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Draft Of New Legislation To End Stupid Lending


6538
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There has been discussion here about how to restrict peoples borrowing. I think fixed limits aren't the answer as they aren't very fair and don't allow for out of the ordinaly cases.

I think the better option is to place a legal requirement to rationally assess the individuals finances as a whole (as was, in effect, the case up until about 20 years ago when it would be done by the local bank manager) before giving them a loan.

Comments?

Personal Finance (Control of insane lending practices) Act 2009

An Act to control unreasonable lending practices to individuals.

Control of lending to individuals

1.

(i) A person who makes a loan of money to an individual the repayment of which would, upon a reasonably careful assesment by a reasonable and competant person, appear to place an undue burdon upon the finances of the individual, commits an offence.

(ii) in assessing whether the repayment of a loan of money places an undue burdon upon the finances of the individual the Court shall take into account;

(a) the income of the individual;

(B) the credit history of the individual, including any outstanding financial commitments;

© the usual financial outgoings of the individual, especially those which are fixed;

(d) the terms of the loan agreement;

(e) any other matter which would appear to be likely that a reasonable and competant person would have taken into account when making an assessment under this section.

Penalties for an offence under Sec.1

2.

(i) A person convicted of an offence under Sec.1(i) above shall be liable to;

(a) a fine equal to the amount of the loan advanced and interest collected under it to date;

(B) forefeitsure to the state to the right of recovery of the loan capital along with any interest due thereunder;

© reasonable costs incurred by the state in recovering the loan.

Interpretation

Definitions

3.

(i) "person" means; a person, a group of persons, a body corporate or government body;

(II) "individual" means; an individual or group of individuals.

Edited by 6538
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Unnecessary, impossible/expensive to administer and would fail to deliver the intended outcome. Why does everyone think we need laws for everything, need some leach in the public sector to take our taxes to give them a job and secure pension, feed the lawyers, and kill freedom of choice and personal responsibility?

Unnecessary because the finance industry is learning very very quickly that it cannot now pass on risk, it now has to retain risk on its own balance sheet, there is no free bailout from unfettered asset price appreciation, and it is very quickly adopting the principle of lending only where it is confident of being repaid.

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Unnecessary, impossible/expensive to administer and would fail to deliver the intended outcome. Why does everyone think we need laws for everything, need some leach in the public sector to take our taxes to give them a job and secure pension, feed the lawyers, and kill freedom of choice and personal responsibility?

Unnecessary because the finance industry is learning very very quickly that it cannot now pass on risk, it now has to retain risk on its own balance sheet, there is no free bailout from unfettered asset price appreciation, and it is very quickly adopting the principle of lending only where it is confident of being repaid.

Yes, that is happening and is the best thing that can happen.

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The people who have made money with this are the people who had bank shares in the boom times, and have now sold them to people wanting to jump onto the bandwagon. These people didn't care about the unscrupilous lending their bank was practicing, and now they have run away with the money, with other people having to pay the price.

Maybe the thing to do is to make shares more sticky. If people had to hold onto shares for a minimum of, say, five years, it would mean that the shareholders would be much more intersted in the long term risks a company is exposed to.

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Maybe the thing to do is to make shares more sticky. If people had to hold onto shares for a minimum of, say, five years, it would mean that the shareholders would be much more intersted in the long term risks a company is exposed to.

Require - no, that would kill the economy flat.

Make it worthwhile - yes. My proposal would be a progressive tax on share disposals (in addition to capital gains tax if applicable). If you've held the shares a reasonable time, (needn't be as much as 5 years), the tax is zero. But for short-term holdings, it's substantial. Maybe, say, 20% where shares are bought and sold within a day, falling by bands to 5% for shares held for 1-2 years, and nil thereafter.

Complex enough for Our Gordon?

Of course, that would do huge damage to our financial sector. But it would be the parasitic component of it that suffered, so the longer-term benefit to the real economy should outweigh that.

As for stupid lending: the underlying problem was to tie interest rates to such an irrelevant and silly measure, and let real inflation rip.

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Guest mattsta1964
There has been discussion here about how to restrict peoples borrowing. I think fixed limits aren't the answer as they aren't very fair and don't allow for out of the ordinaly cases.

I think the better option is to place a legal requirement to rationally assess the individuals finances as a whole (as was, in effect, the case up until about 20 years ago when it would be done by the local bank manager) before giving them a loan.

Comments?

Personal Finance (Control of insane lending practices) Act 2009

An Act to control unreasonable lending practices to individuals.

Control of lending to individuals

1.

(i) A person who makes a loan of money to an individual the repayment of which would, upon a reasonably careful assesment by a reasonable and competant person, appear to place an undue burdon upon the finances of the individual, commits an offence.

(ii) in assessing whether the repayment of a loan of money places an undue burdon upon the finances of the individual the Court shall take into account;

(a) the income of the individual;

(B) the credit history of the individual, including any outstanding financial commitments;

© the usual financial outgoings of the individual, especially those which are fixed;

(d) the terms of the loan agreement;

(e) any other matter which would appear to be likely that a reasonable and competant person would have taken into account when making an assessment under this section.

Penalties for an offence under Sec.1

2.

(i) A person convicted of an offence under Sec.1(i) above shall be liable to;

(a) a fine equal to the amount of the loan advanced and interest collected under it to date;

(B) forefeitsure to the state to the right of recovery of the loan capital along with any interest due thereunder;

© reasonable costs incurred by the state in recovering the loan.

Interpretation

Definitions

3.

(i) "person" means; a person, a group of persons, a body corporate or government body;

(II) "individual" means; an individual or group of individuals.

10 years too late.

This isn't a regulatory issue anymore, it's a revolutionary one.

If we don't do something, we'll lose everything and so will our kids.

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10 years too late.

This isn't a regulatory issue anymore, it's a revolutionary one.

If we don't do something, we'll lose everything and so will our kids.

Yes, but I'm talking about the future because in 20 years time there will be a similar thread on a discussion board on which people will conclude that it's 10 years too late to do anything.

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How about scrapping the concept of a mortgage altogether and simply replacing with a lending system based on the ability to repay rather than the notional value of a house (particularly in respect of the remortgage market).

That's precisely what my fictional Act does. It effectively makes it an offence to lend beyond a persons ability to service the debt.

Actually, I think I would change the word "repayment" in the first line to "servicing".

Edited by 6538
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Unnecessary, impossible/expensive to administer and would fail to deliver the intended outcome. Why does everyone think we need laws for everything, need some leach in the public sector to take our taxes to give them a job and secure pension, feed the lawyers, and kill freedom of choice and personal responsibility?

Unnecessary because the finance industry is learning very very quickly that it cannot now pass on risk, it now has to retain risk on its own balance sheet, there is no free bailout from unfettered asset price appreciation, and it is very quickly adopting the principle of lending only where it is confident of being repaid.

Believe me, I'm most certainly not one for unnecessary regulation of anything and would gladly burn acres of our existing legislation.

It's not about killign freedom of choice, this law would preserve people right to borrow or lend as much as they want, as long as servicing the debt is reasonable.

The finance industry is learning, true. However, I'm sure they learnt some pretty harsh lessons in the early 1990's which seem to have been convieniently forgotten after about 10 years.

I can't see there is any problem with what I propose. Reckless lending is poses a significant danger to the country at large (as we are now seeing) and should be controlled.

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I hope this thread doesn't quickly fall into obscurity as its great debating material. Going back to the present 'mortgage' system, if it was scrapped would future property boom and bust ever be possible and would it permanently prevent another credit bubble?

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There has been discussion here about how to restrict peoples borrowing. I think fixed limits aren't the answer as they aren't very fair and don't allow for out of the ordinaly cases.

I think the better option is to place a legal requirement to rationally assess the individuals finances as a whole (as was, in effect, the case up until about 20 years ago when it would be done by the local bank manager) before giving them a loan.

Comments?

...there are laws currently which have been broken re banking and mortgage fraud....what we need is enforcement of the current laws...this Government always talks about eradicating a problem by designing a new law ..when the issue is already covered....why are they not held to account for refusing to enforce the current laws of the country ..who are they protecting..?....they continue to talk about the 'problem from America' as if it was some kind of medical virus....they need to come clean ....all talk about reponsibility ..but....no accountability ...such abdication should spur resignation....weaklings turn the country weak....current situation reflects this.. <_<

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unfortunately, a competant banks lawyer would be able to prove section 1 a-e were all satisfied even in the case of a Ninja loan, particularlyl demonstrating the role of the broker, the borrower, the surveyor and the developer in all lying to assign all the blame, unfairly on his client.

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I hope this thread doesn't quickly fall into obscurity as its great debating material. Going back to the present 'mortgage' system, if it was scrapped would future property boom and bust ever be possible and would it permanently prevent another credit bubble?

It depends what you are going to replace the system with, I suppose. A mortgage is only a loan which is secured on something, usually land so, unless you are goign to ban lending altogether, I can't see what you would acoumplish.

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unfortunately, a competant banks lawyer would be able to prove section 1 a-e were all satisfied even in the case of a Ninja loan, particularlyl demonstrating the role of the broker, the borrower, the surveyor and the developer in all lying to assign all the blame, unfairly on his client.

But the wording makes it clear that the Court wouldn't be standing in the shoes of any of the above when assessing the individuals ability to service the loan. It makes the assessment from the viewpoint of a reasonable and competant person. Ie; someone who can reasonably and competantly assess the borrowers likely ability to service the debt. The fact that the broker, surveyor, etc, didn't assess that ability reasonably and competantly, didn't do it at all, or lied and concealed things is beside the point.

The parties are bound to assess by the standards in the Act, not their own. In just the same way as dangerous driving is taken to be "A standard of driving which falls far below that of a reasonable competant driver", as opposed to that of a, stupid, ignorant chav-racer, for instance.

Additionally, the Act places all the responsibility on the lender. Thereby, creating a big incentive for the person who actually provides the money to excercise adequate control over their agents down the line.

Edited by 6538
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What we need to do to end the stupid lending is a minimum 25% deposit requirement. So you need a home? 25% deposit please, you need a new car? 25% deposit please. You don't have any deposit? too bad! come back when you save your money!

No, I don't agree. Perhaps as a rule of thumb, but I don't think it should be a legal pre-requisite. For instance, if you are owed a small amount, say £100 which was due next week, and was very likely to actually get paid, and wanted to borrow, £80 in the mean time then why should you only be able to borrow £60 when the risk of defaulting is very low as you will almost certainly get the £100 you are expecting?

This is the type of situation the fictional Act above allows for.

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It depends what you are going to replace the system with, I suppose. A mortgage is only a loan which is secured on something, usually land so, unless you are goign to ban lending altogether, I can't see what you would acoumplish.

Why does it have to be secured on something particularly when the 'something' has a notional value only. In some ways it can be a disincentive to repay. Lets say that you borrow £80,000 secured on a notional value of your house being £140,000. You struggle but keep up repayments - 2008 and the HPC arrives; your circumstances stay the same but the notional value of your house falls to £70,000. Would this affect your descision whether or not to keep on struggling to make the repayments? The point I'm making is whether the morality of repaying stays the same if the loan is personal and differs when it is attached to the rise or fall in the value of your house (ie the perception that it is not your fault).

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Why does it have to be secured on something particularly when the 'something' has a notional value only. In some ways it can be a disincentive to repay. Lets say that you borrow £80,000 secured on a notional value of your house being £140,000. You struggle but keep up repayments - 2008 and the HPC arrives; your circumstances stay the same but the notional value of your house falls to £70,000. Would this affect your descision whether or not to keep on struggling to make the repayments? The point I'm making is whether the morality of repaying stays the same if the loan is personal and differs when it is attached to the rise or fall in the value of your house (ie the perception that it is not your fault).

Are you getting at eradicating loans that are secured on anything?

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Believe me, I'm most certainly not one for unnecessary regulation of anything and would gladly burn acres of our existing legislation.

It's not about killign freedom of choice, this law would preserve people right to borrow or lend as much as they want, as long as servicing the debt is reasonable.

The finance industry is learning, true. However, I'm sure they learnt some pretty harsh lessons in the early 1990's which seem to have been convieniently forgotten after about 10 years.

I can't see there is any problem with what I propose. Reckless lending is poses a significant danger to the country at large (as we are now seeing) and should be controlled.

Some would say the creation of credit enabled those without money to participate more in society, and actually the losers on such restrictions would be those with least money, and the winners would be the rich, with a system that reinforced this position.

I think beyond control of bank balance sheets, which should have happened under existing rules, then any system that tells the banks, and anyone else for that matter, who they can and can't lend to is incredibly subjective/political/anti-libertarian and thus unfair.

Simple, let the banks lend, but not so much as to risk the system. Simplify the tax and acounting rules so there are no clever work-arounds - if it looks like lending it is lending. The increasingly prescriptive and rules based system with politicians and regulators trying to prescribe everything results in an industry that tries to find alternative solutions. Otherwise who can and can't borrow becomes political, and I personally think the last person who should be deciding who can and who can't borrow is a politician. We become a command and control World, freedom of choice and action restricted, power to politicians becomes supreme. Let the person taking the risk to lend decide if they are prepared to take the risk.

Extrapolating your argument, where does it stop. If the rules are on bank lending, the market will find a way around it - eg instead of borrowing to buy a car, you "rent it".

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If i were GB I would:


Ban interest only mortgages - all loans should be repaid along the way ...not only when the asset is sold. Many of the poor sods who have interest only mortgages (to be able to afford making the payments and who were counting on the value of their home only ever going up) are now in deep doggy doo-doo. Turn off this supply of money - if people cant afford to pay interest and repay the loan, then they shouldnt borrow.


Return to affordable multiples of salary, say 4 times at the most and demand deposits upward of 20%. Dont accept any self-cert mortgages and if people cant prove employment or future earnings, use bank statements to verify their income.


Remove mortgage brokers - who are milking both the customers and banks...

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Are you getting at eradicating loans that are secured on anything?

Recent reality has to bring into question the validity of secured loans. As we write, the government are considering the social and political implications of repossesions. If you were to look for alternatives why not some form of insurance based upon the size of the loan and risk assessment of the individual (and nothing to do with the perceived value of the house). This was used, in part, by way of mortgage guarantee insurance until recently - you wouldn't have to pay valuation fees, neither. I accept that there is a case for high value and commercial loans but I would have thought that at least two thirds of lending would be within the parameters acceptable for this type of philosphy.

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Remove mortgage brokers - who are milking both the customers and banks...

Now I'm no apologist for mortgage brokers, and I guess they are a dying breed in any case, but I simply fail to understand this argument.

If a broker can locate a better mortgage for you, why is that bad? Sure they earn a fee, but if they save you money, why are you going to begrudge that? Are you going to trust your local bank to give you the best deal evey time?

Brokers survive by acting for the client to find a better deal, they work to improve the competitiveness of the market, they save you time, they only earn a living if they can add value to you. Sure, some breach their fiduciary duty, but is a seperate matter all together.

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Simple, let the banks lend, but not so much as to risk the system.

This is basically what my hypothetical Act is designed to do - and would do - in my opinion. The system is now well and truly Donald Ducked, in the main, becuse people have borrowed too much money.

Having a simple law which says, in effect, "You can't lend people more than they can sensibly afford to service" will help keep a check on things. Personally, I can't believe that we haven't got such provisions already.

Extrapolating your argument, where does it stop. If the rules are on bank lending, the market will find a way around it - eg instead of borrowing to buy a car, you "rent it".

Fair enough, then rent. Buy you aren't acquiring credit that you have to pay back under a loan agreement.

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