How can law help the credit crunch
In order to answer this question one must assess and consider the issues of the credit crunch and how the law can assist in helping the problem.
The credit crunch is a term that is used to describe the inflated rates that banks and credit facilities charge to obtain loans and credit or the sudden reduction in the ability to apply and obtain credit facilities. These situations can occur in a variety of ways. These are the perceived risks that a client maybe unable to meet the monthly requirements of repaying the loan, or another centralised bank raising interest rates unexpectedly and thus effecting the other banks ability to meet their liabilities, or the sudden devaluing of money due to increases in the economy through adding money to try and settle debts that banks have, or the banks increase the monthly requirements that they charge their clients or they make the ability to obtain credit more difficult by increasing their statue requirements.
Credit crunches often occur when the banks within the system lend money in an inappropriate way and leads to substantial losses for these institutions.
The law can play an important role in trying to ease the current credit crunch problems. At present creditors send a monthly bill to the client with a total balance and a minimum payment that is required on a set working day each month. If the client is unable to meet these requirements then the creditors contact the client usually by telephone to demand the missed payment(s). The usual tactic for creditors is to threaten action against the client that is unrealistic and is used to scare the client into making payments that they are unable to meet.
The creditors will usually indicate the fact that not making payments will effect the client’s credit status, thus making it more difficult to obtain future credit. Depending upon the creditor a common tactic is to threaten the usage of a debt collecting agency, who can instruct a door-stop collection team to obtain payment. This can not happen overnight, the cost of instructing debt collecting agencies and or door-stop collections is very expense for the creditors. The creditors will give the client usually three months before declaring the unpaid bill as a debt. This will then trigger a formal default notice under the Consumer Credit Act of 1974, as amended by the Consumer Credit Act of 2006. This is an official document that lasts on the clients credit record for six years. If a suitable arrangement is not found then the creditor can sell the debt on. It is likely that a client will be able to come to an arrangement for repaying the debt during this time.
However, if no arrangement can be found then it is likely that the creditor will seek legal redress through the county court. This will generate a County Court Judgement (CCJ) that will assess and consider the amount that a client will be able to afford. Equally, if the client owns property then the creditors can apply to place a legal charge on the property. This gives them preference over other creditors and once the property is sold then the equity will allow the debt to be paid.
The law can operate in a variety of ways to assist everyone found in the credit crunch. The ways that the law can assist in helping an individual caught in this credit crunch consist of drafting emergency legislation. This emergency legislation would be aimed at shoring up the banking system. This will attempt to limit the scope of available funds that can be distributed to client. This will also increase the criteria by which lenders are allowed to lend money to individuals that are applying for credit. This emergency legislation can be used to fix interest rates at an economical standard that increase the prosperity of the country. Further legislation could mean that creditors are forced to change their working practices so that further problems are prevented. The law could be used to give individuals more power against creditors who have found themselves in financial problems.
A way that this could be settled would be to outlaw the usage of call centres that telephone at all times of the day and night hassling the clients for payments that they possibly do not have. A further way could be to increase the numerous ways of clearing the debt without recourse to the county court. This could include making the creditors accept a fee that is proportionate to the income of the client. Thus, if the client is on a low income, the creditors should be forced to accepted a lower amount without having to contact an external third party like the Citizen’s Advice Bureau (CAB). This by its very nature adds to the anxiety that the clients would feel. A further way that the law could help assist with the current credit crunch is to outlaw the usage of legal charges on people’s property. This again adds to the anxiety and problems that are placed upon the client. This also means in a roundabout way that the creditor can force sale of the property as long as the mortgagor is financially satisfied. Another way that the law could assist with the credit crunch is to outlaw certain institutions from granting credit. In doing so the law would be placing the granting of credit facilities in the centralised banks. It would mean that banks underwriting certain institutions would be a thing of the past.
In conclusion, the law could assist the credit crunch by granting emergency legislation to shore up the banking system and to prevent credit facilities from acting in an adverse manner.Get help with your essay today from our expert law essay writers...