Lenders to increase protection for borrowers

16th March 2011

The Lending Code sets out exactly what borrowers can expect from UK credit providers. It is sponsored by the three main organisations with which the vast majority of mainstream lenders have membership. This includes the British Bankers Association, the UK Cards Association and the Buildings Societies Association.

Accordingly, the Lending Code is an example of self-regulation, and as such the lenders are using it as a tool to demonstrate their integrity when looking after the interests of borrowers. They are due to set a code of conduct, which it is hoped will ensure the ethical working practices of the organisations under their jurisdiction.

The Lending Code has been subject to an individual review and will consequently be updated at the end of this month. Suggestions for revisions were made by the government, debt advisers and consumer organisations. Around thirty of the suggestions made by the reviewer in light of these suggestions will now be incorporated into the code.

The assessment of affordability is an area which has received much attention. Many individuals entering into a trust deed have been lent sums which they would clearly never be in a position to repay. The aim is to reduce the number of times such a practice occurs in the future.

Overdraft facilities which have been given to clients by banks without them ever being asked for are also in the spotlight. Consumers are expected to be able to opt-out from such offers in the future. Overdrafts are a regular feature in a trust deed’s creditor list.

Increased support is to be offered to those individuals who appear to be facing financial difficulties, although it is currently unclear exactly what form this support will take. Some debt advisers will be concerned as to whether such support may increase the number of occasions a full repayment of debt will be required.

‘Set-off’ is an issue which regularly appears on the Trust-Deed.co.uk trust deed forum. This is the right that financial institutions have to seize monies paid into a client’s account in order to pay off other commitments have not been fully repaid. Such a scenario regularly leaves members of the public without money for essentials such as housing costs, utility bills and even food. As a result, any individual entering into a trust deed should move their current account to a bank which is not in a position to undertake such an action. It’s said that new standards will be put in place to determine when such an action might be appropriate.

These lenders are to be congratulated for taking steps on issues that will be of great importance to many people. A lingering concern remains however, as to whether the lenders themselves are best-placed to determine how their clients should be treated when things go wrong. Clearly there is an enormous potential for a conflict of interest, leaving some to conclude that external consumer protection should be imposed upon the lenders.

If you’d like further information, advice or support regarding any aspect of a trust deed, or the self regulation which is to be brought in by lenders, our trust deed forum serves as an excellent source.

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