SCOTLAND'S snowballing personal debt crisis is being exacerbated by aggressive tactics employed by banks and other creditors, a major report has claimed.
Drowning in debt, a 116-page report, was published this week by Citizens Advice Scotland (CAS), which said debt is now the single biggest issue for which people are seeking help from the service.
The average total debt of CAS clients was £20,193
at the end of last year, a 50 per cent rise over five years.
For many Scots, debt has become a sad reality, according to CAS chief executive Kaliani Lyle. "People take out a loan or new credit card because they can't make ends meet. Then they fall behind with their repayments, so they take out another loan to pay the first one off. Then they find they have to take another loan again, and before long they are spiralling into massive debts they just can't control," she said.
Personal debt levels have been soaring for years, but a number of factors have combined over the past 18 months to exacerbate the problem, including rising unemployment, high household costs and restricted credit.
The report alighted on another contributory factor – the increasingly vigorous way in which some lenders and other credit providers are seeking to recover money from debtors.
Credit cards and loans are the main burden for CAS debt clients, with 70 per cent behind on at least one card.
Norma Philpott, manager of CAS in Fife, blamed irresponsible selling tactics by credit providers. "While many people will have two or three cards, we see people who have eight or nine credit cards which they were using to keep themselves going, but they have lost control of them," she said.
That credit supply has now dried up, however, and creditors have become more belligerent in pursuing debtors. According to CAS, the number of people threatened with debt recovery without recourse to court action has doubled in the past five years. Those debtors are increasingly dealing with specialist agencies, employed by finance companies to chase debts. One west of Scotland bureau is advising a woman struggling to repay a loan from a finance company after taking a substantial pay cut. A debt collector working on behalf of the company told her employer about her debt, without her consent, and is now threatening the company with court action unless it passes on her payroll information.
The number of debt clients threatened with unlawful recovery methods has also doubled since 2003. Lyle told The Scotsman: "It is quite simply unacceptable to have lenders phoning people at all hours of the night, threatening them with recovery methods which are actually illegal, and harassing them and their families."
More work is needed to ensure people understand their legal rights in such situations, said Lyle, citing cases where lenders have threatened debtors with bailiffs – which no longer exist in Scotland.
"The Scottish Parliament has made it illegal to seize goods in place of debt. So when a lender threatens to come and take your TV away if you don't pay them, they are lying, or acting illegally. We need to make people more aware of these things," she said.
The report also raised concerns over the impact of bank fees on a debtor's ability to make repayments. Most banks freeze interest and charges on debts for just a short period before they are restarted, with the debt soon sold to a debt collection firm. This gives people little chance to repay debts and can have the effect of increasing the value of a debt before it is passed to a debt collector, according to CAS.
This situation, and the experiences of CAS debt clients all over Scotland, means creditors need to consider the implications of their actions, Lyle said. She added: "The news lenders are becoming more aggressive in pursuing late payment is very worrying, and it is tragic to see people say that they are suffering ill health as a result, and that they are even forgoing meals or switching off their heating to save money."
Fiona Hoyle, head of consumer finance at the Finance & Leasing Association, said its members were committed to working alongside advice agencies to help those in debt.
"They are bound by the Lending Code, which requires lenders to act 'fairly, reasonably and responsibly' in all their dealings with customers, especially those in financial difficulties," she said.
"Debt collection agencies employed by our members must comply with the good practice standards set out in the Office of Fair Trading's debt collection guidelines."
Motions were submitted to Holyrood and Westminster this week highlighting the CAS report's findings and calling for action to address the failings that have contributed to the problem. Among the issues CAS wants tackled are irresponsible lending and unreasonable recovery methods.
Lyle said: "This can be tackled by a number of remedies, like more transparency in lending agreements, better regulation by the Financial Services Authority, more stringent oversight by the Office of Fair Trading and provision of more affordable credit options, like credit unions."
The full article contains 847 words and appears in The Scotsman newspaper.
