Monday, August 14, 2006
Banks to face curbs on loans and credit cards
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 Pounds 1,000billion 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.
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 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 Pounds 2,151 to Pounds 3,034 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 Pounds 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.
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