Banks face call for credit card curbs

Griffiths Commission urges new laws to protect borrowers * £1 trillion debt 'time bomb' threatens millions

New laws to penalise banks that encourage their customers to take on too much debt are called for today in a report produced by a former head of the Downing Street policy unit during the Thatcher era.

New laws to penalise banks that encourage their customers to take on too much debt are called for today in a report produced by a former head of the Downing Street policy unit during the Thatcher era.

Lord Griffiths of Fforestfach, a Tory peer, says the voluntary banking code should be replaced by a statutory bank customers' charter which would outlaw the aggressive marketing of credit and force banks to be much more transparent about charges for credit.

The Griffiths report, commissioned by the shadow Chancellor Oliver Letwin, also recommends that banks be made to share data with one another to prevent borrowers from running up huge debts on multiple credit cards.

The report comes as Britain's high street banks face increasing criticism over their bumper profits and the ease with which borrowers can take on personal debt, which now stands at more than £1 trillion or £17,000 per head of population.

Although the vast bulk of this debt is secured against housing, unsecured debt such as personal loans and money borrowed on credit cards is rising at a faster rate than secured debt. The Griffiths Commission on Personal Debt describes this as a "time bomb" which could affect as many as 15 million households in the event of a sudden economic downturn.

"The sheer scale of consumer debt has made millions of households extremely vulnerable to shocks in the economy, both from fiscal mismanagement and external factors such as oil price rises, acts of terrorism and wars," says the report. "Credit is far too easily available in the UK. Banks market credit too aggressively and protect their own risks but not those of their customers."

Mr Letwin welcomed the report but stopped short of saying whether the Tories would implement its main recommendation for a statutory bank customers' charter if they won power. "The Griffiths Commission has undertaken a very serious piece of work which reveals equally serious social problems," he added. "A Conservative government would certainly consider this report and its implications."

Recent tragic deaths have highlighted the debt trap which thousands of borrowers have fallen into. In one case a 65-year-old grandfather and self-employed mechanic, Richard Cullen, killed himself after running up £130,000 of debt over a six-year period using 23 different credit cards - four of which were issued by the same bank. In another case, Scott Smith, of Norfolk, who was deaf and in part-time employment, killed himself after getting £10,500 into debt.

The £30bn of profits which Britain's five big high street banks made last year have helped shine a light on the growth in unsecured debt, which rose 13 per cent last year and now stands at £56bn. So have the marketing tactics of doorstep lenders such as Provident Financial, which is preparing to mail several million UK homes - including those which struggle to get credit elsewhere - offering its Vanquis credit card, which charges average interest of 49.9 per cent on uncleared balances.

Lord Griffiths said yesterday that the playing field had been tilted too long in favour of the banks and it was now time for the rights of customers to be strengthened in the face of the "very aggressive" marketing tactics of the banks. "I'm all in favour of the free market but I also believe there are areas where the consumer needs protection and this is one."

One of the developments which concerns Lord Griffiths is consumers' ability to borrow large sums through internet banks without ever being interviewed face to face. The report calls for more personal contact between borrower and lender when it is marginal whether to grant a loan.

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