The rise and rise in numbers of people going insolvent, entering into IVAs or taking up debt management plans over the last ten years has meant a rapid growth in the number of debt management companies operating in the UK. Although the exact numbers of DMCs is unknown, it is estimated that then numbers have risen from around 150 to about 350-450 in the last ten years.
Higher numbers of people struggling has led to an increase in demand for debt help companies and the rise in numbers of debt help companies has led to a rise in numbers of people entering into debt management plans and IVAs. When people sign up to such a debt solution, it is inevitable that the Banks will lose out. This is because when an IVA is signed the creditors agree to write off some of the debt, and when a debt management plan is entered into, creditors accept that the payment installments will be lowered so it will take longer for them to receive their cash.
According to credit action, in December 2001 the total of all UK personal debt stood at approximately 700 Billion. By 2010, this figure had doubled to just over 1.4 Trillion. During the same period, the number of personal insolvencies nearly trebled from 23,477 in 2001 to 59,194 in 2010. By those statistics, one would assume that creditors must be losing out because although lending is higher (which would generally mean profits are higher), the percentage numbers of people not repaying those debts is also higher (which logically, would make profits lower in percentage terms).
So, are the Banks being hit hard by higher numbers of defaulting debtors? Well according to a recent report by the BBC, HSBC isnt, and they have posted half year profits of 843 Million in the UK alone, an increase of 29%. The other Banks also seem to be ticking along quite nicely Lloyds TSB have made pre-tax profits of 1 Billion, RBS 611 Million, and Barclays have weighed in with a whopping 1.8 Billion (although this is a 24% drop on last years figures).
These figures have been released in the middle of one of the biggest mis-selling scandals of recent times Payment Protection Insurance which is reportedly costing the Banks collectively nearly 10 Billion. The story behind this was that during the boom times of the last decade, when the Banks were lending credit to almost anybody that wanted it, they were making even bigger profits by attaching Insurance to loans and credit cards that people neither wanted or needed. The courts have ruled that the Banks must refund this money forthwith to many disgruntled customers.
Even though the Banks have started refunding money to PPI victims, its clear that with these released figures its not really hurting them too much. Whats also clear, is that the rise of debt management companies and the increasing numbers of people signing up to IVAs and
debt management plans is not hurting the Banks one little bit either!
