Lenders take cut to help debtors

A NEW debt repayment service, modelled on a US system that is paid for by the creditors themselves, is to open formally in Leeds next month.

The Consumer Credit Counselling Service is to be staffed by seven advisers who will interview the indebted consumer, work out a budget and negotiate the terms of repayment with creditors. When payments are made, they will reduce the debt by the full face value, but the creditors who share the payment will give up 15 per cent of it to fund the service.

The Leeds system has been tested over the past few months and Malcolm Hurlston, an organiser and spokesman, said it had worked well. He believed about 100 people had been helped. Most of these had been referred by lenders.

The service will be aimed at people in the Leeds and Bradford areas, although people from elsewhere will be able to seek help through it.

Mr Hurlston said donations from lenders were now starting to feed through. The start-up costs were financed by donations from Barclays Bank, Leeds Permanent Building Society, GE Capital, the finance house, and Registry Trust, which administers the register of county court judgments.

Indebted consumers should not expect the service to provide easy answers to their problems. Mr Hurlston said similar services in the US normally referred about a third of applicants to specialist welfare agencies because they were not earning enough money to resolve their financial problems.

Mr Hurlston hopes that the Leeds service will be the first of many around the country, and that it will entice lenders into giving more financial support to debt-counselling services.

The Money Advice Trust, an earlier initiative that Mr Hurlston was also involved in organising, has had a disappointing response. The trust, now chaired by Sir Gordon Borrie, former Director-General of Fair Trading, was set up in 1990 with the aim of raising pounds 3m a year from lenders. But its second annual report, published last week, states that lenders gave only pounds 353,000 last year.

Many lenders, particularly building societies, prefer to give funds to specific money advice units, rather than funnel it through the trust.

The trust said that just over pounds 1m was donated directly to debt projects last year.

(Photograph omitted)