There are three main trade associations of businesses that provide credit to the UK. They are the UK Cards Association, the Building Societies Association, and the British Bankers Association. Combined, they are the “sponsors” of The Lending Code which outlines how lenders should act in specific parts of the lending process (such as what happens when an issue goes wrong later on).

With the sponsors joining together to step in and “self-regulate” the Lending Code, UK consumers who borrow money from time to time should see the benefits when enhancements and amendments are made. However, skeptics have previously argued that such self-regulation is actually a tactic by industries to avoid potentially tougher regulation if it is passed over to external bodies.

The rules of the Lending Code have been under scrutiny and it is now clear that up to thirty updates, which are expected to be implemented in the near future. Such updates typically result from the input of affected observers such as debt advice associations and government departments.

A big issue that’s affected mortgage lenders for a while is “affordability,” with one of the banking system’s main deficiencies in the run-up to the financial crash being the failure to take into account borrowers’ mortgage payments upkeep. This is now moving up the agenda for unsecured lenders too. These amendments to the new code in particular will be accepted by IVA providers who generally discover that their clients have been lent sums of money that they could never have possibly repaid.

Also under review is the issue of giving out overdrafts (or extensions in overdraft limits) regardless of the fact that the account owner didn’t even asked for it. It seems unlikely that the new Lending Code will put an end to this, but it is anticipated that additional processes for consumers to opt-out of this “service” will be put in place. Overdrafts are often included in IVA creditor lists and an extended overdraft limit can encourage increasing debt, often inevitably requiring serious insolvency actions such as an IVA.

Extra assistance is to also be expected from lenders, in circumstances where the borrower seems to be heading towards debt problems. Although it isn’t clear what type of assistance is to be offered, or how it’ll be provided, early intervention in debt problems can only be beneficial whether inaugurated by the debtor or their creditors. However, a conflict of interests between debtor and lender is likely to be seen as an issue in this area. The risk is that precedence is given to debt-relief alternatives that lead to full creditor repayment, even though in some situations debt solutions that usually involve a part of debt write-off (e.g. bankruptcy or an IVA) will offer the most beneficial solution for the debtor his or herself. The other option is for these types of situations to be dealt with independently.

The “right of set-off” is an issue that appears frequently in every IVA forum. In short, banks usually include terms in their client contracts that enable them to extract money from one account (usually pay from a current account) to repay another debt that has not been paid (e.g. a credit card bill). New rules to limit where this can happen are expected.

Even though lenders and their associations may deserve praise for taking action in such important areas, many will remain concerned about the issues of interest conflicts and demand for self-regulation to be removed in favour of independent supervision in the future.

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