Budget Advisers Offer Alternatives
Embargo: For Immediate Release - 27 February 2008
Budget Advisers Offer Alternatives through Education
Budget advisers working with the Federation of Family Budgeting Services offer their clients alternatives through an education process.
Under the Federation’s code of ethics budget advisers must offer advice that is non-judgemental and must always display reliability, integrity and accountability in all of their actions.
Recently it was suggested by Richard de Latour, chief executive of Instant Finance, that, “budget advisers were recommending NAP as a panacea for everybody's financial woes.”
Federation budget advisers do not make recommendations. Through a process of education a client’s situation is analysed and a number of options are presented so the client can make their own fully informed choice. These options include benefit advocacy, debt repayment plans, creditor negotiations, debt consolidation, creditor’s pools, summary instalment orders and many other options.
Bankruptcy or No Asset Procedures (NAP) are only ever presented to a client when there is simply little other option for the client left and these options are never offered lightly.
No Asset Procedures (or NAPs) are a new alternative form of bankruptcy that allows people experiencing financial difficulty to be released from up to $40,000 worth of debt.
The criteria for NAPs are very strict and this is reflected by the 15 per cent of NAPs that were rejected by the Insolvency and Trustee Service in January this year. In particular an applicant must be able to prove that they have no way of repaying any of their debts.
Maureen Pitman, president of the Federation of Family Budgeting Services, says that NAPs may help to change the behaviour of ‘fringe lenders’.
“We always thought that an outcome of the new legislation may be to change the irresponsible behaviour of some finance companies. Once finance companies learn to lend responsibly then only the worst of debt crises will actually end up in a bankruptcy or NAP.”
The swath of finance company bankruptcies over the last 18 months is proof that the lending behaviour of some companies is well below par.
Richard Agnew, of PriceWaterhouseCoopers, said that Five Star Consumer Finance’s lending was, “outside commercial lending practices”.
John Waller, also of PriceWaterhouseCoopers, when working as a receiver on both the National Finance and Provincial Finance collapses said that too much cash had, “caused them to make bad choices of business, which led to ill-considered lending and lending practices. I think they would admit to that.”
McDouall Stuart, an investment advice company, reported in 2007 that, “dubious lending practices” had resulted in the 12 other finance company collapses in that year.
In January 2008 the Insolvency and Trustee Service accepted exactly the same number of NAP and bankruptcy applications as bankruptcy applications it accepted in January 2007. In both months 215 applications in total were accepted. This would suggest that there has been no real rise in the number of cases.
Federation budget advisers throughout the country have been trained extensively on the new Insolvency Act and also on the new provisions around Summary Instalment Orders (SIOs). Budget advisers can now provide some of the best and most impartial advice relating to the new laws.
“As expected with anything new there has been a lot of initial interest”, said Raewyn Fox, chief executive officer of the Federation of Family Budgeting Services.
“Budget advisers have received a lot of enquiries around the new legislation but make sure that they outline all available options to clients”, she said.
Although there has been an increased workload in learning about the new law and the new administration procedures involved in both NAPs and SIOs budget services have not seen a marked increase in bankruptcy cases this year.
Federation budget advisers have been working very closely with the New Zealand Insolvency and Trustee Service to ensure they’re providing quality advice to the public. Federation budget advisers have attended all of the Insolvency Law roadshows and been busy training in the new administration procedures the new legislation has brought in.
Budget advisers do this training to pass on the knowledge to the public through a process of education.
“One of the key benefits to the public of talking to a Federation of Family Budgeting budget adviser is that they offer clients an overall education to reduce the chance of finding themselves in the same situation again.”