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Creditfix LB 03-2017

Consumer Debt Litigation Higher Than 2008

Latest figures have shown that consumer debt litigation is now higher than in 2008 during the global financial crisis.

There were 910,345 county court judgments in the nine months to the end of September, representing an increase of 34 per cent when compared to the same period in 2016, and compares with 827,000 in the whole of 2008, at the onset of the financial crisis.

Growth in real incomes and savings rates have both deteriorated in recent months, suggesting household finances are worsening, further confirmed by reduced consumer spending, despite UK unemployment being at an all-time low.

The Bank of England also revealed recently that unsecured consumer debt on credit cards, overdrafts and car loans has surpassed ?200 billion for the first time since the global financial crisis.

Although court data does not identify the litigating companies, it is thought that the rise could be down to increased activity by debt recovery companies.

Debt recovery companies buy portfolios of consumer debt that banks, finance companies and retailers have not managed to recover at a huge discount, typically 10p on the pound, expecting to double their money.

An increase in the number of bailiff warrants has been noted, with the number almost doubling from 2014-2016 from 98,000 to 190,000. Activity from private sector bailiff companies has also been seen. Particularly from companies which are paid based on what they recover.

Arrow Global, the UK?s only listed debt collector, last week disclosed it had made a ?16m ‘investment’ in litigation in the past three months to pursue collections from borrowers.

Peter Wallwork, chief executive of the Credit Services Association, the industry body that represents around 200 UK debt collectors, agreed that the increase in judgements ‘sounds alarming’, but said that ‘it could have a good outcome if it acts as a flag to another lender’.

Malcolm Hurlston, who heads the Registry Trust, a non-profit organisation that collates the statistics for the Ministry of Justice, agreed that judgements could be beneficial.

He said: ‘Lenders should go for judgments. It?s in the public interest for people whose finances are in a mess to be helped not to borrow more.’

Another possible explanation for the rise in litigation, according to one debt recovery executive, is companies bringing forward court actions to avoid new forbearance rules imposed by the Financial Conduct Authority (FCA), which took effect on October 1.

It remains to be seen if this is the case and the level of litigation now drops.

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