Lending & Credit Control

1. Lending & Credit Control Current Issues & Best Practice Solutions Northern Ireland version

2. A Perfect Storm! • Economic meltdown • Rising unemployment • Incomes falling • Taxes increasing • Repayment capacity reduced • More to come • Banking system not operating • Legacy of over-indebtedness

3. Agenda • Introduction • Our Business Environment – what has changed? • Legislation to protect consumers / borrowers • Lending • Issues • Solutions • Credit Control • Issues • Solutions • Questions, Comments & Suggestions

4. Introduction • What’s different about today’s lending market? • The economic situation • Level of personal debt • Focus on Responsible Lending & Borrowing • Consumer Protection • The need for full information • The need for objective evidence • Current Lending Issues • Credit Control issues & techniques

5. Responsible Lending & Borrowing • Personal Debt in the Republic of Ireland • €158 for every €100 earned * • In 1995 it was €50 per €100 earned • UK average unsecured debt per household is £7,000 • Lifestyles funded by borrowing • Clear evidence of irresponsible lending • Borrowers must take some of the blame • But – unequal relationship – the lender is the dominant party! * Goodbody Stockbrokers 2008

6. Legislation & Lending • Focus on the consumer / member • Consumer Credit Directive • Adequate information for borrowers • Obligation to assess creditworthiness • Database consultation • Right of withdrawal • Right to make early repayments • Not applicable – but good practice

7. Ability to Repay • Responsible lending – our primary role is to assess ability to repay • Secondary role – financial advice • Information is the key • Objective evidence • Strong case for credit referencing

8. The need for full information • We can’t assess ability to repay without having the full picture • Borrower’s “word” is not enough • Borrower’s generally don’t disclose all debts • Can’t ignore any source of information • Courts require objective evidence

9. Objective Evidence • Independent sources • Pay Slips • Bank Statements • Credit Card Statements • Financial or Management Accounts • Don’t ignore any source of information • Use your common sense, don’t ignore your instinct • Don’t be afraid to ask • Take your time!

10. The case for Credit Referencing • Experian / Equifax • All other financial institutions are members • Only a part of your decision, but a vital part • Credit reference can be good or bad • Anecdotal evidence – invaluable! • Other referencing sources • NCU Database • Stubbs Gazette

11. Assessment Techniques • Stress Testing – can the borrower repay if / when interest rates rise? • What if the borrower’s income falls? • Look at loan balances as well as loan repayments • How long is left on the loan? • The 40% Guideline – useful, but limited • How much does the borrower need to live on? • How much is left to repay loans? • Ratios

12. The Credit Card “Time Bomb” • 70% of adult members have (at least) one! • Limits can be high - £15,000 not unusual • UK card debt exceeds rest of EU combined • Being used to “bridge the gap” • Loans to clear credit card debt • Compare proposed repayment to minimum balance • Pay loan out in stages • “Force” member to reduce limit • Member must co-operate!

13. Belfast Telegraph April 2009 Northern Ireland’s £1bn Credit Card Debt £1,600 per household; being used to finance lifestyles and standards of living - Claire McNeilly

14. Top-Ups • Frequent top-ups can disguise delinquency • Potential for “hard core” debt • Monitor the trend of the account balance • Watch the purpose of the loans • Ensure repayment term and amount is appropriate • Difficult to deal with once it has become a problem

15. Loan with multiple Top Ups

16. Loan with multiple Top Ups – effect of higher repayments

17. Opportunities • Open for business • Banks not lending • Good prospects out there • Rates very competitive • Funds available • Caution – what’s the real purpose?

18. Focus of Credit Control • The lost goldmine! • Prospects & Priorities • Take what you can get, but get something! • Positive tone – engage with debtors • Preparation • Information – obtaining, confirming, storing, using • Measurement & Reporting

19. Reporting

20. Our Service / Internal Set Up

21. Member Address PRIVATE & CONFIDENTIAL Date:  OUR REF: <Loan number> Re: & District Credit Union Limited Loan Outstanding Balance € Loan Arrears € Interest due € Shares: € Loan Number Last Payment Date Dear We act on behalf on the instructions of their Credit Control Department. Our Client instructs us that you are presently in arrears and interest due on your Credit Union Loan Account with them in the above sums together with continuing interest. Please make payment or contact the Credit Union on with an immediate proposal for full payment of the outstanding arrears and interest. This letter may be used as evidence of having afforded you every opportunity to discharge your arrears, interest and in support of our application for costs should legal action be necessary which said costs may be deducted from your share balance. We thank you in anticipation for your payment and assistance in the matter. Yours faithfully

22. The phone – most effective • Caller ID, Direct Line • When, where, time? • Notes & preparation • Who to talk to? • Messages • Data retention, Data Protection

23. Debt recovery litigation Tim Bryans McAteer & Co Solicitors

24. First Steps • Recovery begins at application • All names and date of birth • House owner? • Mortgages? 1, 2, 3? • Equity? • Beware of sub prime • Consider guarantor

25. Solicitor involved • 7 day letter • Consider response and decide • Act quickly • Follow it up

26. Small Claims • Up to £2000 • Up to £100 fee, added to debt • No costs awarded • DIY • Online or paper • 8% interest • Get decree

27. County Court • Up to £15,000 • £165 or £185 fee, added to debt • Costs on a scale, added to debt • DON’T DIY • Decree after 21 days • 8% interest

28. High Court • Over £15,000 • £200 fee, added to debt • Costs on a scale, added to debt • DON’T DIY • 8% interest

29. Enforcement of Judgments • Judgments or decree only paper unless enforced in EJO • Government department - effective? • Notice of intention • Enforcement fee - expensive • Enforcement Options - interview, arrest, installments, attachment of earnings and order charging land

30. Orders charging land • A mortgage for the credit union • Must be registered in land registry • Debt is now secured • Charge interest from registration • 12 years duration • Seek liberty to sell

31. Bankruptcy • Not credit union ethos • Only £750 or more • Discharged in one year • Debt gone but house lost? • Expensive fees • 6 years credit history

32. Individual voluntary arrangement • Agreement with creditors • Credit union may vote against but could be outvoted • Bound by arrangement • Maybe 10p in the pound • Generally unsecured creditors so house kept • May last 5 years • Credit history 6 years

33. Debt relief orders • In England and Wales since 2009 • NI from June 2011 • Assets less than £300 • Total debt less than £15,000 • Surplus income less than £50 • Last one year, then debt free • Very low fees TBC

34. Unfair relationships • All loans covered under consumer credit act • Avoid accusation by keeping detailed notes of attempts to recover debt

35. Conclusion • Your information gathered at application will inform litigation at all stages • Be fair but don’t be seen as soft touch • When decision made to litigate follow it through

36. Contact McAteer & Co Solicitors 97 Bloomfield Road, Belfast, BT5 5LN Tel: 028 9047 1480 www.mcateersolicitors.comciaran@lexlink-mcateer.co.uktimothy@lexlink-mcateer.co.uk

37. Key Lessons Focus on what we can control Full information, backed by objective evidence, is vital Common sense – the key ingredient in loan assessment Credit card debt is the next big issue Top ups must be managed Credit control starts when the loan is issued Have a robust credit control structure and policy Telephony is the most effective method

38. Any questions? Any comments? Any suggestions? And finally ……..