Tackling Financial Exclusion
Tackling financial exclusion and the poverty, ill-health and hardship it causes is an essential step to building a just society.
The tip of the iceberg
As the effects of the recession continue to be felt in Stoke, CAB debt advisers fear that despite helping record numbers of people and helping them manage an amount of debt a third higher than in the previous year, we are seeing the tip of the iceberg.
Local people brought £23 million worth of debt to us last year and 2,416 of them received specialist debt case work. Both of these figures showed significant increase on the previous year. We were able to cope with this due to additional funding provided by the Coalfields Regeneration Trust to help areas affected by the recession, and the launch, towards the end of the year, of a new project working closely with Stoke-on-Trent City Council.
"Although the demand for debt advice remains extremely high we believe that the true level of indebtedness in Stoke-on-Trent lies somewhere between £1.3 and £5.7 billion," said Bureau Chief Executive Simon Harris.
"Consequently, if the economic recovery is not sustained the city could be swamped in a tidal wave of debt."
- many are now approaching the service early in the process before their debts have got out of control and when they have relatively low levels of arrears.
- People using the CAB also tend to be poorer and therefore are less able to borrow large amounts of money. We have also seen a high proportion of debts which are relatively low in value but extremely important to the debtor. Over one third of the debts we dealt with were priority debts such as rent, mortgage arrears, utility debts, court fines and council tax.
These debts cannot simply be included in a debt management plan but often require individual negotiation with the creditor to arrive at an affordable solution.
The introduction of Debt Relief Orders in April 2009 opened up a major new strategy option for debtors with no assets and debts of less than £15,000. In the past, people in this situation would have struggled to cope with debts they were clearly unable to pay. Since April they have been able to apply for a debt relief order which freezes the debts for 12 months before writing them off at the end of the period. This low cost, streamlined alternative to bankruptcy has so far helped over 70 CAB clients to end the nightmare of debt.
Stoke CAB has two staff authorised by the Financial Services Authority to set up DROs.
At the same time bankruptcy has been made more expensive and clients on higher incomes, with more assets or with higher levels of debt it now costs over £600 in fees and deposits to apply for bankruptcy. This has excluded many people who would previously have benefitted from this solution to their debts. Increasingly, advisers are struggling to find help for people who cannot afford the bankruptcy fees. As a result many families have to struggle with unmanageable levels of debt with no obvious solution on the horizon.
There has also been an increase in debt collection agencies using the threat of bankruptcy to intimidate people into paying amounts they cannot afford towards their debts. This problem reached such a level that the Office of Fair Trading was forced to intervene to put a stop to it. Their action was prompted to a large extent by evidence supplied by Stoke CAB and Bureaux around the country via our national association.
There appears little prospect that the demand for debt advice will reduce in the foreseeable future. It is therefore a matter of great concern that the resources available to help the people in this situation will almost certainly reduce as a result of the impending cuts in public expenditure.
Prevention is better than cure especially where financial problems are concerned.
Consequently, Stoke CAB has been running a series of training workshops for other frontline staff and members of the public to improve their knowledge and skills around money.
The sessions use materials which have been tried and tested elsewhere in the country but adapted to meet local needs. The sessions are interactive to make learning fun and memorable. The aim is to inform people about their options for savings, credit, and banking; and to understand the implications of the decisions that they might make around these services. We also advise people on where to go for help with problems and when to seek help.
The sessions have been well received, especially by frontline workers, 9 out of 10 people attending the sessions thought they were excellent or very good.
The feedback was very positive with comments such as:
- "fantastic training, really beneficial and learned lots";
- "excellent session very informative";
- "very informative, clear understanding gained",
- "friendly and approachable facilitators."
Financial Capability co-ordinator Diane Bradshaw said: "many people get into problems with debt because they simply do not understand how their finances work. If we can help people to understand their finances, make better choices and seek help earlier, we can do a lot to prevent the misery of long term, intractable debt.
"This is a view shared by many of our partners as there is always a very strong demand for these sessions and we are now actively looking for further funding to develop and expand this activity."
"If we are to make serious inroads on the massive problem of personal debt in this city then we need to adopt a variety of approaches," said Debt Team Manager Jayashri Lowe. "Putting people back in control of their finances is always our aim," she said.
"To do that we need both to provide expert advice for those people whose debts become unmanageable; but along side this we need to work closely with individuals and other organisations to increase people's knowledge and understanding so they are better able to manage their own financial affairs.
Case Study
Alan is a single man who recently separated from his partner and young child. After the separation he suffered from serious depression and anxiety which led to him losing his job. As a result he got behind with his mortgage and couldn't pay his solicitors costs.
By the time Alan came to see us the solicitors had issued a statutory demand for their bill which if unopposed could have resulted in him being made bankrupt and losing his home.
Having admitted that he had been burying his head in the sand, we worked closely with Alan to rebuild his confidence and help him address his debts. Offering to act on his behalf where appropriate and providing advice and support at other times we worked with Alan to regain control of his finances.
We averted bankruptcy by agreeing repayments with the solicitor. Having achieved that we helped claim support for mortgage interest and made the first contact with his mortgage lender to explain his situation and asked for time to sort out a sustainable solution.
Having dealt with the immediate threats we worked with Alan to help him re-establish a good relationship with his mortgage lender to the extent that he was able to negotiate affordable payments towards his arrears when he found himself a new job. This also gave him the confidence to contact the council and sort out his council tax arrears.
"Sometimes we need to use our expertise and legal knowledge to act on behalf of our enquirers," said debt team manager Jayashri Lowe. "On other occasions, such as with Alan, our role is much more supportive and enabling, providing information, guidance and support so that people can take action themselves. Regaining control builds confidence and equips people to deal with similar problems should they arise in the future."
"This approach leads to much more sustainable solutions and reduces the chances of people being unable to cope in the future. If they do, however, they then know who to turn to for help, advice and support."
Working closely with the Staffordshire Probation area we have been providing debt and benefits advice to ex offenders as part of the City's strategy to reduce re offending.
Research by the National Offender Management Service shows that helping offenders address issues of financial exclusion and deal with these very practical issues makes a significant to their re-integration into society and helps reduce their re-offending.
Working in partnership with other CABx in Staffordshire we offer a service across 6 probation offices in the county, with a particular emphasis on the Hanley office which covers most of Stoke and Newcastle.
"Sorting out the debt and benefits problems raised by ex-offenders is really important step in helping them sort their lives out and change their offending behaviour," said Bureau Chief Executive Simon Harris. "We are delighted to work closely with the probation service and other agencies in addressing this really important issue for the city."