Corporate Debt Policy

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Corporate Debt Policy



    TITLE : Employee Car Loan Scheme Members’ Update

    TO / ON : Audit Sub-Committee 12 March 2003

FROM : Director of Finance & E-Government



1.1 What type of decision is to be taken:-


    Key Non Key ?

1.2 If a key decision, has it been included in the Forward Plan

    Inclusion in Forward Date of

    Plan Plan


    2.1 This report updates Members on the performance of the Authority‟s car

     loan scheme and responds to specific queries raised by them at previous

     meetings of the Sub-Committee.

    2.2 The report also presents a case to consider if a major review of the

     scheme is necessary at this time.


3.1 To recommend that a major review of the Employee Car Loans scheme be

    undertaken taking into consideration the issues raised in this report.

3.2 To note the contents of this report and indicate any further action or

    information required.

3.3 Reject the report.

    Page 1 of 6


    Corporate Aims The Car Loans scheme supports all the Corporate

    Aims but specifically the Aim of Improving the Quality

    and Availability of Council Services

Policy Framework The Car Loan scheme supports the achievement of all

    the Council‟s Policy Objectives

Statement by

    Monitoring Officer

Statement by Director Key financial statistics relating to the operation of the

    of Finance and E-scheme are set out in the report Government

Human Resource The HR implications are set out in the report

    IT/Land and Property


Wards/Area Boards All


    Scrutiny Panel's Resource Scrutiny Panel Interest

Consultations None at this stage

    Call-in Not applicable at this stage

    Briefings Executive Members/ Chief ? Chair Executive


    Page 2 of 6

    5.1 This report provides a current update of the car loan scheme and attempts to thaddress the ongoing concerns raised by Members at the Audit Sub-Committee on 25

    September 2002, regarding its operation.

    5.2 Members have specifically been concerned with the absence of any form of credit

    checking prior to the approval of a car loan and the levels of write-offs that are being put

    forward in respect of defaulted loans.


6.1 Conditions relating to the operation of the employee car loan scheme fall under

    section 152 of the Local Conditions of Service, “Assisted Car Purchase Scheme”

    (NC63 „c‟ and Appendix F).

6.2 The management and administration of the employee car loan scheme is

    delegated to the Director of Finance & E-Government.

6.3 As the terms & conditions of the employee car loan scheme are embodied in the

    Terms & Conditions of Employment, any amendment of the terms & conditions of

    the scheme are subject to consultation and agreement with the various Unions and

    elected Members. There is, therefore, no general power to amend them, however,

    the Director of Finance & E-Government does have delegated authority to

    recommend changes.

6.4 The scheme was widened to include all permanent employees of the authority in

    1992, in an attempt to increase take-up of car loans when volumes were at a low


    6.5 A comprehensive review of the car loan scheme was implemented in September

    1995, when extensive consultation was carried out between the Management, Unions and

    elected Members. At that time Members felt that the proposal to conduct „credit checks‟

    was not conducive to good employee / employer relations. A management proposal to

    introduce a scheme of insurance, to cover defaulting in payment of the car loan, was also

    dismissed for the same reasons.

6.6 Various minor amendments to the scheme were made in March 1996 and the

    scheme has operated in its current format since that time.

6.7 A comparison exercise in respect of the operation of in-house car loan schemes

    was undertaken with the ten other Greater Manchester Authorities in September

    2001 and the following conclusions were drawn:

6.7.1 Bury MBC does not undertake any form of credit checking prior to, or during the

    consideration for a car loan, this is also the case for the other ten Greater

    Manchester Authorities.

6.7.2 Bury MBC does not have an insurance policy in place to minimise losses incurred

    in any defaulted loans. There is a policy in place, where staff can voluntarily pay

    0.5% of the value of the loan as a one-off premium to re-pay the loan in the event

    of death in-service. Of the ten other Greater Manchester Authorities, Oldham and

    Tameside Councils both have mandatory insurance policies, whilst Wigan has a

    mandatory death in-service bond applied to all loans.

    Page 3 of 6

6.7.3 All permanent employees of Bury MBC are eligible for the employee car loan

    scheme and Bury is the only Greater Manchester Authority whose scheme is

    applied so widely. Of the ten other Authorities, eight restrict the scheme to

    designated essential and casual users, whilst two Authorities restrict it further to

    just designated essential users.

    7.0 ISSUES

    7.1 Analysis over the last three years, shown at APPENDIX A, demonstrates that the

    number of car loans is falling quite significantly, from 590 in 2000 to the current number of

    426 in 2003. From employee feedback it is suspected that the reason for this decline is

    connected to the high interest rates being charged (8 ?% to 9 ?%) in the Authority

    scheme, combined with low interest deals available in the market place, particularly

    associated with the purchase of new cars.

    7.2 Appendix A also shows that the levels of write-offs that are being submitted to

    Council are in an upward trend. These write-offs are mainly in respect of former

    employees that have absconded without trace or are subject to a bankruptcy order. The

    notes to the appendix report 3 bankruptcies that have been written off and a further

    bankruptcy that is about to be submitted.

    7.3 Despite the downturn in demand for the scheme and upturn in amounts being

    written off, the scheme contributes an estimated ?237,500 to General Fund balances

    over the three year period.

    7.4 It is now some 7 years since the last major review of the scheme and there are

    several indicators suggesting that a further major review is now needed. These are:

    a) To address the decline in participation in the scheme;

    b) To address the upturn in accounts being written-off in the scheme;

    c) To address elected Members‟ concern over the absence of any kind of „credit

    checking‟ prior to advancement of a loan under the scheme.

    d) To incorporate the terms of lending under the Consumer Credit Act 1974 into

    the scheme;

    e) To incorporate lending against the purchase of Motor Cycles into the scheme.


    8.1 It can be concluded that participation in the Car Loan scheme is dwindling, as it

    was in 1992 which prompted a major review of the scheme and levels of write-offs within

    the scheme are approaching levels that are giving cause for concern. These two issues in

    themselves make a good case to prompt a major review of the scheme.

8.2 In a review, consideration can be given towards reviewing the levels of interest

    charged (to make the scheme more competitive and attractive).

8.3 The scope of the scheme can be considered, balancing the issues of dwindling

    numbers and also the level of write-offs being experienced.

8.4 Pre-loan credit checking and mandatory loan repayment insurance can also be


8.5 The financial analysis within the report shows that the scheme is making a

    significant contribution to General Fund balances and any effects on this must be

    borne in mind in any proposed changes to the scheme.

    Page 4 of 6

8.6 A review must be undertaken to incorporate compliance with the Consumer Credit

    Act 1974 into the scheme, and it is an aspiration to widen the scheme to

    encompass loans for the purchase of motor cycles, which could be achieved in the

    same review.

8.7 As the scheme is embodied in the Terms and Conditions of employment any major

    review of the scheme must encompass a full consultation exercise with employees,

    trade unions and elected Members.

Mike Owen

    Director of Finance & E-Government

Background documents:

    Notes held within the Revenues Files

    Report to Policy & Resources Committee 19/09/95 „Employee Car Loan Scheme‟ Report to Personnel Sub-Committee 5/12/95 „Employee Car Loan Scheme‟ Report to Personnel Sub-Committee 19/3/96 „Employee Car Loan Scheme‟

    For further information on the details of this report, please contact:

David Chapman, Revenues Manager 0161 253 7020

    Page 5 of 6


    Employee Car Loan Scheme - Members Update

    Financial Information

     2000/01 2001/2 2002/3 Overall

    Number of loans 590 528 426

    Value of loans ?2.81M ?2.43M ?1.89M

    Interest Received ?267,29 ?236,00 ?173,46 ?676,76

    1 8 8 7 Admin Fees ?4,455 ?3,700 ?2,385 ?10,540 Bond Fees ?2,642 ?2,107 ?1,383 ?6,132

     ?274,38 ?241,81 ?177,23 ?693,43

    8 5 6 9

    Less Interest if ?165,64 ?124,53 ?89,775 ?379,95invested 4 8 7 Staff costs ?8,200 ?9,000 ?10,000 ?27,200 Other costs ?2,300 ?2,500 ?2,700 ?7,500 Gross profit ?98,244 ?105,77 ?74,761 ?278,78

    7 2

    Less Write Offs ?6,971 ?3,102 ?31,240 ?41,313

    Net ?91,273 ?102,67 ?43,521 ?237,46profit 5 9

    NOTE S:

    Bankruptcies included in the above write-off figures

    2000/1 1 case ?6,971 2001/2 1 case ?3,102 2002/3 1 case ?5,470 (a further case about to be submitted - ?6,920)

    Page 6 of 6

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