The banks have talked of writing off debt but the reality of it is that they only sell on defaulted loans to collection agencies for 15 per cent of the value, who subsequently and relentlessly pursue debtors for the full sum. Many people who have difficulties in debt try their hardest to keep up with the loan repayments, but some debts are simply sustainable.

And the collection agencies aren’t very helpful as they only care about recovering debts so a new solutions needs to be put in place to tackle the serious debt problems with an Individual Voluntary Arrangement.

An IVA is a way of writing off up to 75 per cent of serious debt. The debtor makes 60 monthly repayments and the remainder of the debt is written off at the end of the term. If the payment schedule is maintained, a creditor is unable to pursue the debtor as the agreement is legally binding.

IVAs are agreed by an insolvency practitioner who will help construct a proposal that is submitted to creditors. A meeting of creditors is then held. For the IVA to be accepted, it must receive a favourable vote from 75 per cent of creditors in terms of value.

IVA’s are designed to assist people who cannot escape serious debt problems. This is defined as someone who owes more than £15,000 and cannot keep up with the repayment schedule.

An IVA helps people to escape financial problems when they cannot realistically declare bankruptcy because they would otherwise lose their home or professional status.

It also benefits those who do not want their insolvency to be made public.

An IVA is not for people who have debts below £15,000. Debt Management Plans are more suitable. It also isn’t the right option for people who rent their home or don’t have a professional status to project, contact iva.net for IVA Advice and any questions you may have regarding their services.

Were this to happen, some providers have said that they will reduce the payments on index-linked pension annuities.

Despite the fall, the government are promising that the basic state pension will rise by at least 2.5% even if the year-on-year prices fall.

Tom McPhail of financial advisors Hargreaves Lansdowne had the following to say about which pension annuities would be cut if inflation falls below zero.

“Axa, LV, Partnership, some of Standard Life’s annuities, some of Prudential’s annuities – these companies have said if RPI goes negative and you have one of these annuities, then your payment will go down.”

He added that others will not make the cut: “Norwich Union, MGM, and Legal and General have said your payments wouldn’t go down, they would just stay flat until RPI went back up above where it was before.”

Effects Will Start to Show Sooner Rather Than Later

It is thought that the Retail Prices Index may go negative as soon as March, which may affect some people very quickly.

Mr McPhail added that: “Generally annuity providers use the RPI figure three months before you took the annuity out. So if they go down this month that will affect people who took their annuity out in June last year.”

For those with state pensions, the news isn’t as bad.

State pensions are linked to Septembers RPI, and though the government has predicted that the RPI will fall to below minus 2% in the third quarter of 2009, they have also said they will not raise state pensions by less than 2.5% in April of next year.

However, they are not making such promises for people with Child Benefit, Jobseekers Allowance or Disability Benefits. If the annual rate of prices falls, these benefits will be frozen.

Another thing that will freeze if prices continue to fall is company pensions paid to retired workers from the public sector.

Tom McPhail said: “The odd one could [be cut] but it would save them very little money and upset a lot of people. So with a company pension you’re probably OK.”

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The device is called keylogging, and enables fraudsters to gather passwords and credit card numbers.

Last year alone, online banking fraud reached a massive £52.5 million, compared to £22.6 million in 2007, and again, just £12.2 million in 2004, according to UK payment association – Apacs.

Losses due to fraud related to UK credit and debit cards also rose by 14%, reaching £609 million. However, most victims of card fraud aren’t liable and therefore get their money refunded.

Recent years has seen an increase in the number of people choosing to bank online, from the comfort of their own homes, as opposed to having to queue.

One Step Ahead

The problem of this is that fraudsters are usually one step ahead of consumers, and therefore, quickly adapt new technology. This has been seen clearly by the steady increase of internet banking fraud in the last few years.

The programmes that are used to target us by tracking our details usually find their way onto our computers via unsolicited emails.

A spokeswoman for Apac said: “The industry continues to remind customers to ensure that they have their computer’s firewall switched on and anti-virus software up to date.”

The introduction of card chip-and-pin numbers seemed to be doing the trick when it came to reducing card fraud, however, 2007 and 2008 has seen the number begin to rise once more.

Goods that are bought on the internet, over the phone, or via mail order are currently the number one target when it comes to card fraud. In these areas, pin numbers are not required, so it is hardly surprising that fraud in this area has risen by 13% to £328 million.

PIN Numbers Work

However, the most significant rise was 39%, which correlates to the number of people who take over other people’s accounts – ID theft.

Apac have admitted that, overall, card fraud losses have increased, but it says that if these losses are taken as a percentage of card turnover, these were actually falling.

It also pointed out that in the last 5 years, the most rapid acceleration in fraud was actually by fraudsters using cards overseas, especially in places where chip-and-pin is not in place. Apacs is therefore pressuring on many countries, including the US, to introduce chip-and-pin.

Anyone in the UK caught out by card/internet fraud is not liable according to the terms of the Banking Code as long as they have acted with ‘reasonable care’, and will subsequently be reimbursed.

However, the code also says that if the card is used before it is reported missing, or is someone knows a PIN, the victim has to pay the first £50 they lose.

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The report suggests reasons for limiting the amount of money that can be borrowed in order to purchase a home in order to protect consumers from borrowing too much and also protect banks from the potential threat of excessive lending.

However, Lord Turner has been the first to admit to potential disadvantages to the idea of restrictions, and therefore the FSA will discuss the issue in the autumn.

The review says: “The rapid extension of mortgage credit was a key factor in the origins of the financial crisis in the US, the UK and several other countries.

“In the UK high initial LTV (loan-to-value) and LTI (loan-to-income) ratios played an important role.”

Market Discipline Not Working?

The Council of Mortgage Lenders (CML) is welcoming the discussion, saying: “We see the FSA’s September paper on the future of mortgage regulation as a real opportunity to help shape a future regulatory landscape that will serve both lenders and consumers better.”

If the decision to legally limit mortgage size does go ahead, it would mean that it has to fundamentally change its previous policy.

The regulations have previously focused on the health of the financial service and making sure customers are treated properly and letting both sides make their own choices.

But the “market discipline” would help both individual customers and banks from taking excessive risks with money has been disproved in the last 18 months.

The review states that: “Both some customers and some providers relied imprudently on the assumption that ever rising house prices would reduce the risks otherwise inherent in high LTVs.”

Serious Disadvantages

September will see the publication of the FSA’s paper, which will look at various ways in which mortgages can be regulated. This will include things like formal limits on either the LTV or LTI ratios.

The report will also protect lenders and borrowers, and limits on the mortgage market could stop rising house prices exaggerating wider economic rises and falls.

Some countries, for example: Hong Kong; Netherlands, Greece, Poland; and Austria, already have formalised restrictions on the size of home loans.

However, the potential disadvantages of the idea are serious. For example, some people could be kept out of the property market as they can’t find enough money to put together a deposit, therefore not allowing them to buy a home.

Other borrowers may get around the restrictions by borrowing the extra money needed elsewhere, such as on credit cards, which will prove an even greater expense in the long run.

The Royal Institution of Chartered Surveyors (Rics) is worried about this: “Restrictions on mortgage lending run the risk of stifling activity in the housing market and could cause more problems than they solve.”

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Douglas Alexander, cabinet minister, has warned that the meeting that is due to take place next month is an “important moment”.

Finance ministers met on Saturday, and promised to make a serious effort to beat the current recession.

However, the best way to proceed is a matter for debate.

Finance ministers want to continue with the economic stimulus packages and low interest rates as well as increasing IMF funding.

They are also playing down the idea that a rift stands between the US, EU and UK on methods that can be used to help sort the financial problem.

Response Will Vary Between Countries

Mr Alexander said: “We had an agreement from everybody around the table to do all that is necessary for as long as is necessary and that sends an important signal to markets.

“There was a recognition with 20 countries around the room that the fiscal response is going to vary from country to country,” he added.

The basic outline of the agreement will help provide the basis for more concrete pledges that will be brought up at next month’s G20 meeting, which will take place in London.

Mr Douglas also said that: “A meeting in London 1931, the world came together and failed to reach agreement on the way to deal with the recession at that time and we all know the consequences.

“We do have a heavy responsibility to stop protectionism taking hold.”

When the idea that sides were being formed due to a division between the US and some European countries, was mentioned however, Mr Alexander denied all claims. He said: “I don’t know where this notion has emerged that somehow there are sides developing with respect to the G20, there are no sides.”

What Do You Think?

Is the government going about fixing the economic crisis in the right way? Will G20 help as much as they are suggesting? Leave your opinions here.

Trading Standards are looking into a mobile phone insurance scam that may have affected hundreds of people across the UK.

The scam targets those with new phones, and makes people believe they are receiving a call from the shop or mobile phone network.

Usually, customers are led to believe they are being offered cheaper insurance for their phone. However, after payment details are given, the consumer is lucky to receive poor quality insurance, and most receive no insurance at all.

Trading Standards say that the scam has been a problem for the last 18 months, and is looking into 10 companies in the Swansea area. It is also warning people not to give their details to cold callers.

Those involved are believed to be buying phones and calling numbers quite similar to their own until they find someone with a new mobile phone.

Speaking Out

One victim has spoken out. Rebekah Swift bought an iPhone for her sons 17th birthday. She explained her story: “I took him to Carphone Warehouse and bought him an iPhone and paid for some insurance.

“We came home and a few hours later his new phone rang and it was from some people who led him to believe they were from Carphone Warehouse.

“He came into the kitchen and he said they were offering a cheaper insurance deal and we thought that was great. I let him give my debit card details over the phone and thought nothing more of it.

“Then he received a text some while later from Carphone Warehouse warning him of an insurance scam going on and by that stage the money had already gone out of my account, and we’d both been scammed.”

What Do You Think?

Have you been targeted by these pranksters or pranks of a similar nature?  Do you have any advice for people in order to help them avoid being the victim, or ideas what they can do if they think they have been targeted? Leave your comments here.

According to the Incomes Data Service (IDS), firms are also putting off decisions about wages, which it says: ‘may be covering a much darker picture’ when it comes to the final extent of the pay freezes. But it also says that the average rate will increase, just more slowly.

There will be some sectors of business however, that see no change in the inflation of pay. Utility firms and the defence industry are two such examples.

Another thing that is becoming increasingly common within the workplace, is employers reducing the amount of hours their staff work in order to cut costs and still being able to keep many skilled and experienced employees within their firm.

Some employers have even waived bonuses and pay hikes, and told employees that there is no prospect of a pay rise this year.

‘Fairness Agenda’

Editor of the IDS Pay Report, Ken Mulkearn said: “We are also seeing pay pauses, where it comes to the time for an annual pay review and firms are saying they will put off a decision on what to do about pay.

“This means it does not get recorded as a pay freeze even if, in all likelihood that will be the outcome eventually in many cases.”

Though according to Mr Mulkearn, some businesses have decided to operate a ‘fairness agenda’ whereby staff at the higher end of the payment scale’s wages will be frozen, but lower salaries will be increased.

The car manufacturing business has been particularly badly hit in the recession. Some employees are being cut to just a couple of shifts each week and have had overtime banned, which has a serious impact on the amount of money each employee brings home.

‘What Else Can Businesses Do’?

Head of Economics at the TUC, Adam Lent has said that pay freezes are becoming “increasingly widespread… It’s a very tough recession. People are having their pay frozen or even cut and it can affect their finances extremely badly.

“Unions will always opt for a pay freeze and short-time working over redundancies. People understand that it’s better for a large number of people to take that pain, which is quite tough, than to have a small number of people take redundancy which is totally devastating.”

John Cridland of CBI business group said around half of its members would not be looking at pay rises this year. He said: “What else can businesses do? They only have a certain amount of money coming in and a certain amount going out and these have to balance otherwise the business closes down.

“The objective of a business is not to lay people off. If they have to reduce overtime, if they have to cut out bonuses or change shift patterns they will do so.”

What Do You Think?

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The new rules will even include how much case banks can hold in reserve.

Chancellor Alistair Darling is backing these new regulations, pointing out the importance for “backstop” powers to stop banks overstretching themselves.

He told Channel 4 News: “Banks took on too much risk. RBS for example buying the Deuch bank ABN – they took too much risk.”

The aim of “backstop” power is to limit banks lending and will “make sure that banks have got adequate capital against times when things are tough, I think that is very, very important,” he added.

‘People Should be Very Frightened’

Mr Sants comments were part of a speech he gave on the lessons of the banking crisis, in which he also added that society was demanding aggressive intervention in order to prevent banks taking unnecessary risks that bring the financial system down further.

He also said: “There is a view that people are not frightened of the FSA. I can assure you that this is a view I am determined to correct. People should be very frightened of the FSA.”

City regulator has been criticised for its lack of intervention in its role as UK banks supervisor in order to stop huge liabilities building up, which has lead to the massive credit crisis we are currently facing.

Last month, the new chairman of the FSA admitted that the FSA was also guilty of not performing its role as well as needed, and that it had not focused on the “excessive risks” that banks had been taking.

He told the BBC: “the FSA at that time was more focused on the processes, the structures, the reporting lines, rather than simply saying ‘when I look at this whole business model…it’s all too risky’.”

It won’t be long before the FSA publishes the full extent of their plan to change the financial services industry regulations, which will include a new system controlling the pay of bankers.

Intensive Supervision Needed

Mr Sants has advised for more “intensive” supervision of banks in order to prevent a “similar crisis” in the future.

He also said that the FSA would take action if it decided actions of senior bank managers were too risky, even at the risk of stifling innovation.

He said: “This is a fundamental change. The revealed preference of society says that this is, and possibly always will be, what society as a whole expects regulators to be doing. Indeed, it was what they thought we were doing.”

Sir Nigel Rudd, deputy chairman of Barclays bank has also shown his disapproval of banks actions, going so far as to call other banks “lunatics”.

He said: “we couldn’t compete with these lunatics who were throwing money at the market: 125% mortgages; self-assessment; it was madness.”

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Now, only 793 people are eligible for a spot on the list, but even they have lost an average of 23% of their wealth.

Bill Gates, founder of Microsoft has reclaimed the top spot on the list, even after his overall wealth has decreased by roughly £13.06 billion.

Warren Buffet, who owns Berkshire Hathaway, knocked Bill Gates off the top spot on the list after 13 years last year, but due to a $25 billion decline in profits, and 50% share value shrinkage in that last year, Mr Gates has stolen the number-one slot again.

656 Billionaires Have Lost Money in Last Year

Another to suffer the effects of the crisis, is Indian businessman Anil Ambani, who has slipped from number 6 to number 34 in 12 months after his net worth decreased by two thirds, to  £10.1 billion.
Overall, last year, the net worth of the top 20 on the list was $21 billion last year, this year it is closer to $14 billion.

Also, the last 12 months has seen only 44 people on the list managing to increase their fortune, while 656 lost money in total.

For example, Michael Bloomberg, Mayor of New York is one of the few that managed to increase his wealth this year, and is in fact the only member of the top 20 to do so. His wealth is thought to have increased by about $4.5 billion.

US Flying High

Discount retailing has helped keep many of the top 20 in their places on the list.

Founder of budget retailer Uniqlo, Tadashi Yanai entered the list for the first time despite the economic depression, at number 76, and is worth $6 billion. Meanwhile Aldi owner Karl Albrecht moved up four places to number 6 despite the fact his net worth increased by $55 billion.

When it comes to world regions, regions like India and Russia lost a lot of their wealth to the US, which now claims half of the top 20 spots, and generally has the most billionaires.

Along with this, New York beat Moscow with the most names on the rich list reaching 55 billionaires. Moscow therefore came third, with London sneaking into second place with just one more billionaire, making 28 in total.

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Those with variable or tracker mortgages have seen the benefit of the reduction in interest rate, but savers and pensioners in particular are feeling the pinch.

Those with branch-based notice accounts are also seeing little reward on their savings. At the end of February, the average rate was 0.18%, which is half the figure at the end of January.

This time last year, interest rates on instant access accounts were 2.69%, much higher than the current 0.17% average.

‘Savers Being Punished’

Moneysupermarket.com’s Kein Mountford said: “savers are being punished for the mistakes of others, and that so many are looking to find better rates at a time when you would imagine security and service would be paramount, shows just how badly savers are being squeezed.”

ISA interest rates also dropped to an average of 0.96% from 5.06% this time last year.

On the other hand, interest on fixed rate bonds has risen a little, from 2.49% at the end of January, to 2.56% at the end of last month. Although, this is still around half the amount they were at this time last year.

Savers may be suffering, but mortgage borrowers are looking at lower repayments on their loans.

Customers with a standard variable rate (SVR) deal are currently looking at an interest rate average of 4.41%, nearly half what it was a year earlier at 7.5%.

Does Anyone Really Benefit?

This shows that neither borrowers nor savers have really been seen the benefit of recent interest rate cuts.

Experts are saying that interest rates can’t really fall any further, and are suggesting a longer-term fixed-rate mortgage deal could benefit mortgage borrowers more over time.

Though it has to be born in mind that it is hard to determine how many people in the UK are borrowing and how many are saving their money at the moment, it is fairly safe to assume that overall, there are more savers, but most UK householders are net borrowers.

The stats show that overall, total household savings are about £987 billion with banks and building societies, on top of £90 billion of National Savings. On the other hand, borrowing reaches £1,225 billion in mortgage debts, plus £233 billion in other consumer debts.

The funding gap – the difference between these two figures is the amounts banks are borrowing in wholesale markets, much of which comes from abroad.

What Do You Think?

Have you been badly affected by savings interest rates crashing? Do you have any advice for other people? Leave your comments here.