Mark Snape, managing director lending at Magellan Homeloans, said: “To date, the financial services industry has tended to fine and punish borrowers who get into financial difficulties with penalties and CCJs, rather than provide help through education and rehabilitation.
“However, if you consider the approach the police have taken to speeding offences, they have found that offering speed awareness courses as an alternative to penalty points has been an extremely effective way to change driving habits. The financial services industry can learn from this experience.
“The overwhelming majority of borrowers enter into loan agreements with a genuine intent to repay and it is usually an unexpected event such as redundancy, divorce or illness that acts as the catalyst to financial problems.
“The threat of a CCJ is a salutary wake-up call and the opportunity to attend a financial awareness course may have a more beneficial effect than simply giving someone an adverse credit record, which usually prevents them from taking out another loan for up to 6 years.”
Magellan is suggesting that the courts should be given the discretion to offer individuals the option to attend a financial awareness course, rather than being awarded a CCJ. If a borrower then continues to default on future payments after taking the course, then a CCJ should be automatically awarded thereafter.
The specialist credit repair lender says that such an initiative needs the support of the whole industry including input from trade bodies, consumer groups, regulators, debt management firms and charities.
Snape added: “This type of initiative is bigger than any one company and requires the combined backing of the whole industry to ensure its success.
“Lots of people will find lots of reasons why it shouldn’t happen, but it’s our firm belief that education and rehabilitation has to be a better approach that fining and pushing.
“Perhaps a sensible starting point would be for one of the industry trade bodies to consider the feasibility of this proposal and suggest what the next steps should be.”
