Sam Dunn: Lenders can't survive on price promises alone
Sunday 19 June 2005
My, how they want your business. Two audacious bids were made for your wallet last week.
My, how they want your business. Two audacious bids were made for your wallet last week.
In the chaotic competition for current accounts, HSBC pitched a "price promise" to punters. Buy something on the high street for, say, £25 that you then see elsewhere for £15 and the bank will refund the difference.
Over in the crowded credit card market, Yorkshire building society (YBS) announced a 0 per cent balance-transfer card, defying the doomsayers who believe these deals are lame ducks.
And for those who are simultaneously taking out a YBS mortgage, the credit card comes with a cashback offer that goes towards paying off the loan. But with only 1 per cent cashback payable up to £2,000 (and 0.5 per cent above), spending even this much will get you just £20 off your mortgage.
A deal similar to HSBC's price promise was recently dropped by Barclaycard after it found that its nine million customers made an average total of only 10,000 claims a year, and many of those were from the same canny people.
Both YBS and HSBC say they have carried out extensive research to make sure that, in a saturated market, their products are something people really want.
It's all very well the industry coming up with inventive new products (or gimmicks), but lenders ought to be devoting time and energy to a far more pressing need: a responsible attitude to consumer credit.
It is still astonishing to hear of individuals on very low incomes able to rack up debts of tens of thousands of pounds with a string of credit agreements, cards and loans. How on earth did they get all that credit in the first place? The simple answer is that the lenders involved made mistakes. But just how they failed, and why they keep on doing so, remains a riddle.
Credit checks are supposed to allow financial companies to suss you out when you apply for a card or loan. To do this to the best of their ability, they must be able to get a clear picture of potential customers and their financial history. But this still isn't possible because not all companies fully disclose their customers' track record to the credit reference agencies that hold information about us on databases.
Unfortunately, much turns on a legality. Millions of customers with loans and credit cards have never given their consent for the full disclosure of their details. This sounds like it's our fault but it isn't. Up until the late 1990s, when data protection legislation was changed, the rules on disclosure of personal information were applied haphazardly; many lenders didn't think it important.
The absence of "historic data" is now undermining attempts by lenders to get comprehensive information on customers' financial history. This means that different banks apply different criteria each time a credit check is made.
The industry is working with the Government to standardise credit checks but a solution to the current muddle is still a long way off.
And that's not the only problem. In a rush to reach more and more customers - and hit sales targets - lenders have been guilty of handing out credit to the wrong people.
A BBC documentary last month revealed that Lloyds TSB had granted loans for more than £15,000 without sufficient paperwork to show that proper financial checks had been done.
Unfortunately, the toil is set to continue; the Consumer Credit Bill now moving through the Commons carries not a jot of legislation to address data-sharing.
It's ridiculous that, in a society in thrall to debt and desperate to do something about it, credit applications are still processed in so haphazard a way. The Government must address the problem now.
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