First Plus Closes. Good and Bad News…
As is well publicised, I’ve no love for secured loans. The product itself is ‘lending of last resort’ but has sadly been marketed as ‘a one-stop debt solution’ (see the secured loans guide) and one leading debt charity estimates they’re only suitable for 3% of those who have them. This is the reason I campaigned against their being advertised on Childrens TV, and ran a petition to ask celebrities to stop doing the ads.
The Biggest Name is closing
Therefore to read that the big player First Plus, owned by Barclays, is to close its doors to new business is on one hand a blessed relief. It also sheds some interesting light on my blog from last week
It would seem there are two main causes of this closure: firstly, it used to make a serious wodge from selling Payment Protection Insurance, so the crackdown by the regulator on PPI selling, as well as the growth of PPI reclaiming has dented its business model. Yet it’s the credit crunch and house price drop that’s really hit it.
The ‘secured’ bit of secured loans is for the lender, which can take your house if you can’t repay. Yet the downturn in house prices is providing it with less security than ever before. And following on from the US sub-prime crisis where those with bad credit can’t pay their debts and are finding their homes are worth nowhere near as much as before, you can see why Barclays is pulling out of this marketplace.
Yet sadly it isn’t all roses for two reasons:
A. It was one of the best of a bad bunch
For the VERY few for whom secured loans are appropriate, First Plus was one of the cheapest players, so if it could find you a deal it was cheap. Its departure leaves a hole in the market, and my worry is better the devil you know, for who will step in to fill the gap?
B. What happens to those who still have its loans?
This is where it gets very scary. Unlike normal loans where the amount you pay is fixed at the outset, most secured loans have variable rates, and lenders can put them up willy-nilly. Many with secured loans have already seen their interest rates doubling and as there’s little they can do about it, it’s pushing some into crisis mode. Worse still, as these loans tend to be for huge amounts and spread over years, the pain is likely to last and last.
The worry here is that now First Plus has closed its doors to new business, it has no reputation to protect as the brand is finished, thus it wouldn’t suffer much by hugely hiking rates for existing customers. My hope is this won’t happen, yet just in case here’s a subtle hint to all First Plus customers.
DON’T REFER TO IT AS FIRST PLUS, refer to it as BARCLAYS first plus
After all, Barclays is the parent company and still has a brand to protect, so if people refer to it that way it increases the brand impact of treating its customers poorly.