No relief for retirement savers

Government to review debt relief rules

The Department for Business, Innovation and Skills has announced that it will consult on possible changes to the rules concerning a recently-introduced mechanism that provides debt relief to the over-indebted. The Debt Relief Order (DRO) was introduced in April 2009 and is designed to write off unaffordable levels of debt for those who are unlikely to ever be able to afford to repay their debt as they have few assets and very low amounts of spare cash.

Under the rules, the DRO is only available to people who have assets worth less than £300. The rationale behind the procedure is that it provides debt relief for individuals who could never realistically afford to repay their creditors, but for whom bankruptcy is unnecessarily burdensome and expensive.

Debt advisors have raised concerns that the rules are putting the DRO out of reach of a significant proportion of debtors who, whilst having few valuable assets, do have small amounts of pension savings. Although pension funds are usually excluded from bankruptcy, the term "assets" was not clearly defined in the DRO rules and it has been suggested that this wide definition is having unintended consequences by barring many from using the procedure.

The consultation on the rules is sensible. The DRO has become popular since its creation nearly a year ago and there is clearly a need for easily accessible and affordable debt relief for those who are over-indebted and who have no prospect of ever escaping their creditors.

Neither a lender nor a borrower be?

Lending to individuals is on the up

Statistics released today by the Bank of England show that lending to individuals (rather than businesses) increased in December amid signs that the credit crunch is easing. Total net lending to individuals rose by £1.2 billion in December whilst the twelve-month growth rate remained at 0.7%. The net lending secured on dwellings increased by £1.2 billion, meaning that secured lenders are willing to increase their exposure to the UK property market. This optimism seems to be backed up by figures from the Land Registry showing that UK house prices rose by 0.1% in the month of December and went up by 2.5% overall in 2009.

Whilst net lending secured on property has been increasing over the past few months, December saw the first net increase in unsecured lending for six months, with an overall increase of £0.1 billion.

Needless to say, different people will read different things into these figures. On the one hand, evidence that lenders are freeing up credit and making it easier to borrow money may be regarded as positive signs that the credit crunch has come to an end. On the other hand, the impact of over-indebtedness has become an increasingly important socio-economic issue and the national addiction to credit seems to be here to stay.
 
If banks keep lending without real regard for their customers' ability to repay, they will surely come unstuck again. And if individuals don't take responsibility for their credit habits, they will find themselves in deep trouble. Further regulation of consumer banking may help, but more financial education for individuals is sorely needed.