Government likened payday lender over refusal to budge on student loans repayments

edited 30 November -1 at 1:00AM in Loans
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Former_MSE_LucindaFormer_MSE_Lucinda Former MSE
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edited 30 November -1 at 1:00AM in Loans
The Government has been accused of behaving like a payday lender following its latest refusal to reverse its retrospective freeze on the threshold at which graduates begin to repay their student loans...
Read the full story:
'Government likened to payday lender over its refusal to budge on retrospective student loan changes'
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  • edited 22 November 2016 at 5:36PM
    Ed-1Ed-1 Forumite
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    edited 22 November 2016 at 5:36PM
    The Government has been accused of behaving like a payday lender following its latest refusal to reverse its retrospective freeze on the threshold at which graduates begin to repay their student loans...
    Read the full story:
    'Government likened to payday lender over its refusal to budge on retrospective student loan changes'
    OfficialStamp.gif
    Click reply below to discuss. If you haven’t already, join the forum to reply. If you aren’t sure how it all works, read our New to Forum? Intro Guide.

    There are still some inaccuracies in MSE's reporting/views of this and until Martin/MSE get their facts straight, they won't properly understand what has gone on here.

    "MoneySavingExpert.com founder Martin Lewis has hit out at yesterday's "tragic" decision to reject amendments to the Higher Education and Research Bill, which would've served to fully scrutinize the Government's manoeuvre to renege on a previous promise to increase the £21,000/year student loan repayment threshold every year to reflect earnings."

    Wrong - the amendments proposed in yesterday's Third Reading of the Higher Education Bill would have done no such thing. The amendments would have restricted changes to repayment terms. They would not have made any difference to the £21,000 threshold as it simply isn't a change to the repayment terms. Verbal commitments have no recognition or weight in law (unless in relation to loans regulated under consumer credit legislation which are a different entity to ICR student loans; pre-1998 mortgage-style loans were regulated under the CCA as they were similar to commercial loans. It wouldn't make sense to regulate ICR loans as commercial loans as that would be like regulating taxes by the FCA - nonsense).

    As Jo Johnson correctly stated:

    "The key terms and conditions are set out in legislation—it is the law that binds us—and are subject to the scrutiny and oversight of Parliament. FCA regulation is therefore unnecessary, as students are already protected."

    At no point was any commitment to increase the repayment threshold for post-2012 loans put into the repayment terms in the legislation. Therefore the repayment terms are not being and have not been altered. Had such a commitment been put into the terms, the current Government would have been bound to it and would have found it hard to reverse.

    Even if uprating the £21,000 had originally been in the terms/legislation, the amendments to the Higher Education and Research Bill would have had to have been applied retrospectively (oh the irony!) to have affected the decision to freeze it, but if it had been in the terms in the first place (which Martin/MSE continue to misinform students it was when it clearly wasn't) in all likelihood the Government would have been bound to it as it would have been awkward to get a retrospective amendment such as that through Parliament. As it wasn't no retrospective amendment was needed.

    "According to the Government, there are terms and conditions written into student loans contracts that enable repayment agreements to be altered."

    Yes, correct - sort of. The terms of loans under the system of income-contingent repayments introduced in 1998 have been subject to retrospective change from the start. Labour introduced this legislation which the post-2012 loans were made under. Therefore Wes Streeting - a Labour MP who proposed one of the amendments - should, as Jo Johnson also correctly states, look at Labour as the source of the problem. They set up the legislative framework for these loans in 1998 to allow for retrospective changes, then exempted them (also retrospectively) from consumer credit regulation in 2008.

    "The hon. Gentleman mentioned the Financial Conduct Authority. I remind him that it was under the Labour Government that Parliament was invited to confirm, as it did, that student loans were exempt from regulation under the Consumer Credit Act 1974 when the then Labour Government passed the Sale of Student Loans Act 2008. The hon. Gentleman should look back at his own party’s record on the issue."

    The contract post-2012 students actually signed up to is here:

    1267ebm.jpg

    The legislation to go with paragraph (c) can be found online (it was a 2012 amendment to the repayment regulations) which set the threshold to £21,000 and made no commitment to increase it.

    Therefore, as Jo Johnson correctly states, as it's legislation (not previous verbal commitments) that binds Governments and Ministers, as far as the current Government's concerned, they are under no obligation to spending billions on implementing it now, given it would cost far more than was originally budgeted for in 2010 when it was announced.

    I tell you what is completely laughable. It is Wes Streeting's below statement that somehow the former Minister David Willetts could not have envisaged the intention being changed. It was David Willetts that recommended the threshold be frozen! (see https://www.youtube.com/watch?v=xS5DMNSRJlI (from 20:48) and Wes Streeting was there when he did it!) :rotfl:

    "It is important to bear in mind that the Government’s promise to students and applicants was not just in the marketing material of Government and of universities, which understandably assumed that the commitments would be lasting, but written in black and white by the former higher education Minister, now Lord Willetts. Having worked with Lord Willetts over a number of years, I have no doubt that he made that undertaking in good faith. He could not have possibly known that a future Chancellor, or a future Government, would not only break that commitment, but apply it retrospectively."

    David Willetts understands the system, understands that the commitment was an intention in 2010, not part of the repayment terms from 2012 (it would've had to have been put into the regulations this year as a new spending commitment) and I'm sure, now as Lord Willetts, will be explaining to the House of Lords why they should not be taking on any similar amendments to the Higher Education Bill.

    Putting clauses into the Higher Education Bill would not raise the £21,000 threshold. It's the repayment regulations that would need amending to bring about that. All such clauses put in primary legislation such as the current Higher Education Bill would do is restrict Government's ability to modify the repayment regulations - but that is unnecessary as Parliament can already prevent that by forcing a vote on changes to the regulations. (Note the crucial point that because no commitment to raise the threshold was ever part of the repayment terms for post-2012 students, whether it was in the marketing or not, the only clause that could've bound the Government to including future threshold uprating in formulating the repayment terms in 2010 at the point the loans are taken out, would've been if the loans had been regulated by consumer credit regulation. Who's fault is it that they're not - Labour's!). I still agree with the Government's position on this as I properly understand what I've signed up to. Spending £6 billion on uprating the threshold only for post-2012 students when the threshold for them is already higher in relation to earnings than was intended would be indefensible on those with pre-2012 student loans whose threshold is still lower. If all retrospective changes since 1998 to ICR loans were reversed to what was promised originally then the threshold would currently be £10,000 (uprated over time with earnings), post-2008 borrowers would be able to take repayment holidays (they can't as that's another term that was promised by Labour but never delivered on) and interest in 2009/10 would have been set at -0.4%. The obsession with the freeze on the post-2012 threshold is disproportionate. In fact Martin would have a more powerful case if he included these pre-2012 retrospective changes in his arguments too. But of course Wes Streeting wouldn't take them on as it was his party that made them! :rotfl:

    Third Reading of the Bill debate here:

    https://hansard.parliament.uk/Commons/2016-11-21/debates/3C2C0C73-35CF-4108-B68D-44820B49059B/HigherEducationAndResearchBill
  • Too much to read so a thanks instead from me.
  • Now posting it twice does not mean I'll change my mind and read all of that post. :)
  • edited 22 November 2016 at 7:28PM
    Ed-1Ed-1 Forumite
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    edited 22 November 2016 at 7:28PM
    Too much to read so a thanks instead from me.

    It's fascinating if you have the time to look into it and you have an interest in student loans.

    Half the problem is students don't bother reading what they sign up to. My post is mainly directed at Martin. I don't buy into the argument that students aren't informed what they are signing up to as if they bothered reading the Guide to Terms and Conditions, which they are told to do - and indeed have to agree to - on their loan application, they'd understand far better than Martin does that those employed were agreeing to repay 9% of their earnings above £21,000 and that terms such as this may change in the future. That's what students signed up to. That's what the contract was. They did not sign up to Martin's - or indeed any Government's - intentions for the future (such as raising that threshold, although of course governments may choose to do that - it's part of the terms, or indeed not do as in this case).

    My posts are mainly targeted at Martin as he continues to trot out misinformation, however well intended, on this. He could start by accepting that the commitment to increase the threshold has never been in the repayment terms for these loans, whatever previous Governments told him they intended on doing.

    I'd like to know where Martin and Wes Streeting were (oh yes, he was NUS president at the time!) when previous changes to student loans were made retrospectively. The idea that the post-2012 threshold freeze is the first retrospective change to happen in the history of student loans is complete and utter rubbish. And the fallacy that they continue to trot out (particularly with comments on this retrospection rubbish and David Willetts are hilarious, almost desperate in fact and they are giving students and parents the wrong messages).

    On Twitter, I've seen the below post from Martin which exemplifies this.

    @wesstreeting @MartinSLewis why now? Had so many years before to do it....

    Martin Lewis ‏@MartinSLewis 17h17 hours ago
    @DadCalledMike @wesstreeting Not really this change was announced in the last autumn statement, and this is first HE legislation since


    https://twitter.com/DadCalledMike/status/800785876678832128

    Martin, Wes Streeting and Parliament have had years before to do this - since 1998 in fact when ICR legislation was made and in 2008 when the consumer credit exemption was confirmed in legislation, in 2000 when Labour promised to uprate the then £10k threshold with earnings but in future years went back on this and instead in 2005 increased the threshold from £10k to £15k promising to increase it again from 2010 with inflation (rather than earnings) - more retrospective changes to previous intentions - but not delivering on the latter (it took the Coalition Government to start uprating it by inflation in 2012), and in 2009 when interest rates were frozen when they should have been set at -0.4%, and in 2010 when repayment holidays were retrospectively scrapped. The idea that the post-2012 threshold being frozen is the first chance to debate this is ludicrous.

    The idea that amending the Higher Education Bill could change the threshold is also wrong. It would do no such thing.

    I'm also amazed by how badly understood student loans are among MPs. For example in the Third Reading, the DUP MP below stated that the threshold freeze particularly hits students from Northern Ireland when the £21,000 threshold doesn't even apply to Northern Ireland - they're still using the plan 1 scheme which currently has a threshold of £17,495 and it's a devolved matter for the NI Assembly!

    Sammy Wilson (East Antrim) (DUP)

    Does the hon. Gentleman accept that the situation he describes particularly hits students in places like Northern Ireland where starting salaries are much lower? Does he also accept that the Minister’s point about the affordability of this is a red herring, because when the loans were sold to students, surely the cost of raising the thresholds was taken into consideration? The Government cannot now go back and say, “We want to rewrite the rules.”


    The Government can go back and rewrite the rules (although they haven't done by freezing the threshold). They've chosen to leave the rules as they are with a threshold of £21,000.

    Personally, the only way a major change of policy will be brought about is if the Government sees evidence of the policy adversely affecting higher education participation. It's doing precisely the opposite and encouraging participation. If Martin wants to do a U-turn and start advising students not to take out student loans and therefore not go to university it may have some effect on numbers but it probably won't as we are not currently in a situation where repayments are not affordable. The objective of ICR loans is to make repayments affordable. A threshold of £21,000 continues to ensure they are affordable and until they are not, there is no need for Government to change course. It would be like throwing good money after bad, fixing a policy that's not broken.
    Now posting it twice does not mean I'll change my mind and read all of that post. :)

    Don't know what happened there - an amendment turned into a new post :eek:.
  • VT82VT82 Forumite
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    Ed-1 wrote: »
    Verbal commitments have no recognition or weight in law (unless in relation to loans regulated under consumer credit legislation)

    From the website https://www.contractsandagreements.co.uk, and also from my memory of the module I did on business law:

    "Many people are not aware that verbal agreements are as legally binding as written contracts. Verbal contracts can be upheld by a court if someone decides to breach the agreement, although without written terms and conditions it may be difficult to prove."

    I'm surprised there are so many people defending the Government on this one. I'm now a member of the Conservative party (don't shoot me!), but I would not side with them on this, and wrote to my (Labour) MP to try and get it reversed.

    The core argument still stands, that the FCA would not let a private loan company get away with this. Trying to fob people off with technicalities is meaningless when the uprating of the minimum threshold was highlighted as a key selling point of the loan. Even if you don't think the Government was responsible for highlighting this selling point at the time, they certainly didn't stop Martin and others from highlighting it as a key point, which makes them just as responsible for having it shouted from the rooftops when trying to convince people to still sign up for the loans. And as such, the FCA would enforce the loan provider to uphold it, whether there was a workaround in the T's and C's or not.

    Come on people, we're better than this. We're moving away from the American style combatative consumer culture, with the FCA forcing the banks to be at the vanguard of this change, but this is a real step backwards by the Government, and should be recognised as such.
  • HornetSaverHornetSaver Forumite
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    Ed-1 wrote: »
    It would be like throwing good money after bad, fixing a policy that's not broken.

    When was the state pension ever "broken"?
  • edited 24 November 2016 at 8:29PM
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    edited 24 November 2016 at 8:29PM
    VT82 wrote: »
    From the website https://www.contractsandagreements.co.uk, and also from my memory of the module I did on business law:

    "Many people are not aware that verbal agreements are as legally binding as written contracts. Verbal contracts can be upheld by a court if someone decides to breach the agreement, although without written terms and conditions it may be difficult to prove."

    I'm surprised there are so many people defending the Government on this one. I'm now a member of the Conservative party (don't shoot me!), but I would not side with them on this, and wrote to my (Labour) MP to try and get it reversed.

    The core argument still stands, that the FCA would not let a private loan company get away with this. Trying to fob people off with technicalities is meaningless when the uprating of the minimum threshold was highlighted as a key selling point of the loan. Even if you don't think the Government was responsible for highlighting this selling point at the time, they certainly didn't stop Martin and others from highlighting it as a key point, which makes them just as responsible for having it shouted from the rooftops when trying to convince people to still sign up for the loans. And as such, the FCA would enforce the loan provider to uphold it, whether there was a workaround in the T's and C's or not.

    Come on people, we're better than this. We're moving away from the American style combatative consumer culture, with the FCA forcing the banks to be at the vanguard of this change, but this is a real step backwards by the Government, and should be recognised as such.

    It's not a 'workaround'. Income-contingent student loans, because they are administered through payroll, are deliberately designed to be changed for all borrowers. This has been the case from the start (1998) and applies in all other countries that have this type of loan. For example New Zealand: https://andrewmcgettigan.org/2012/06/27/news-from-new-zealand-changing-repayment-terms/

    The legislation has been set up this way precisely because the loans are in practice an extra tax and there are therefore practicable limits to how many different rule sets can be administered at the same time. If every time a Government wanted to change the policy they could only apply it to new borrowers the tax system would fall over. Could you imagine multiple student loan thresholds applying to different employees with potentially different repayment rates? It's just too complicated to administer and for employees and employers to understand. Fixing terms indefinitely every time a change of policy is brought in could also leave a set of borrowers with a very unfair deal (rather than sharing the burden among all borrowers).

    Of course, Governments may choose not to apply policy changes to all borrowers (e.g. the Coalition Government chose not to follow Browne's recommendation to increase the threshold from £15,000 to £21,000 for all borrowers but this was a money saving wheeze rather than a fair one) if they want to but that is not how the legislation has been set up and there are practical limits to restrict Governments' ability to apply changes to new borrowers only.

    As for the verbal announcement and contract law, even if the Coalition Government's intention to raise the threshold had been put into the written terms/legislation, the fact remains that the current Government could have amended the regulations to revoke this commitment. However to do that Parliament would have had to agree it (potentially by forcing a vote on the regulations) so there is Parliamentary oversight on changing the regulations (this is similar to FCA oversight for commercial lending). As this wasn't changing the regulations (it was simply deciding not change the threshold in the current regulations for a minimum of 5 years), Parliament didn't have the opportunity to approve or disapprove the change as it wasn't a change to the current regulations. Increasing the threshold needed further amending regulations.
  • Ed-1Ed-1 Forumite
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    When was the state pension ever "broken"?

    I didn't say it was (continuing to push out the date you can get it might make it broken though!) but the triple-lock is vote winner, not a particularly fair policy.

    The current repayment threshold that applies to post-2012 borrowers (currently at 83% of average earnings) is not at a level that makes repayments unaffordable, especially when pre-2012 borrowers are currently repaying a lot more at a threshold of £17,495 for no apparent good reason other than not raising it to £21,000 was easy to implement and saved the Treasury a lot of money. Pre-2012 borrowers also had previous announcements not honoured such as not being able to take a 5 year 'repayment holiday', not having the £15,000 repayment threshold increased in 2010 and not having an interest rate of -0.4% in 2009/10 - Labour promised repayment holidays would be implemented but never delivered them into the regulations, they froze the threshold in 2010 (it stayed that way until 2012) also breaking a promise, and froze interest in 2009/10 instead of maintaining balances in real terms by paying interest when inflation was negative - also breaking a promise.

    Retrospectively rescinding verbal commitments is commonplace with ICR loans, let alone amending regulations retrospectively.
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