William Kay: Lenders should take more care in their scramble to push loans
Saturday 24 April 2004
The debt crisis bandwagon is in danger of becoming seriously overcrowded. On Monday the Conservative party announced a Commission on Debt, to be headed by the economist Lord Griffiths, a former policy adviser to Margaret Thatcher.
The debt crisis bandwagon is in danger of becoming seriously overcrowded. On Monday the Conservative party announced a Commission on Debt, to be headed by the economist Lord Griffiths, a former policy adviser to Margaret Thatcher. The shadow Chancellor, Oliver Letwin, told a debt summit that UK personal debt was heading for £1,000bn. And on Thursday the British Bankers' Association unwrapped a study of over-indebtedness by the independent economic group Oxera.
While for their own political reasons it suits the Tories to wring their hands over how debt is spiralling out of control, the Oxera study confines itself to saying that it is difficult to draw strong conclusions and a more thorough understanding is required. As this investigation, largely a survey of surveys, was paid for by the credit industry, it provides lenders with convenient ammunition to warn against the dangers of exaggerating the problem.
Oxera produced impressive evidence to show that the level of unsecured household debt has been fairly steady over the past decade. At any one time a constant one in 20 of us regards debt as a heavy burden, while the proportion finding it "somewhat" of a burden has edged down to about one in 10 and those having no difficulty has edged up from 25 to 30 per cent.
This puts in context the rash of debt-related suicides and near-suicides which have been reported recently. Just as the poor will always be with us, so will a minority who take on far more debt than they can handle. And of that minority a few will be so overwhelmed that they tragically take their own life.
While such cases help to focus attention on the problem, the big question is to what extent lenders are to blame because they push loans too hard to people who cannot cope.
The instant response from the industry is that it is committed to "responsible lending", by which it means loans which customers can repay. That is far too narrow a definition. Truly responsible lending is that which customers can repay without gouging into their other spending, such as holidays, trips to pubs or restaurants, new clothes and so on.
At this, industry spokespeople start blathering about the need for more financial education so that would-be borrowers can assess risk. As The Independent is campaigning for a Personal Finance GCSE, we would hardly disagree with the need for education. While the Personal Finance Education Group is pushing the Department for Education to include money in maths classes, it is generally accepted that such steps will take years to have an effect. So in the meantime it is up to lenders to exercise greater restraint in pushing loans. It is not enough for them to conduct credit checks; they should do at least as much as fund managers to ensure a loan is appropriate, and that borrowers realise the risks they might be taking.
Credit card promotion is the wild end of the game, but here More Than is lobbying for all card issuers to share information about borrowers to ensure no one is swamped. Let's hope it succeeds - and includes store cards.
* While the Shell scandal has filled business pages for days, it is easy to forget that the company is a core holding in the portfolios of thousands of individual shareholders. So I was pleased to see two of them writing to the Financial Times to warn regulators and lawyers against getting carried away in their eagerness to sue the pants off the company.
As one writer points out, there cannot be a clearer example of a negative-sum game. He wants the litigants to reserve their fire for blameworthy individuals. Only one problem: Shell Transport, the UK end, is valued at £37bn and its Dutch counterpart at £59bn. Both are more appealing targets than even the richest individual.
Don't just let your sleeping funds lie
Bank, building society and insurance customers should wake up to the intense activity behind the scenes over the issue of dormant accounts. These are customers' accounts that have not been used for several years, making it likely that the owner has died, moved away, forgotten about it or would possibly find it embarrassing to reopen them.
In last month's Budget the Chancellor, Gordon Brown, said the Treasury would be looking at these dormant accounts, which are believed to contain £15bn, or £250 for every man, woman and child in Britain. Unfortunately, it is nowhere as neat and tidy as that: not all the £15bn will be distributed, and some is owned by clubs, charities, companies and other organisations that may by now have disbanded.
But time is beginning to be a factor. Treasury officials are in discussion with the British Bankers' Association and the Association of British Insurers, because Mr Brown is keen to take a decision. He has seen what has happened in Ireland, where millions of pounds have been forcibly transferred to charity. That may not be where Britain's dormant funds end up, but a point in time will be chosen when the shutters will come down, or at the least the whole business will become very messy.
Better, if you think you or one of your relatives has some money lying idle, to contact the business in question to start the process of establishing ownership.
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