Debtmatters has announced that it has quit the controversial Individual Voluntary Arrangements (IVA) sector because of the the fallout with the lenders regarding falling fees and would concentrate on providing secured personal loans instead.

Debtmatters sold its portfolio of IVAs for £6.4 million pounds to a consortium of Grant Thornton and Totemic Ltd.  This was £2.5 million pounds lower than the price the broker Numis had expected the 50 cases a month portfolio to fetch.

Debtmatters also sold other arms of the debt management business for an extra £800,000 pounds.  The company also announced it will now change its name to Loanmakers.

New banking facilities to the value of £3.5 million are in place to help the newly developed company to succeed during the turbulent credit crunch. 

In a statement the Chief Executive of Debtmatters Ges Ratcliffe stated:

“It was becoming increasingly difficult to operate a successful direct marketing IVA business with acceptable profit margins in the face of increasing costs of case acquisition and reduced fee levels in tandem with ongoing sector uncertainty.”

IVAs is a light form of bankruptcy allowing indebted consumers to pay back their debts over a longer time period (typically five years) allowing debtors to avoid the full stigma of bankruptcy.

Over the last 12 months IVA companies have been under fire from high street banks for charging the lenders a high set up fee for the IVAs and not returning enough of the money to the lender.

The IVA fees fell last year when the IVA providers and the lenders first clashed over the IVA set up fees.  Anaylsts have also told Reuters the IVA fees could end up falling by as much as two-thirds.

Ongoing customer bad debts at problem hit credit cad firm Egg have caused losses of about £250m last year at Egg.
Egg was sold to Citigroup by Prudential last May when Egg had losses of £145m in 2006. 

Egg was started in 1998 by Prudential Insurance and floated 21 per cent of it in 2000. Prudential then bought back the minority shareholding in 2005.

Citigroup eventually bought Egg for £546m last year after Prudential held numerous talks with many possible suitors without success; at price thought by analysts to be high - in order to push into UK consumer banking.

Earlier this month Egg wrote to 161,000 customers to advise them that their cards will be stopped or their credit will be cut.  Egg’s new owner Citigroup advised these customers have shown signs of not being able to repay their loans.
The cancellation of so many cards has caused many of Egg’s customers to complain, many of whom claim to have had no problems with thier loan or credit card repayments.

 Many analysts believe the credit card provider, Egg has suffered such large losses due to the high numbers of customers defaulting on their credit cards and personal loans due to Egg’s existing book being of a lower quality when compared with many of its’ competitors.

Citigroup refused to comment on the position of Egg.

PPI or Payment Protection Insurance is an insurance product that allows an individual to claim for the loan (whether the mortgage or personal loan) repayments to be made on their behalf if they become ill, lose their job or become redundant.
Recent research shows that this particular insurance cover is extremely costly and in may cases not beneficial to the individual claiming.

According to figures released by the Competition Commission banks make between £2.2 billion and £2.6 billion a year from PPI.  As a result the competition watchdog is investigating the market for PPI after the Office of Fair Trading decided there may be evidence of an uncompetitive market that disadvantages consumers.

The watchdog has also stated that banks selling PPI make a huge return on their costs of 982% and many lenders now rely on the sale of PPI insurance to enhance income earned from loans. The Commission said banks and other lenders would make no money from selling personal loans if they did not push customers into taking out PPI at the same time.

The Commission decided to investigate the market for PPI after the Office of Fair Trading decided that consumers were disadvantaged due to an uncompetitive marketplace.

A debt report by Save the Children shows that those families on lower incomes are having to take out loans with door step lenders such as Privdent Personal Credit at amazingly high interest rates as extortionate as 200%. The money is then being used to pay for basic living expenses such as paying for enrgy bills.  The reprot further suggests that as many as 2.3 million people are taking out loans from door-to door salesman.

One of Save the Childrens poverty advisers, Mr. Jason Strelitz actually was bold enough to name Provident Personal Credit, which he advised offers loans of up to £500 at an APR of 183%.  Another doorstep lender is Brighthouse, which sells househod goods such as televisions and fridges on credit again at extremely high interest rates.  These companies target deprived areas of the UK to sell their loans.

Unfortunately the majority of the people who do tend to take out loans with these door-step lenders are refused credit by high street banks so have no choice but to take out these loans. High street banks do not lend to those with a high risk credit profile.

Jason Strelitz also said: “Doorstep lenders exploit poor families’ inability to get credit from more mainstream lenders, and they cover their risk in lending to the less well off by charging punitive interest rates.”

On average the cost of borrowing from a door-step lender varies but can up up to £285 paid back on a £100 loan- anything up to three times the initla amount borrowed.  According to the report approximately 165,000 of the UK’s poorest families borrow from illegal lenders or loan sharks to pay for their basic living expenses.

It has been found that the poorest families require an extra injection of cash around twice a year- during the summer holidays when children are off school and need extra meals as well as at Christmas when the heating has to be on all day.