The lack of bank loans may be one of the catalysts which is causing voices to call for a thorough review of banking and the government inquiry is determined to get to the bottom of the issue. At the heart is the vexed question as to whether banks should be split into two: one side which handles retail business and the other which handles investment business, and never the twain shall meet.

Breaking up is just one of the issues being explored by the Independent Commission on Banking and thoughts are polarised on both sides of the argument. Some say that banks should not be allowed to gamble with the investors money and get into situations which caused the current financial crisis. And that retail money must be protected from investment bankers who instead should gamble with their shareholder funds and not customer cashflow.

Others cry foul, saying that to split banks will in effect ruin capitalist principles in the UK and that many banks would have to up anchor and move to a more favourable regulatory environment. This would decimate an industry in which the UK leads; one of few which brings home the bacon nowadays.

HSBC and Standard Chartered have already fired warning shots across the Government’s bows, saying that if the rules were to be dramatically changed, then they would to move their headquarters overseas.

Sir John Vickers will head up a five strong panel and he was quoted as saying:
“Experience shows that the risks from not asking hard questions about financial stability and competition are far greater than from doing so.”

Sir John is the ex-chairman of the Office of Fair Trading and is joined by another non-banker ex-regulator Clare Spottiswoode who’s the former director-general of Ofgas. Others might raise an eyebrow at the others on the panel, wondering if a few foxes had got into the hen house.

They are Bill Winters, the formerly co-chief executive of investment bank JP Morgan; the chief economics commentator at the Financial Times Martin Wolf; and, Martin Taylor, who is a former chief executive of Barclays.

The first recommendations will be ready about a year from now, in September 2011.

Chief apologist for the banks, Angela Knight, in her role as chief executive of the British Bankers’ Association, trumpeted that the banks had nothing to hide and that they welcomed the commission:
"We believe the UK industry has already taken significant steps to improve its financial position.”

It’s now a matter of wait and see. Bank loans will remain under scrutiny for a good while yet.

Guest Article by Neil Camp 

Barclays discovered that when customers with accounts and loans thought about what their balance was, most could not accurately say how much money was there at any one time and, on average, over-estimated the figure by £70.73. This was the average amounts for Brits in general, but the research goes even deeper, suggesting that Londoners are even worse. Those living in London overestimate their balance by about £91.62. The research compiled a list of areas of the country where the most out of touch with their bank account live. The top ten included Leicester, Manchester, Edinburgh, Newcastle and Portsmouth.

So why this lack of knowledge when it comes to our bank balance? Barclays’ research indicated that customers only check their bank balance four times a month. To solve this, Barclays’ research suggests that mobile and text banking may be the answer. 57% of people questioned believed that using mobile and text banking would be a way of keeping more on top of their balance.

This is backed up by more of the survey’s findings: 84% who currently used mobile banking were more accurate in estimating their bank balance. Compared with the 83% of bankers with no mobile banking capabilities, only 17% of those with mobile banking admitted they didn’t know what was going in and out of their bank account on a regular basis.

“Being in control of your money starts with knowing how much you’ve got and where it is being spent. Online and telephone banking made that easier and now mobile phone banking is taking it a step further. Mobile phone banking is still a relatively new way of doing your banking but the number of users is growing at a phenomenal rate and simultaneously more features and functionality are being added. It’s really encouraging to see the positive impact it is having on helping people stay in control of their finances in a quick, easy and convenient way,” said Sean Gilchrist, Barclays Digital Banking Director.

Keeping on top of bank accounts and loans is important to ensure you are not overspending and to get a good idea of things such as day-to-day budgets. The Barclays research suggests that things such as mobile banking can be a great help in keeping on top of your finances.

Guest Article by Neil Camp 

Pay day loans have undergone a fourfold increase in popularity over the last four years, making them one of the most popular ways to raise money over a short period of time.

The idea behind pay day loans is straightforward – people can raise money on their next wage slip before its actually due. The idea is to help smooth out cashflow in difficult months.

But confused.com, along with other bodies, are saying that there needs to be more clarity over this form of borrowing.

Following a report into the high cost of credit prepared by the Office of Fair Trading, confused.com prepared their own research into these type of loans.

The research came up with a number of observations, including the main point that a number of pay day loans websites did not clearly state the charges involved. They were not clearly displayed, especially if lenders could not afford the repayment within the time limit allowed. And if that basic agreement was breached, there was little information as to what would happen then.

Furthermore, one researcher who pretended to apply for a pay day loan, was not told of any deferral charges until he had accepted the agreement in blind faith, in contradiction of basic loan ethics and set agreements laid out by the Office of Fair Trading.

Sharon Flaherty, editor of confused.com’s Consumer Focus report on pay day loans, said:
“As Consumer Focus points out, the issue with payday loans is not that they should be banned altogether, but that they should be reformed to ensure customers understand exactly what they are agreeing to, and what the charges will be if their circumstances change and they can’t meet repayments. Increased transparency is crucial.

“Confused.com has had concerns about how some payday loan companies have been operating for some time, and has voiced these concerns to the OFT. We have even been contacted by customers who have taken these types of loans and have been treated poorly by lenders when they’ve had repayment difficulties. We agree with Consumer Focus that an industry code of practice is a good idea and that there needs to be better promotion of lower cost alternatives, such as credit unions, as previously highlighted by Confused.com.”

As with any sector, there are a number of pay day loans providers who meet the requirements laid down by the Office of Fair Trading, and potential customers are warned to check that they have all the figures and facts before they enter into such agreements.

Guest Article by Neil Camp

The company Debt Free Direct has issued a warning to consumers to seek debt advice as soon as they can once they feel that their personal finances are getting out of control. And increasingly debt loans will play a major role in the coming years as people struggle to make ends meet. The Insolvency Service has released figures that show a worrying increase in the number of personal insolvencies; this year alone it had increased by 5% on the same period last year.

This report reveals that 34,743 people in England and Wales have become insolvent in the three months before June; there is some comfort in the fact that this is a 2.6% decrease from the first quarter of 2010. However, experts believe that this continually high rise in insolvency figures will continue on through the year and into the next, and warn that there is the possibility of another sharp increase.

The exact composition of the insolvencies are as follows: there were 14,982 reported bankruptcies, 13,466 Individual Voluntary Arrangements and 6,295 Debt Relief Orders. Whilst bankruptcies were down 20.6% from last year, Individual Voluntary Arrangements were up by 10%.

Commenting on the statistics, Derek Oakley, Debt Free Direct’s Insolvency Director, said: “This 5% year-on-year increase in personal insolvencies shows consumers are still struggling in the wake of the credit crisis. Consumers are advised to continue to be cautious with their finances and seek debt advice sooner rather than later if they are experiencing difficulties meeting their financial commitments.”

There are a multitude of factors that can contribute to personal insolvency: government cuts to public spending, redundancies, tax increases, increased interest rates, all of these have been attributed to the rising number of insolvencies.

It is no wonder, then, that debt loans are on the increase. With the strain of the current economic climate, people are desperate to find ways to keep themselves out of the red.

Guest Article by Neil Camp

Together, UK students have earnt around £4 billion a year to counteract the effect of student loans. 1 in 3 now have to work during term time to boost their income and level out the cost of their loans. These students spend on average 13.9 hours a week working. So what has attributed to this problem? Living costs and the current economic situation are certainly top factors, and have contributed to more parents being unable to help their children financially in their university careers; this means that students are having to find more ways to fund their education themselves.

First year students, the report suggested, are working more hours a week than they are attending lectures. This only changes in their final year, when the earn-study balance shifts towards ensuring a good degree mark.

The report has also highlighted regional differences in this new trend. A student in Northern Ireland works on average the least number of hours, at 10 hours per week, whereas the highest number of working hours (15.4) can be found for students attending universities in the South West of the country, at universities such as Bath and Exeter. London and Scotland follow closely behind the South West at 14.8 hours and 14.6 hours respectively.

This regional trend may be to do with the regional differences in hourly rates: students at universities in the South West are earning £7.52 a week, and work the longest hours. This can be compared to Wales, where they earn the lowest hourly rate at £5.27. Weekly, these two sets of students on average earn £115.67 in the South West, and £56.25 in Wales.

“A huge majority of students are working during term time to help fund themselves through university. Understandably, this adds an additional pressure as they balance working life with their studies. At Lloyds TSB, we try to make it easy for students to manage and make their money go further by providing tools such as free mobile banking which allows students to check their balances, transfer money and also receive text alerts, as well as a range of discounts such as a free three year NUS card,” says Jatin Patel, Personal Current Accounts Director at Lloyds TSB.

Student loans are vital for students to maintain their university careers, however it is becoming increasingly necessary for them to supplement that with money they have earnt themselves, even if – as the report suggests – this comes at the loss of hours spent in lectures themselves.

Guest Article by Neil Camp

The latest Halifax research report reveals that a bank loan should only be contemplated after a good dig down the back of the family settee, because they reckon that over £43 million could be lost down amongst the cushions.

The research by the Halifax bank has found that 65% of Brits regularly dig out loose change from various hiding places; the sofa being one of the most nefarious for snaffling all of those loose coins. Topping the ‘league table’ of places where loose change is regularly found are pockets. 39% of Brits in the study claimed they found loose change regularly in their pockets, with the bottom of a bag coming in at 36%. The car and down the back of the sofa took the last two places.

The actual amounts of loose change are high; the study revealed that in a desk drawer, for example, the highest value of loose change is around £3.59. On average, the British estimate they have about £17.69 of loose change scattered around these various places.

The study also highlighted a difference between the two genders. Whilst the average minimum of change that a Brit would stop to pick off the street is 50p, this rises to 61p for men and falls to 47p for women. A generation difference has also been revealed, with the younger generation tending to turn their noses up at picking change up off the street that isn’t more than 87p, whereas the older generation would pick up an average minimum of 24p.

In Yorkshire and Humberside, people don’t pick change off the street for nothing, and have an average minimum of 94p; just across the border in the North East, they are much less fussy, picking up a minimum average of 24p.

Three quarters of Brits save their change in one place; a jar full of coppers or a bag full of silver coins are a common sight in many British households according to this study.

“These figures prove that we should no longer ignore our loose change but manage these small sums more wisely. The old saying ‘take care of the pennies and the pounds will take care of themselves’ continues to be firmly the case. We need to recognise this, instead of leaving our loose change languishing down the back of the sofa” says Flavia Palacious Umana, Head of Products, Halifax savings, says.

So the advice from Halifax, and one can imagine from many of the country’s banks, is to take a dig around the back of your sofa or the floor of your car before considering taking out that bank loan; who knows how much you may find.

Guest Article by Neil Camp

The Financial Services Authority has said that it intends to ensure that all borrowers can afford to pay back a new mortgage.

In its new super role as consumer protector and day-to-day supervisor of the financial services sector, the Financial Services Authority is overseeing mortgage companies to make sure that responsible lending is once again the order of the day.

Observers see this as a direct attack on self certification mortgages which helped fuel the economic downturn. Many people taking out new mortgages were effectively encouraged to borrow too much by being able to quantify their own earnings. This resulted in inevitable abuse as borrowers were over generous in assessing their own income levels and some actually fabricated their own figures to gain a mortgage.

The Financial Services Authority, FSA director responsible for the mortgage market, Lesley Titcomb, said:
“There is a clear link between financial overstretch and mortgage arrears and repossessions, and we are determined to protect vulnerable consumers by making sure that everyone who takes on a mortgage can afford to pay it back.

“While it is clear the mortgage market has worked well for many, we need to build a strong new framework to protect mortgage customers and to ensure that the problems we have seen in the past do not happen again, particularly as the mortgage market recovers.”

The Financial Services Authority main proposals are:

• imposition of affordability tests for all mortgages;
• enforce lenders to be ultimately responsible for assessing a customer’s ability to pay;
• insist on verifying the income of the borrower on every mortgage application, which will prevent self-certification abuse and reduce opportunities for fraud;
• create increased protection for customers who are vulnerable and suffering from poor credit histories.

Industry experts say that the Financial Services Authority is a little behind the times, as most lenders have either voluntarily tightened their lending rules, or have been forced into doing so because of the new economic realities.

The age of the self-certification mortgage is over.

Guest Article by Neil Camp

The good folk at confused.com have risked the wrath of those living in God’s promised land by saying that in the UK, the closure of one in five accounts by the provider was due to non-payment. And Yorkshire residents exceed the national average by 13%, with 35% of accounts closed by the provider due to repayment failure.

But before thoughts of bringing out that old hackneyed debate about the north and south divide, the research also reveals that the North East is best at repaying with only 8% having their accounts closed for not meeting monthly payments. And, a close second to Yorkshire is the South East, 33% of which have suffered the same penalty. Incidentally, alongside the North East’s exemplary residents were the people of east Anglia, who also only had 8% of defaulters.

Head of credit cards at Confused.com, Joanne Garcia, said:
“Credit card users in all regions need to understand how damaging it can be to miss repayments. While it may not seem like a big deal to miss a few payments here and there, credit providers – which include mortgage lenders – leave no stone unturned when it comes to checking a person’s credit worthiness. It they see a history of non-payments it makes it much more difficult to borrow money.

The research at confused.com, which is owned by the Admiral Group plc don’t say how many people they asked, or how they got their figures, but it is hoped that they have done their homework about the Yorkshire figures. Although confused.com should know what it’s talking about of course, as it generates over one million quotes per month. From its origins in 2002, it has expanded its range of comparison products to include car insurance, home insurance, travel insurance, pet insurance, van insurance, motorbike insurance, breakdown cover and energy suppliers, together with financial services products such as credit cards, loans, mortgages and life insurance.

Guest Article by Neil Camp 

A number of consumer groups have warned that taking out equity release mortgages in a falling market can be a recipe for disaster. House prices have already dropped 25% and experts are undecided as to whether the falls will continue, or bottom out.

Equity release mortgages are up nearly 20% and they are popular with mature homeowners who have been trying to get by on depleted savings and pensions.

The equity release market is worth some £1.2 billion a year. Some mortgage advisors stand accused of talking potential clients into taking out bigger loans than they actually need, in order to boost the levels of commissions. And the Financial Services Authority found that in 2005, advisers were not properly warning potential clients about some of the pitfalls, including higher tax rates and the disqualification from certain benefit schemes.

The average amount being released by homeowners is around £50,000 and with falling property prices, there would be less equity around to utilise.

But equity release mortgage advisors have hit back saying that after 15 years of major increases in equity in houses, there is still plenty of flexibility for most householders. They maintain that it remains one of the best ways of utilising money that otherwise cannot be touched.

But consumer groups have warned people contemplating such a move, that they should consider a whole array of products that might be better suited to raising money via bricks and mortar.

Guest Article by Neil Camp

Stories are emerging of people hitting financial trouble, not paying their unsecured commitments (mostly credit cards and loans) and keeping their money in their current, or saving accounts for their secured loans such as mortgages. And, unbeknown to the customer, the bank can legally come along and use the money sitting in the current, or savings account, to pay a missed credit card bill, leaving the customer vulnerable to a missed mortgage payment.

And all this is quite legal, going under the term ‘setting off.’ Many will be surprised to hear that banks are perfectly entitled to ‘Set-Off’, or combine accounts, if they think fit. The ‘Set-Off’ clause is written into many loan contracts, and account terms and conditions, and even if it isn’t, then a bank may still have to the right to take such action.

So, for people facing trouble, the advice is to use two completely separate financial institutions in which to hold a current and a savings account. This way, a bank will not be able to play around with a person’s accounts, balancing the books without recourse to their customers’ wishes.

There is an obscure guideline that banks have to let you know if they decide to take such action, especially if the accounts are in joint names, if it’s a swap between different companies within the same group, or involving business accounts. But people shouldn’t rely on this and in the case of a simple current and savings bank account, the bank can seemingly act without any notice at all.

And the banks should certainly not go ahead with such an action if, for some reason, the account and its balance is in dispute. Nor can the bank say grab the whole amount outstanding on the loan, only the amount overdue, but the rules seem blurred in this area. The banks certainly should tell you after they have taken the money from an account to set-of against others, but there’s no rule as to when they should let the customer know.

The Citizens Advice Bureau has reported that there is growing evidence that this Set-Off rule is being increasingly used by banks. Set-of enquiries have risen by a considerable 25% in the past couple of years.

What worries some in the consumer watchdog institutions, is that the banks are going to be get more and more aggressive with how they use the Set-Off rule, with some complaining that this provision gives them carte blanche to unfairly meddle in their customers’ accounts for their own benefit.

For example, it’s predicted that a bank could technically reduce a customer’s account credit card limit by say £200, then use money in the customer’s current account to make good the difference they have just created. An alarming prospect for many.

Of course, given the economic climate, banks should be more sympathetic to their customer’s problems and should not use ‘Set-Off’ without proper consideration of the effects. And people who are being affected, are being strongly advised to complain in writing to their banks, or inform the Financial Ombudsman Service.

Guest Article by Neil Camp