Consumer Credit and Personal Insolvency Review

Ed Davey Excerpts

Tuesday 19th July 2011 Written Statements

[The Parliamentary Under-Secretary of State for Business, Innovation and Skills (Mr Edward Davey)]

I have today— together with the Financial Secretary to the Treasury, the hon. Member for Fareham (Mr Hoban)—published a summary of responses to the consumer credit and personal insolvency review, (“Managing Borrowing and Dealing with Debt”), launched jointly by BIS and HM Treasury. The summary also includes the Government’s response on the insolvency aspects of the review. The call for evidence asked 31 questions covering a range of issues from advertising regulations to addressing unfair bank charges and dealing with debt; 216 responses were received.

On personal insolvency and debt advice, we propose to take action that will assist consumers in distress when things go wrong.

We have already committed to continue funding the face-to-face debt advice project for this year. In order to place debt advice in the future on to a more sustainable footing, we are pleased to announce that the Money Advice Service has agreed to take on responsibility for the co-ordination of debt advice services. The Money Advice Service will carry out a detailed review of the current debt advice landscape to identify the best way that these services can be delivered. The Money Advice Service will develop a model that ensures that debt advice is delivered in the most effective and efficient way.

Later in the year we will consult on increasing the petition debt levels for creditors. The level (currently £750) has not been increased since the Insolvency Act 1986 came into force and we believe that to be able to threaten someone with bankruptcy for such a small amount is disproportionate.

Financial rehabilitation following bankruptcy can be an unduly lengthy process, and a number of stakeholders commented on the difficulties a bankrupt can experience in operating even a basic bank account facility. The Government will be consulting in due course on amendments to address a perceived risk from banks that a trustee in bankruptcy may pursue the bank for property acquired by a debtor during the course of the bankruptcy.

Following comments about the potentially confusing number of possible debt solutions available to someone experiencing financial problems, we intend to consult on whether the provisions on county court administration orders should be repealed, as the numbers entering this process are rapidly declining, with just over 5,000 currently in existence.

We also recognise concerns about the provision of debt management services and note that there is potential for the regulatory landscape significantly to change. In the meantime, we will work alongside the OFT with the key players in the debt management industry to drive up standards and drive out unscrupulous behaviour.

On the consumer credit section of the review, it was clear that there was much concern about interest rates applying to the high-cost credit market with a number of respondents calling on the Government to introduce a cap on the total cost of credit that can be charged. Intervention in this market carries a risk that we might reduce access to credit. Given the concerns raised and the lack of hard evidence on what impact a total cost of credit cap might have on both the lenders and consumers, we will commission research to see if a cap on the total cost of credit would avoid adverse consumer outcomes.

We will report back later in the year to announce the Government position on the consumer credit aspects of the review while we continue to consider the evidence.

We are placing copies of the document in the Libraries of both Houses.