Millennials are racking up high-cost debt just to pay for basic living costs, the chief executive of the Financial Conduct Authority (FCA) has said.
Andrew Bailey warned of a “pronounced” build-up of credit as real wages for young people have fallen. Lenders must take into account the affordability of credit and the fact that interest rates may rise in the future, Mr Bailey said.
He told the BBC: “There is a pronounced build-up of indebtedness among the younger age group.
“We should not think this is reckless borrowing, this is directed at essential living costs. It is not credit in the classic sense, it is [about] the affordability of basic living in many cases.”
Mr Bailey said the FCA was looking into high-cost debt practices.
“There are particular concentrations [of debt] in society, and those concentrations are particularly exposed to some of the forms and practices of high-cost debt which we are currently looking at very closely because there are things in there that we don’t like.
“There has been a clear shift in the generational pattern of wealth and income, and that translates into a greater indebtedness at a younger age.
“That reflects lower levels of real income, lower levels of asset ownership. There are quite different generational experiences.”
Liberal Democrat leader Sir Vince Cable called on the Tories to implement an election manifesto pledge to adopt a “breathing space” scheme to help people with serious debt problems.
It would give them the opportunity to apply for legal protection from further interest, charges and enforcement action for up to six weeks and then offered a statutory repayment plan where appropriate.
Sir Vince said: “The under-40s, in particular, are suffering financial hardship because of the worrying accumulation of debt in the UK.
“The Conservatives have forgotten about their manifesto pledge to create a ‘breathing space’ scheme so that people in serious difficulties can have legal protection from interest, charges and bailiffs for six weeks.
“For the head of the FCA to make this intervention shows how urgently this must be introduced.”
Responding to Mr Bailey’s comments, Mike O’Connor, chief executive of StepChange debt charity, said: “Our most recent statistics chime with warnings that record numbers of people are getting into debt at an earlier age, with young people relying on credit to cover essential costs.
“StepChange has seen a 10 per cent increase in the number of younger people seeking debt advice in the last five years and two thirds of those contacting the organisation are now under 40,” Mr O’Connor said.
Additional reporting by PA
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