Consumers may be overwhelmed by levels of debt, warns FSA chairman

Consumers may be piling on dangerous levels of debt, which they could be unable to pay because of changes in the economic environment, the Financial Services Authority warned yesterday.

Unveiling its annual assessment of risks threatening individuals and the financial services industry in the coming 12 months, the City watchdog identified rising levels of borrowing as a pressing problem. Callum McCarthy, the chairman of the FSA, signalled that economic factors could increase some people's debt burden to unsustainable levels.

"Most commentators expect interest rates to rise, and continuing low levels of inflation mean that debts, once incurred, will not be eroded by inflation," Mr McCarthy said.

The FSA also made clear that consumers would have to start taking more decisions about their own finances, in the face of attempts by the Government and employers to shift a wide range of needs, such as pensions provision and education funding, on to individuals. "Consumers will have to take on greater responsibility, and need to think about the risks involved," Mr McCarthy said.

The FSA backed plans, unveiled yesterday by the Personal Finance Education Group, headed by Ron Sandler, to push for more training in schools. Mr Sandler argued that financial education should have a place on the curriculum alongside other practical issues such as drug addiction because of the growing need for individuals to take responsibility for their own finances.

New training programmes could be partly funded by a levy on the financial services industry, the Association of Investment Trust companies suggested. The trade body is struggling to regain consumers' confidence after the split capital scandal, which saw many trusts - sold as low risk products - collapse.

The FSA is investigating the splits industry over possible mis-selling.

The FSA stressed the move towards making consumers shoulder more of their own financial burden did not mean it would run a completely laissez-faire regime. The regulator expects product providers to improve their offering to customers and make their marketing material much clearer.

The FSA has already fined companies for mis-selling endowments, pensions and precipice bonds. It is now scrutinising equity release mortgages, which are being offered to the elderly, to see whether takers fully understand their terms and conditions.