Banks offering credit cards and loans could face a series
of clampdowns if they are found to be making customers
get into greater debt. Some of the country's largest financial
institutions may need to improve radically the way they
assess creditworthiness, and face bans on issuing credit
cards to customers who have taken out loans to consolidate
other debts, if proposals discussed on 11 January get
the go-ahead.
Financial industry watchdog the Banking Code Standards
board launched a probe this year into the factors that
are adding to Britain's growing £1000bn mountain
of personal debt.
The inquiry has studied 12 of the UK's biggest banks
and credit card companies, focusing on the way they assess
creditworthiness and the time it takes some customers
to get into financial difficulty after applying for an
unsecured loan or credit card.
The watchdog, which issues a voluntary code of conduct
for the banking industry, is also expected to provide
detailed guidance on granting loans based on joint household
incomes. In some cases lenders granted such loans without
making sure that both spouses were aware of the debt.
If you have spent too much at Christmas, check out our
Dealing with Debt section. This is Money also has selected
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The Banking Code Standards board is also said to be concerned
about bank staff selling loans and credit cards on a target-incentive
basis, being rewarded with bonuses or prizes.
The board has announced the preliminary findings of its
investigation and has confirmed that it is working with
the banking industry to find solutions to the problems
identified.
Although it cannot fine banks, it can publicly name and
shame those companies who fail to adhere to the code.
Spending expert Datamonitor revealed this money that
personal debt levels in Britain are higher than any other
European country. It said outstanding debt grew by 41
per cent in Britain between 2000 and last year, from £2151
to £3034 per head.
Debt advising organisations such as the Credit Counselling
Service say they are now seeing at least one person a
week who has run up debts of £100,000 or more. The
Citizens Advice Bureau says it is seeing more than one
million new debt cases a year, mostly linked to unsecured
consumer credit.
The Office of Fair Trading is also investigating insurance
policies sold alongside loans and credit cards, after
finding compelling evidence suggesting consumers were
being ripped off by payment protection plans.
Last week, accountants Grant Thornton predicted that
the first quarter of next year will see nearly 20,000
personal insolvencies - the highest number since records
began in 1960.
They said that some 6,500 of these will be a direct result
of people racking up too much debt on credit and store
cards over Christmas.
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