A fate worse than debt?

'The annoying thing is people do not need to pay for advice on dealing with their debts'

The old definition of a banker is someone who is happy to lend you an umbrella on a sunny day and then demands it back at the first drop of rain. According to recent figures from the National Association of Citizens Advice Bureaux (NACAB) it would appear that the banks have been handing out brollies like confetti.

The old definition of a banker is someone who is happy to lend you an umbrella on a sunny day and then demands it back at the first drop of rain. According to recent figures from the National Association of Citizens Advice Bureaux (NACAB) it would appear that the banks have been handing out brollies like confetti.

NACAB says that Citizens Advice Bureaux across the country are reporting a sharp rise in the number of people coming to see them with unmanageable debts. Debt problems with store cards, mail order and HP repayments, loans, overdrafts and credit cards have increased by 16 per cent on 1998/99 figures. Bureaux in the UK have handled nearly one million general debt inquiries, of which over half a million were new consumer debt problems in the year 1999/2000.

These numbers have been seized on by Kim Howells, the consumer protection minister, who has called a "debt summit" next week. Mr Howells will tell lenders that they must draw up a voluntary code to stop this jump in "irresponsible loans".

No doubt the bankers think this is a bit harsh. After all, customers complain if they don't get a loan, and then complain if they do get a loan and can't pay it back. But it is alarming that the number of people getting into debt they can't handle is growing at a time when unemployment has fallen to a 30 year low, and while the UK has the lowest inflation rate in Europe.

The Department of Trade and Industry (DTI) believes, and I think it is right, that credit is often too freely available with too few checks on a borrower's financial circumstances. This is, in turn, a product of the intense competition in the lending market, which is seeing traditional high street banks pitched against internet start-ups and "sub-prime" lenders who are happy to lend to people with poor credit records.

Mr Howells' department is concerned by the increase in people being offered credit they clearly cannot afford to pay. Consumers are deluged by TV adverts for easy credit and mailshots offering loans with a minimum of paperwork. There has also been a boom in firms offering to "consolidate" your different credit card and bank debts into one single monthly payment, often secured on your house.

The task the government faces is a tricky one - balancing the need to protect the public without stifling competition and boosting red tape. The voluntary code should demand that all lenders make sufficient enquiries about borrowers' ability to pay. It should also compel lenders to provide total transparency on the terms of loans, and to show exactly how much these loans will cost throughout their life.

Any code must also clamp down on extortionate rates of interest and so-called "credit repair companies" that do not live up to their claims. The really annoying thing is that people do not need to pay for advice on dealing with their debts. The Citizens Advice Bureaux has outlets all over the country and many years of experience helping with debt problems and negotiating with creditors.

Incidentally, I was originally going to write this column about Gordon Brown's likely plans for a pre-election giveaway Budget, but then he postponed next week's Pre-Budget Report (or "Green Budget") until the following week. The Chancellor is obviously doing one last count of how many brollies he has to give out...

* John Willcock is Personal Finance Editor of The Independent

* j.willcock@independent.co.uk

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