 2009

Belfast Telegraph April 2009

Northern Ireland’s £1bn Credit Card Debt

£1,600 per household; being used to finance lifestyles and standards of living

- Claire McNeilly


Top ups

Top-Ups

  • Frequent top-ups can disguise delinquency

  • Potential for “hard core” debt

  • Monitor the trend of the account balance

  • Watch the purpose of the loans

  • Ensure repayment term and amount is appropriate

  • Difficult to deal with once it has become a problem


Loan with multiple top ups

Loan with multiple Top Ups


Loan with multiple top ups effect of higher repayments

Loan with multiple Top Ups – effect of higher repayments


Opportunities

Opportunities

  • Open for business

  • Banks not lending

  • Good prospects out there

  • Rates very competitive

  • Funds available

  • Caution – what’s the real purpose?


Focus of credit control

Focus of Credit Control

  • The lost goldmine!

  • Prospects & Priorities

  • Take what you can get, but get something!

  • Positive tone – engage with debtors

  • Preparation

  • Information – obtaining, confirming, storing, using

  • Measurement & Reporting


Reporting

Reporting


Our service internal set up

Our Service / Internal Set Up


Lending credit control

Member

Address

PRIVATE & CONFIDENTIAL

Date:

 OUR REF:<Loan number>

Re: & District Credit Union Limited

Loan Outstanding Balance €Loan Arrears €

Interest due €Shares: €

Loan Number

Last Payment Date

Dear

We act on behalf on the instructions of their Credit Control Department.

Our Client instructs us that you are presently in arrears and interest due on your Credit Union Loan Account with them in the above sums together with continuing interest. Please make payment or contact the Credit Union on with an immediate proposal for full payment of the outstanding arrears and interest.

This letter may be used as evidence of having afforded you every opportunity to discharge your arrears, interest and in support of our application for costs should legal action be necessary which said costs may be deducted from your share balance.

We thank you in anticipation for your payment and assistance in the matter.

Yours faithfully


The phone most effective

The phone – most effective

  • Caller ID, Direct Line

  • When, where, time?

  • Notes & preparation

  • Who to talk to?

  • Messages

  • Data retention, Data Protection


Debt recovery litigation

Debt recovery litigation

Tim Bryans

McAteer & Co Solicitors


First steps

First Steps

  • Recovery begins at application

  • All names and date of birth

  • House owner?

  • Mortgages? 1, 2, 3?

  • Equity?

  • Beware of sub prime

  • Consider guarantor


Solicitor involved

Solicitor involved

  • 7 day letter

  • Consider response and decide

  • Act quickly

  • Follow it up


Small claims

Small Claims

  • Up to £2000

  • Up to £100 fee, added to debt

  • No costs awarded

  • DIY

  • Online or paper

  • 8% interest

  • Get decree


County court

County Court

  • Up to £15,000

  • £165 or £185 fee, added to debt

  • Costs on a scale, added to debt

  • DON’T DIY

  • Decree after 21 days

  • 8% interest


High court

High Court

  • Over £15,000

  • £200 fee, added to debt

  • Costs on a scale, added to debt

  • DON’T DIY

  • 8% interest


Enforcement of judgments

Enforcement of Judgments

  • Judgments or decree only paper unless enforced in EJO

  • Government department - effective?

  • Notice of intention

  • Enforcement fee - expensive

  • Enforcement Options - interview, arrest, installments, attachment of earnings and order charging land


Orders charging land

Orders charging land

  • A mortgage for the credit union

  • Must be registered in land registry

  • Debt is now secured

  • Charge interest from registration

  • 12 years duration

  • Seek liberty to sell


Bankruptcy

Bankruptcy

  • Not credit union ethos

  • Only £750 or more

  • Discharged in one year

  • Debt gone but house lost?

  • Expensive fees

  • 6 years credit history


Individual voluntary arrangement

Individual voluntary arrangement

  • Agreement with creditors

  • Credit union may vote against but could be outvoted

  • Bound by arrangement

  • Maybe 10p in the pound

  • Generally unsecured creditors so house kept

  • May last 5 years

  • Credit history 6 years


Debt relief orders

Debt relief orders

  • In England and Wales since 2009

  • NI from June 2011

  • Assets less than £300

  • Total debt less than £15,000

  • Surplus income less than £50

  • Last one year, then debt free

  • Very low fees TBC


Unfair relationships

Unfair relationships

  • All loans covered under consumer credit act

  • Avoid accusation by keeping detailed notes of attempts to recover debt


Conclusion

Conclusion

  • Your information gathered at application will inform litigation at all stages

  • Be fair but don’t be seen as soft touch

  • When decision made to litigate follow it through


Contact

Contact

McAteer & Co Solicitors

97 Bloomfield Road, Belfast, BT5 5LN

Tel: 028 9047 1480

[email protected]@lexlink-mcateer.co.uk


Key lessons

Key Lessons

Focus on what we can control

Full information, backed by objective evidence, is vital

Common sense – the key ingredient in loan assessment

Credit card debt is the next big issue

Top ups must be managed

Credit control starts when the loan is issued

Have a robust credit control structure and policy

Telephony is the most effective method


And finally

Any questions?

Any comments?

Any suggestions?

And finally ……..


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