Millions of families are living on the edge of financial ruin as they fall behind on debt repayments. Evidence is mounting that they simply do not have the cash to meet the bills for luxury items charged to credit.
The Royal Bank of Scotland-Nat West group yesterday revealed that card arrears and bad debts are climbing, confirming recent warnings from Barclays, HBOS and HSBC.
The increase in debt follows claims that the big banks have promoted ‘binge borrowing’ by pushing cards and loans on to customers. Staff earn bonuses based largely on the value and quantity of cards, loans and associated insurance policies they sell. A resulting ‘buy now, pay later’ approach has driven personal debt above £1trillion – £1,000billion. Five interest rate rises since November 2003 have pushed up mortgages and the cost of repayments on cards and loans. At the same time, the property market is in a deep freeze, which has hit consumer confidence, high street sales and manufacturers.
Bankruptcies and home repossession applications are running 25 per cent ahead of last year and appeals for help to the Consumer Credit Counselling Service are up 60 per cent. Even apparently well-heeled families with incomes of more than £50,000 a year are joining the throng unable to cope with their debts.
‘When house prices fall, people stop spending and unemployment goes up,’ said Keith Tondeur, national director of the money advice charity, Credit Action. ‘Millions of people are on the edge of a precipice and many may not even realise it. In reality, a lot of people only have enough ready cash to see them through a few weeks. ‘There has been a huge pressure on people to have the big holidays, the new cars and the rest. But the fact is an awful lot of people have been spending on the whims of today and forgetting the needs of tomorrow. Now we are seeing the consequences.’
The banks stand accused of reckless lending. As well as promoting a hard-sell culture, they have failed to make proper checks on the finances of customers before doling out cards and loans. This was highlighted by the tragic death of Stephen Lewis, a 37-year-old production worker from Worksop, Nottinghamshire, who ran up debts of £70,000 on 19 credit cards despite earning £22,000 a year. Hounded by the banks for repayment, he hanged himself, leaving his wife Susan to raise their two children.
The Government is also in the dock for refusing the pleas of MPs and consumer groups to clamp down on bank industry scams that disguise the true cost of credit. It has refused to make banks use the same interest calculation method on credit cards. Consequently, it is impossible for consumers to hunt down the best value deals. It has also refused to force banks to share credit history information on customers. This is despite the fact it is the only certain way to know whether a customer can afford a new loan or card.
Money expert at the Which? consumer organisation Emma Bandey said these problems could have been addressed in a new Consumer Credit Bill, which is now before Parliament. ‘The banks themselves have shown precious little interest in delivering fair, open and honest products,’ she said. ‘The Government could have forced through improvements, however it has missed a golden opportunity to tackle these issues. ‘MPs on the Treasury Select Committee have accused the banks of being addicted to profits by deception .’
(Daily Mail 9th June 2005)