Table of Contents
This Key Note Market Report covers lending to individuals — including consumer credit and loans secured on dwellings — as well as lending to corporate bodies, which includes financial corporations, non-financial corporations, unincorporated businesses and non-profit-making organisations (NPOs). The debt services industry focuses on both the management and collection of these debts by companies set up specifically for that purpose. Debt management agencies work for the indebted consumers and companies to liaise with creditors and bring about a resolution to debt issues, whereas debt collection agencies work for the creditors to try and recover unpaid debts.
The debt services industry is almost unique, in that it is one of the few which truly profits from an economic slump; during periods of poor economic performance, when unemployment and inflation are high, more people turn to debt management companies to try and ease their debt burden. In 2008 and 2009, the total UK lending by monetary financial institutions increased by 13.4% and 2.3%, respectively.
In 2011, the largest sector of the market was loans secured on dwellings, which recovered relatively quickly from the slump seen in 2008. This was followed by loans to other financial corporations, although such loans outstanding were down from their 5-year peak in 2008.
Although the debt services industry is performing well in the wake of unsustainably high levels of consumer debt built up prior to the recession, debt management firms are operating in an ever-more tightly regulated environment. In September 2010, the Office of Fair Trading (OFT) informed 129 debt management firms that they risked losing their consumer credit licences unless they took immediate action to comply with the OFT’s debt management guidance. As a result, by March 2012, over 80 companies had left the industry, either voluntarily or as a result of having their licence revoked by the OFT for non-compliance. The Financial Services Bill — at the Review Stage in the House of Lords at the time of publication (January 2013) and expected to receive Royal Assent by early 2013 — will also provide the debt services industry with tighter regulations to work in.
In 2011, there were a total of 142,430 individual insolvencies recorded in the UK. Although this was lower than the peak of 159,641 in 2009, it remains considerably higher than in 2007, prior to the financial crisis. Individuals are increasingly being forced into insolvency as their debts become too great to manage.
With unemployment high and expected to remain so until 2015, demand for the services offered by debt management companies should also remain high. In addition, the prospect of rising inflation — spurred by any future possible expansion of the Bank of England’s (BoE’s) quantitative easing policy or an increase from the historically low base rate of 0.5% — could impact significantly on heavily-indebted consumers, thus leading to an increase in consumers seeking debt management assistance.
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