Debt counselling must be funded by financial services sector, says Derek Alcorn, Chief Executive Citizens Advice, in an article written for the Belfast Telegraph (5/06/10)

The background to the current debt crisis began in the mid 1980’s when the  Government deregulated the finance industry, easing restrictions on lending and the availability of credit.

The effect was such that by 1989 Citizens Advice had recruited a Money Advice Development Officer, to develop training in the subject, as the number of cases coming to our offices steadily increased.

For the next 15 years until 2005, we developed debt advice provision with funding from charitable trusts, and after the mid 1990’s, the Big Lottery.

In that period, the finance industry, in which sales are commission led, was at the centre of a string of incidents involving the miss selling of private pensions, the mis-selling of private pensions, endowment mortgages, and payment protection insurance.

In 1999, the Clinton administration passed the Financial Services Modernisation Act, which lifted restrictions on the integration of banking, insurance and stock trading which had been imposed by the Glass Steagall Act of 1933.

The separation of commercial banking from investment banking was removed, and in the opinion of many, the basis of the American sub prime mortgage crisis was laid. In the UK, Gordon Brown was making speeches to the City about light touch regulation and Peter Mandelson said publicly that the Government was relaxed about people being seriously rich.

Against the background of an engineered boom which was essentially a one way bet on UK house prices continuing to rise and the UK economy continuing to expand, the public were encouraged to borrow against their houses, against their credit cards and against the self certification of their own income.

In 2007, when the average house price in England was £194,000 and the average salary was £23,600, Abbey was offering mortgages of five-times salary, followed by Northern Rock with 5.9 times salary and RBS at six-times salary.

Part of the problem is that we aren’t educated sufficiently to deal with issues of money.
 
You can borrow money at 30% on a store card, half as cheaply again at 15% on a credit card, and half as cheaply again at 8% by a personal loan from a building society.

Unfortunately, we don’t shop for money in the same way that we shop for a fridge or a car by comparing prices, and value for money. We responded to this by developing Money Talks - a set of educational materials for schools with the Northern Bank and the CCEA.

These entered the N. Ireland curriculum at Key Stage 3 in 2003 - as far as we know the first initiative of its kind in the UK.

In the meantime we dealt with people on low incomes who had 2, 3, and 4 credit cards, when they possibly shouldn’t have been offered the first one.

We dealt with irresponsible lending , and the people who were subjected to incessant phone calls and letters when the high street stores and the banks sold their debt on to debt recovery companies.

We dealt with people who were pursued by these companies even though they were receiving treatment for mental ill health.  As a trusted third party which doesn’t take a fee from the creditor or the client, we were able to represent people to their creditors, stop the harassment, and negotiate repayment schedules that still leave people enough to live on.

Until the Ulster Bank gave £300,000 for debt advice to DETI last year, the banks and the finance industry in Northern Ireland had successfully avoided making any financial contribution to the downstream consequences of its policies and lending practices.

The industry should be compelled to do so - just as surely as BP will pay for the oil spillage in the Gulf of Mexico.

DETI has committed some £2m since 2005 to what is in effect crisis intervention.

There is no reason why the Government and an advice charity should be subsidising such an enormously profitable industry in this way.