Tuesday, September 26, 2006
Credit card companies failing to vet applicants
Almost 90 per cent of credit card companies failed to check the incomes of applicants, a survey shows, raising concerns that banks have a "lend now, ask questions later" culture. Some people on low incomes were allowed credit limits of pounds 10,000. Britain's national total of unsecured lending is pounds 1.13 trillion, of which pounds 56.35bn is on credit cards. British consumers account for two-thirds of credit card debt in the EU, and the growing popularity of "plastic" is blamed for contributing to a record number of bankruptcies.
The report by uSwitch. com, a price comparison website, came as the brother of a woman who committed suicide after accumulating pounds 14,560 of debts criticised her bank, Barclays, for heavy- handed tactics. Lisa Taylor, 26, from Blackburn, Lancashire, hanged herself last July because she believed she would never pay off her debt, including pounds 3,692 due on her Barclaycard. Most of her debt was a student loan of pounds 6,738. She also owed pounds 2,779 to Egg and pounds 1,351 to Capital One.
She left a letter to her father saying she had "serious debts that I will never pay off. I can't bear it any longer".
Her brother, Mark, said Barclays had sent several letters demanding payment and threatening legal action. "I don't understand how companies can almost sit back and watch someone getting into a helpless situation like this."
A spokesman for Barclays said: "We extend our sympathies to the family.
Barclays also treats cases of financial difficulty with sensitivity and care."
This month uSwitch.com surveyed the finances of 1,937 people, of whom 749 had successfully applied for a credit card in the past year.
Most (88 per cent) who were approved for a credit card were not asked for proof of their annual income beyond the figures they put on the application. Some 95 per cent were not asked to show evidence of their outgoings.
In some cases, the credit limits were equal to or above a borrower's annual income.
Of people earning between pounds 10,000 and pounds 20,000 a year, six were given credit limits of between pounds 8,000 and pounds 10,000.
In one instance, a person earning less than pounds 10,000 was given a credit limit of between pounds 10,000 and pounds 12,000. The individual would need to repay more than one-third of their monthly take-home salary to meet the minimum repayments, and would take more than 28 year s to clear the balance - paying pounds 8,600 in interest in the process.
Despite many lenders failing to check whether customers could afford to repay debt, an estimated 100 million unsolicited credit card application forms were posted in the three months leading up to Christmas.
Keith Tondeur, chief executive of Credit Action, the money education charity, said: "These findings are alarming. Lenders need to ensure that figures given to them by potential borrowers are accurate - especially for those in the lower income bracket who are much more vulnerable should things go wrong and who may be desperate to borrow because of existing problems.
Nick White, head of personal finance at uSwitch. com, said measures were needed to ensure that money was lent in a responsible manner.
"The finding that only one in eight cardholders provided accurate salary or income details... emphasises the significance of the lenders' failure to conduct proper checks," he said.
Subscribe to Posts [Atom]
