Lenders warned they face debt recovery challenge

Debt recovery specialist Moore and Blatch has warned that changes in the public attitude to debt may present lenders with fresh challenges in recovering debts.

Statistics from the government’s Insolvency Service show that more than 23,000 people became insolvent in England and Wales during the first three months of 2006. This represents a 73% rise compared with the same period last year.

Attitudes to debt were recently under the spotlight in the BBC television series Britain’s Streets of Debt. One programme included an interview with an anonymous high ranking executive at one of the main high street banks.

In the interview she said that “every branch of every bank and every individual who works in a bank has ambitious targets to sell you more products – effectively to make you borrow money and get you further into debt”.

Paul Walshe, head of lender services at Moore and Blatch, says: “The Council of Mortgage Lenders has reported rises in arrears and repossessions over the past year and this indicates that tougher times may be round the corner for lenders. It’s a good time to tighten procedures for arrears management and shortfall recovery.”

But Bob Sturges, director of communications at Money Partners, says it’s important to keep these statistics in context.

He says: “Repossessions remain at low levels. And while it’s true that the number of court orders has risen, partly as a result of lenders using them as an account management tool, repossessions are modest in comparison. For example, in 2005 70,000 orders were made and 10,250 homes repossessed. This year the CML forecasts a relatively small rise in repossessions to 12,000.”

Sturges adds that the rise in insolvencies is due to changes in bankruptcy laws making it easier to declare bankruptcy and the fact that it no longer carries a social stigma.

Claire Mortimer, spokeswoman at BM Solutions, says: “Consumer attitudes toward debt have changed. But a shift in culture does not have to lead to disaster as is being suggested in some media. People need to be educated on the balance between saving and debt but scaring them is unlikely to help.”

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