Co-Op Bank problems?

Have you been told by the Co-Op Bank that you should be looking to re-bank elsewhere, to find another lender because you no longer fit the bank’s criteria going forward?

If this is you, please contact us straight away so, together, we can explore your options – the short time you have been given will quickly pass.

Paul can be contacted on 07813 102014 or by email through paul@midlandsbusinessrecovery.co.uk

Another (small) screw in the coffin of smaller community credit unions

A good many small community based credit unions have had a torrid time in recent years and probably right now aren’t seeing much of an improvement.  The Co-Op Bank’s decision to cut the interest it pays on its community bank accounts – such s their Community Directplus, Co-Operatives Directplu and Social Enterprise Directplus accounts – will prove to be another, small and slow, but certain turn on the screw in the coffin of already beleagured credit unions.

Small community based credit unions are really struggling – at best, they have seen flat income levels, at worst they’ve seen their income fall away, especially from grants and interest receipts.   Yet there is often little opportunity for them to reduce their overheads in line with the fall in income.  Trying to increase income by growing the loan book can often carry a disproportionate risk of bad debts so for some they have a stark choice – grow or merge or die a death of a thousand cuts.  The Co-Op decision will prove to be just another cut…

Let’s look at what the Co-Op is doing…

Interest rates paid on customer balances have never been lower, certainly not in my lifetime.  Until June the Co-Op will be paying a tiered rate of interest – Nil% on balances up to £1,999; 0.12%  on balances £2,000 to £9,999; 0.15% on balances £10,000 to £24,999; 0.18% on balances £25,000 to £99,999; 0.21% on balances £100,000 to £249,999; and 0.25% on balances over £250,000.

That’s to say the most the Co-Op will ever pay any credit union right now is one quarter of one per cent per annum… peanuts.

Yet those peanuts are being crushed!

The new rates from June 2015 will be: balances up to £24,999 Nothing, yes absolutely nothing – the Co-Op will get to keep your money for free!; £25,000 to £99,999 0.06% – a third of the already derisory amount it had paid previously; £100,000 to £249,000 0.09% – less than half it had previously paid; £250,000 to £499,000 0.18% – a cut of one third from the rate it had paid previously; over £500,000 0.25%, no change.

The message is clear… the Co-Op isn’t interested in supporting small organisations, it’s using you, the small credit union, to extract itself from its own financial difficulties … it doesn’t have the cohonas to abuse bigger organisations in the same way as they’re prepared to abuse you.

So it’s you, the smaller community based credit unions, and organisations just like you who will feel the brunt of this decision… it will be another straw on the camel’s back…

You see, right now, because you’re getting virtually nothing on the money you are sitting on and with additional grant income difficult to come by, the only way you can meet the regulator’s solvency targets might be by increasing the interest you receive on your loan book.  As you’re limited by law as to the maximum interest rate you can charge on the loans you make, this means you need to grow your loan volumes – the number of loans you put out and the amount you loan out.

The issue is you need to do this without increasing your bad debts.  Desperate people will go to any lengths – you will be lied to, some applications will be pure fabrication. How robust are your application procedures throughout your credit union?  You might get credit reports on potential new lending, but how reliable are those reports? – they are not as accurate as you’d hope!  And you probably can’t always rely on your longstanding members’ past savings history as an indication of their ability to repay any new loans – because people have so many ways nowadays of avoiding repaying their debts – not just the formal insolvency processes of bankruptcy, DRO, and IVA, and informal debt solutions such as DMP and DRO, but also pleading poverty in any debt collection process passing through the courts, and even disappearing.

It’s easy to see the situation whereby a credit union that’s already struggling with the the regulator could be forced into administration and then closure because of its bad debt experience and low level of bank interest income.

 

Another (small) screw in the coffin of smaller community credit unions

A good many small community based credit unions have had a torrid time in recent years and probably right now aren’t seeing much of an improvement.  The Co-Op Bank’s decision to cut the interest it pays on its community bank accounts – such s their Community Directplus, Co-Operatives Directplu and Social Enterprise Directplus accounts – will prove to be another, small and slow, but certain turn on the screw in the coffin of already beleagured credit unions.

Small community based credit unions are really struggling – at best, they have seen flat income levels, at worst they’ve seen their income fall away, especially from grants and interest receipts.   Yet there is often little opportunity for them to reduce their overheads in line with the fall in income.  Trying to increase income by growing the loan book can often carry a disproportionate risk of bad debts so for some they have a stark choice – grow or merge or die a death of a thousand cuts.  The Co-Op decision will prove to be just another cut…

Let’s look at what the Co-Op is doing…

Interest rates paid on customer balances have never been lower, certainly not in my lifetime.  Until June the Co-Op will be paying a tiered rate of interest – Nil% on balances up to £1,999; 0.12%  on balances £2,000 to £9,999; 0.15% on balances £10,000 to £24,999; 0.18% on balances £25,000 to £99,999; 0.21% on balances £100,000 to £249,999; and 0.25% on balances over £250,000.

That’s to say the most the Co-Op will ever pay any credit union right now is one quarter of one per cent per annum… peanuts.

Yet those peanuts are being crushed!

The new rates from June 2015 will be: balances up to £24,999 Nothing, yes absolutely nothing – the Co-Op will get to keep your money for free!; £25,000 to £99,999 0.06% – a third of the already derisory amount it had paid previously; £100,000 to £249,000 0.09% – less than half it had previously paid; £250,000 to £499,000 0.18% – a cut of one third from the rate it had paid previously; over £500,000 0.25%, no change.

The message is clear… the Co-Op isn’t interested in supporting small organisations, it’s using you, the small credit union, to extract itself from its own financial difficulties … it doesn’t have the cohonas to abuse bigger organisations in the same way as they’re prepared to abuse you.

So it’s you, the smaller community based credit unions, and organisations just like you who will feel the brunt of this decision… it will be another straw on the camel’s back…

You see, right now, because you’re getting virtually nothing on the money you are sitting on and with additional grant income difficult to come by, the only way you can meet the regulator’s solvency targets might be by increasing the interest you receive on your loan book.  As you’re limited by law as to the maximum interest rate you can charge on the loans you make, this means you need to grow your loan volumes – the number of loans you put out and the amount you loan out.

The issue is you need to do this without increasing your bad debts.  Desperate people will go to any lengths – you will be lied to, some applications will be pure fabrication. How robust are your application procedures throughout your credit union?  You might get credit reports on potential new lending, but how reliable are those reports? – they are not as accurate as you’d hope!  And you probably can’t always rely on your longstanding members’ past savings history as an indication of their ability to repay any new loans – because people have so many ways nowadays of avoiding repaying their debts – not just the formal insolvency processes of bankruptcy, DRO, and IVA, and informal debt solutions such as DMP and DRO, but also pleading poverty in any debt collection process passing through the courts, and even disappearing.

It’s easy to see the situation whereby a credit union that’s already struggling with the the regulator could be forced into administration and then closure because of its bad debt experience and low level of bank interest income.

 

Will I lose my pension if I go bankrupt?

Governments throughout the Western World want us all to save for our old age so we’re less of a burden on the state.  That’s why we get tax relief on payments into our pension funds, it’s not out of the goodness of their hearts.

But there always has been confusion where different aspects of the law cross over with insolvency law, and one such area is that of pensions.  Up to May 2000, if you went bankrupt, the trustee could get his hands on some of your pension – you see while insolvency law talks about assets that are excluded from a bankruptcy – and thus which you could keep if you did go bankrupt – pensions were not firmly on the list of ‘excluded assets’.  This meant that people were losing money they’d put into a pension many years before they started having financial problems, and because the Trustee could get his hands on the pension money, the bankrupt was becoming more of a burden on the state.  People were also asking themselves why they should bother putting money into a pension pot when they most needed it only to find it taken away from them later on, often for reasons outside of their control.  Also, surely when looking after people in their old age is one of the biggest problems this country faces, surely the law didn’t sit happily with common sense or greater public policy?

The government realised this wasn’t working, so for people going bankrupt from May 2000, they changed the law, so that after that date you could generally keep your pension if you went bankrupt.

All was fine for a while….it was a bit like an uneasy truce, things didn’t seem quite right… trustees in bankruptcy still had a duty to maximise realisations for the creditors but couldn’t get their hands on what could be the bankrupt’s biggest asset.

Under the wording of the insolvency law (it goes back to 1986!), any income you actually receive – or become entitled to – from any source, including your pension, is subject to any income payments agreement or income payments order that might be in place – this is a 3 year agreement whereby you pay your surplus income into the bankruptcy.  I can understand that, but you would have thought that at least your ‘capital’ is safe… at least it was thought to be…

In 2012 a case passed through in the High Court – Raithatha v Williamson – in that case the judge decided that an income payments order could be made where the bankrupt had the right to elect to take a drawdown pension even if he hadn’t yet done so.   The trustee could even force the bankrupt to draw down a capital sum and give it him if it meant he had income above his reasonable domestic needs (which would almost always be the case given the size of the drawdown).  This drove a coach and horses through the general principle of ‘trustee cannot touch’ for people who were nearing retirement age – even as early as 55.  So now a trustee could essentially force a bankrupt near 55 to take a drawdown, whether they wanted to or not, grabbing money previously thought to be safe and imposing an increased burden on the state down the line!  For some bankrupts we were essentially back to something like the old rules which the government tried to change because they didn’t like them!

Then in December 2014, a judge in another High Court – this time in the case Horton v Henry – came to the opposite decision!  In that case the judge decided the trustee in bankruptcy could not get an income payments order over a personal pension that is not yet in payment as there was no ‘legal entitlement’ on which the order could bite.  So now we have two conflicting High Court decisions!  Until the Court of Appeal decides one way or another, we’re stymied!  What do advisers tell people in their 50s, 60s or 70s, who are contemplating bankcuptcy?

But it applies only to people in their 50s, 60s or 70s, right, and only for small sums of money, right?

Well yes and no, you see in April 2015 the pensions laws in the UK change, enabling people over 55 to drawdown all their pension from their pot.

What this means is that anyone 52 years or older (allowing 3 years for an IPO/IPA) should, if at all possible, defer making any decisions to go bankrupt or not until the appeal is heard and decision made, or the government bring in some emergency legislation.  It might be that you will have to use other options such as a Debt Management Plan or Token Payments to buy that time.

Will I lose my pension if I go bankrupt?

Governments throughout the Western World want us all to save for our old age so we’re less of a burden on the state.  That’s why we get tax relief on payments into our pension funds, it’s not out of the goodness of their hearts.

But there always has been confusion where different aspects of the law cross over with insolvency law, and one such area is that of pensions.  Up to May 2000, if you went bankrupt, the trustee could get his hands on some of your pension – you see while insolvency law talks about assets that are excluded from a bankruptcy – and thus which you could keep if you did go bankrupt – pensions were not firmly on the list of ‘excluded assets’.  This meant that people were losing money they’d put into a pension many years before they started having financial problems, and because the Trustee could get his hands on the pension money, the bankrupt was becoming more of a burden on the state.  People were also asking themselves why they should bother putting money into a pension pot when they most needed it only to find it taken away from them later on, often for reasons outside of their control.  Also, surely when looking after people in their old age is one of the biggest problems this country faces, surely the law didn’t sit happily with common sense or greater public policy?

The government realised this wasn’t working, so for people going bankrupt from May 2000, they changed the law, so that after that date you could generally keep your pension if you went bankrupt.

All was fine for a while….it was a bit like an uneasy truce, things didn’t seem quite right… trustees in bankruptcy still had a duty to maximise realisations for the creditors but couldn’t get their hands on what could be the bankrupt’s biggest asset.

Under the wording of the insolvency law (it goes back to 1986!), any income you actually receive – or become entitled to – from any source, including your pension, is subject to any income payments agreement or income payments order that might be in place – this is a 3 year agreement whereby you pay your surplus income into the bankruptcy.  I can understand that, but you would have thought that at least your ‘capital’ is safe… at least it was thought to be…

In 2012 a case passed through in the High Court – Raithatha v Williamson – in that case the judge decided that an income payments order could be made where the bankrupt had the right to elect to take a drawdown pension even if he hadn’t yet done so.   The trustee could even force the bankrupt to draw down a capital sum and give it him if it meant he had income above his reasonable domestic needs (which would almost always be the case given the size of the drawdown).  This drove a coach and horses through the general principle of ‘trustee cannot touch’ for people who were nearing retirement age – even as early as 55.  So now a trustee could essentially force a bankrupt near 55 to take a drawdown, whether they wanted to or not, grabbing money previously thought to be safe and imposing an increased burden on the state down the line!  For some bankrupts we were essentially back to something like the old rules which the government tried to change because they didn’t like them!

Then in December 2014, a judge in another High Court – this time in the case Horton v Henry – came to the opposite decision!  In that case the judge decided the trustee in bankruptcy could not get an income payments order over a personal pension that is not yet in payment as there was no ‘legal entitlement’ on which the order could bite.  So now we have two conflicting High Court decisions!  Until the Court of Appeal decides one way or another, we’re stymied!  What do advisers tell people in their 50s, 60s or 70s, who are contemplating bankcuptcy?

But it applies only to people in their 50s, 60s or 70s, right, and only for small sums of money, right?

Well yes and no, you see in April 2015 the pensions laws in the UK change, enabling people over 55 to drawdown all their pension from their pot.

What this means is that anyone 52 years or older (allowing 3 years for an IPO/IPA) should, if at all possible, defer making any decisions to go bankrupt or not until the appeal is heard and decision made, or the government bring in some emergency legislation.  It might be that you will have to use other options such as a Debt Management Plan or Token Payments to buy that time.