Creditor Contact Limits to Increase Debt Arrears

04 August 2011 - Which Way to Pay

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Creditor Contact Limits to Increase Debt Arrears

More people will be forced into arrears according to banks and credit card companies as a result of moves by the Central Bank to change rules aimed to protect the consumer.

Lenders are worried that proposed rules which will restrict lender-borrower communication to a maximum of three contacts per month will be detrimental to consumers that frequently get into credit card and loan arrears.

The credit card provider MBNA has stridently opposed the move to limit finance companies to just three unsolicited contacts a month. MBNA informed the Central Bank that such a contact curb would have the following outcomes:
1) Increase the overall level of arrears, along with the interest and fees owned by card holders.
2) Drive up the sum of customers going into default.
3) Generate a surge in complaints.
4) Increase the probability of irresponsible customers failing to address their debts.

Furthering this, the point was made that the sooner a card provider is able to acquire customer engagement, the less likely that debts will spiral even higher. That said, some credit card companies are known to contact people in arrears up to ten times a day although the lenders argue that such a level of intervention is necessary to ensure repayments of debts not secured by an asset. Similarly, those with serious debt problems need further contact to discuss the possibility of settlements and reduced payment options.

The Consumer Protection Code called this second round of consultations on plans by the Central Bank to update the statutory rule book on how consumers are to be treated.

As well as MBNA’s open reaction, the Irish Banking Federation were pessimistic about the proposed three contact rule saying it would not work where lenders deal with debts other than mortgages.

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