Personal loans can be a good option for some people because they can be used to improve their skills or pay off debt, but they can be costly for everyone involved. In order to prevent people taking on unnecessary debts, the Government needs to protect the ability of young people to access credit, giving them the option of opting for personal loans later on in life.
The Government is creating new Consumer Credit Protections Orders, which will ensure that young people do not lose their right to borrow money on their own. The order gives people the chance to apply for help from the courts if they can prove that their credit has been abused or misused. It allows people to lodge complaints and has powers to ensure that if the individual still has to pay back money, they will not be penalized for it. There is also a Debt Debt Avoidance Order, which allows people who believe they are over-indebted to stop paying or seek a repayment plan in order to avoid breaching the terms of their debt. The third order, which is being introduced this autumn, will help people who are not in financial difficulty by making it easier for councils and lenders to recover their money. It is not yet clear what financial hardship will be considered, but campaigners say it is designed to make it easier for people to get back on their feet, so that they can look for work. Some council officials and ministers have argued that the new measures will help tackle the issue of debt, with ministers saying that debt can mean a decline in a person’s future earnings and the possibility of unemployment. But with the rise in benefits, cuts in housing benefit, and the squeeze on living standards from rising energy bills, critics have pointed out that councils could end up owing people more money than they will have been able to pay, and that those with more money may end up being saddled with more debt. ‘Totally unacceptable’ Council leader Paul Ormsby has hit out at the government’s new proposals. He said: “These changes are totally unacceptable, because they will have a detrimental impact on the ability of councils to recover council tax arrears. “I will be demanding that this is properly considered, and that the benefits system is not made so burdensome that some council workers end up having to take on almost as much debt as they would have done before the new benefit cap.” He has told his staff that there are no plans to scrap the benefit cap but there will be plans to make it harder to gain housing benefit.
“To do nothing is to let the benefits system become a barrier to work for those who are desperate to get on in life.”
The Chancellor, George Osborne, had announced the end of the benefit cap last autumn as part of his fiscal charter. He said the change, which allows for the removal of work-related ESA from some of the unemployed in the strongest economic times, was intended to improve incentives for work, not to limit benefits.