William Kay: Is it right to tempt the vulnerable with loans they really can't afford?

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The Independent Online

What is the Government playing at? As more and more cases emerge of totally unsuitable people sinking beneath thousands of pounds of credit card debt, the Post Office launches a personal loan product which ignores borrowers' credit ratings and charges less interest the more they borrow.

What is the Government playing at? As more and more cases emerge of totally unsuitable people sinking beneath thousands of pounds of credit card debt, the Post Office launches a personal loan product which ignores borrowers' credit ratings and charges less interest the more they borrow.

The Chancellor, Gordon Brown, will say that, as with the Bank of England, the Post Office is independent. But it is a wholly owned subsidiary of Royal Mail Group plc, which has one shareholder: the Government. So Mr Brown has the ultimate power of veto over such schemes as the Post Office loan.

The point is that the Post Office's 16,500 branches are frequented by the oldest, poorest and most vulnerable members of our society, some of whom are bound to be tempted by a £5,000 loan at 8.9 per cent interest to lighten their possibly impoverished lives. This is all the more likely in view of the fact that Post Office staff are to be given bonuses for selling these loans. "Come on, Mrs Higgins," you can hear them saying, "a bit of debt won't do you any harm, will it now?"

I do not accuse Mr Brown of inconsistency. Only last week he was telling the House of Commons Treasury Select Committee that the economy was not endangered by individual borrowers stretching their finances to breaking point.

I am also sceptical of some of the stories of people being ruined after having dozens of credit cards thrust down their throats. I am sure there is some truth in their stories, but I am equally confident that we are not being given the whole picture.

Nevertheless, someone as fond of reviews, consultations and initiatives as Mr Brown might find the time to ensure that lenders pool information about would-be borrowers so that they receive no more credit than they can handle. Meanwhile, the debt mountain breaks new records every month.

The public's tendency to underestimate the problems of overborrowing is compounded by ignorance and confusion. Most do not understand percentages or risk, the two key components of gauging debt.

Professor David Miles was the star guest at a Zurich Mortgage Network breakfast this week, stressing the importance of borrowers knowing the likely pattern of repayments over the life of a mortgage, rather than the present emphasis on the cheapest one or two-year deal. But mymortgagedirect, an online broker, is today publishing a survey arguing that borrowers are overpaying by £2.5bn a year because many are not going for the best short-term discounted deal. Both cannot be right.

Sir Eddie George, the recently retired governor of the Bank of England, used to liken his role to that of the person who takes the punchbowl away from a party just as everyone is enjoying themselves. His successor, Mervyn King, is hesitantly doing just that, gradually raising interest rates when we are having the debt parties to end them all. Mr King and his Monetary Policy Committee fear banging rates up by 0.5 per cent a time in case they spark a rush for the door and an unholy recession as people stop borrowing and spending.

But the fact is that not enough people are paying attention to the dripfeed of 0.25 per cent increases. Mr King is warning that he will soon have to commandeer the punchbowl, but nobody's listening.

* My story last week of the City grandee's wife who is making £2,000 a week risk-free and tax-free from insider trading in wine ( click here for story) has attracted an emotional postbag. Most bewailed the fact that I did not say outright that the lady should be publicly flogged for her behaviour, so let me put that right. Maybe I won't call for public flogging, but I utterly condemn such dishonesty and of course the lady should own up and pay tax on her £100,000 a year.

Others doubted such trading could be risk-free, but that was accounted for by her inside knowledge of the market.

Courting the Del Boys of the road

Peter Wood has done it again. The serial insurance company founder, who made £42m out of Direct Line and paraded the irritating Michael Winner to help sell the virtues of esure, is today launching First Alternative.

It is a complete about-turn. Where esure concentrates exclusively on the safe driver, the new company will openly court the Del Boys of the road. It is aimed at the 10 million "non-standard" motorists, who drive flash or self-built cars, or have driving convictions, are under 21, have dodgy occupations such as acting, professional sport or journalism, or - worst of all - have actually made a couple of claims in the past five years.

It's a tempting market, because it covers four in 10 drivers. But, as Mr Wood admits, they include the biggest bunch of shysters you could wish to meet this side of Peckham High Road. So he will be using voice-stress analysis to see if they are lying, along with Elvis - electronic location viewing system - to check on the site of any alleged accident.

But all this will be worthwhile if these safeguards enable Mr Wood to separate the plain fraudulent from the more unfortunate but honest drivers. But just when you thought it was safe to turn your TV back on, Mr Wood has a devilish ploy to promote First Alternative. The ads are to be fronted by Michael Winner, but this time as a bumbling idiot. Should be a lot more convincing, then.

w.kay@independent.co.uk

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