Debt adviser outlines different loan products and the issues they present

By Jim McDowell, Specialist Debt Adviser
I would like to start this article by saying how happy I am to be re-joining Advice NI with three other debt advisers who all worked on the old Debt Action NI service. We will be based in the North (NBAP), South (Southcity), East (EBIAC) and West (SCA Ltd) Belfast but not restricted by Post Codes. We will be offering a free Confidential Debt Advice Service, funded by the Money Advice Service, through Advice NI.

I would like to make a comment about different loan products, which have affected the client’s I have dealt with over the past eight years, by causing them concern, hardship and stress. It’s timely that the Financial Conduct Authority (FCA) is looking to take action against high interest credit.
  1. Doorstep Lenders
These loans are normally collected weekly by an agent who calls to the client’s home. By its very nature, this exerts a certain amount of pressure on the borrower to make this payment. The client builds up a personal relationship with the debt collector and many feel they are letting them down if they are unable to make the payment. I’ve seen clients cutting back on essentials or prioritizing these debts over more important ones. Part of the collector’s job would be to sell new loans to the client when they have almost paid off their current loan. This keeps the borrower in debt with a loan which is front loaded with interest, making this very expensive.
  1. Payday Loans.
This type of loan was very problematic to the borrower before the FCA took action against the Lenders. The FCA introduced that Lenders could no longer roll over the loan more than twice and the amount of interest they charge has been capped. FCA also stopped Lenders continuously presenting the continuous payment authority which cost the client considerable bank charges when the payment defaulted.
  1. Interest Only Mortgages
We are seeing an increase in the numbers of clients presenting with this debt. This is where the borrower is coming to the end of their mortgage term and have no repayment vehicle in place or the repayment vehicle has already been cashed in and there are no funds to pay the original loan. In the majority of these cases, the clients are usually coming up to retirement age or are already retired and their income is or has decreased. They also cannot usually re-mortgage because of their age and the affordability of the repayments. This is an area which the FCA are looking into presently and we are hoping that they can come up with some strategies which are acceptable to the Lenders and help the client’s keep their homes.
  1. Guarantor Loans
This is an area I think the FCA should be looking at as there does not seem to proper credit checks or affordability checks done on the guarantor. An example of this would be a recent client who defaulted on the loan and the guarantor was her mother who received her income totally from benefits and could not possibly afford the contractual payment. In the main the guarantor does not seem to be aware of their responsibilities and for home owners there is the possibility that their home could be at risk. They are also impossible to negotiate with because they will accept a reduced payment from the borrower but would then go to the guarantor for the shortfall.
If you have any clients who need debt advice you can refer them to the Helpline – 0800 028 1881 or you can contact us directly on:
Jim McDowell, Southcity - 07808 864 742
Jacqui McKerracher, NBAP – 028 9039 1225 (temporary)
Peter Coburn, EBIAC - 07808 864 754
Anne Marie Carmichael, SCA Ltd - 028 9032 9085 or 07808 847 593