Lenders learning to tighten their belts to keep down bad debt
Recent reports have slated banks in the UK for failing to carry out adequate checks before allowing consumers to borrow money on credit cards and on unsecured personal loans. Many of the major banks have been highlighting the level of bad debt that they have been left with, and last year a record number of people went insolvent, breaking the one hundred thousand barrier for the first time. As consumers struggle to repay their credit card and loan balances, and seek solutions such as bankruptcy and IVAs, many think that part of the problem stems from lenders not actually checking to see whether an applicant can afford credit before granting it to them.
In the reports it was claimed that most banks, although they ask the relevant questions with regards to income and outgoings before making a decision on granting credit, fail to actually get the applicant to prove their income and expenditure. Therefore, many desperate consumers who need to get their hands on finances can do so without having to provide any real proof of whether or not they can afford to keep up with repayments. All too often this leads to the consumers struggling with repayment as time goes on, and in many cases results in yet another bad debt for the bank.
However, according to Credit Action lenders are starting to learn from their mistakes, and are being far more stringent with regards to who they will and won't lend money to. One spokesperson from Credit Action stated: "Banks suffer from increasing numbers of people being declared insolvent, and their bad credit figures are very high – I think it was about £1.4 billion that was written off in 2006 because people couldn't repay. If it's going to hit banks in the pocket then they're going to try and do something about it."
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