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IRRESPONSIBLE LENDING FROM THE CREDIT INDUSTRY
By: Matthew Parkinson

WHY WON’T THE GOVERNMENT STOP IRRESPONSIBLE LENDING FROM THE CREDIT INDUSTRY?

It is not uncommon for credit card companies to offer credit limits of £10,000, £15,000 or even as much as £25,000 – allowing you to effectively walk into a car dealership and buy a brand new car by signing on the dotted line and then driving away!

To whom do they offer these limits?
ü Anyone earning more then £100,000 per year?
ü Company Directors?
ü Solicitors?
ü Members of Parliament?

No.

They are offering these limits to retired widows, low-income families and single parents working 16 hours per week. People who have no ability whatsoever to repay such huge sums of money.

Hard to believe isn’t it? But Payplan, a free debt management company who deals with thousands of individuals with debt problems each week, have come across many unbelievable cases of “irresponsible lending” over the last few years and the problem appears to be getting worse. There are now more than 300 different credit cards on offer in the UK – all competing for your business.

They will use attractive offers to get you to sign up, such as cash back, 0% interest on balance transfers and purchases, loyalty points etc – All designed to make you spend more on your cards so that you then pay them interest out of your hard-earned cash.

These offers are often deliberately confusing and complex in the hope that customers will fall foul and not qualify, resulting in interest being charged.

“Britain's personal debt is increasing by £1 million every four minutes.”

Gone are the days where borrowing money involved making an appointment with your bank manager and turning up in your best Sunday suit to make a good impression then politely explaining why you needed the money.

But it isn’t just the new credit card companies that are doing this – the high street banks are guilty of overloading their customers with credit facilities too.

The former “Big 5 Banks” are probably most guilty of this; once a customer runs up a large overdraft they are quick to offer a consolidation loan, which may also incorporate any credit card debts. While this seems like a good financial move, many customers find that the interest rates charged by the banks are extremely high and the temptation of overdrafts and credit cards still remain.

Should the credit cards, store cards, catalogues and overdrafts start to creep up once again, the banks may intervene a second time and allow a large unsecured personal loan of up to £25,000 to clear some or all of the debts.

This only causes further problems and does not allow the customers a realistic opportunity to resolve the problems – they really need budgeting advice, and LESS credit facilities.

Once these large loans have been taken then it means that all the customers “eggs are in one basket” – this stops the customer from seeking professional help as there is only one creditor to negotiate with and they will require all the monthly surplus.

SO WHY DO THE BANKS LEND SUCH HUGE SUMS WITHOUT ENSURING THAT CUSTOMERS CAN REPAY?

We can only speculate but there could be several reasons:

1. Banks and credit card companies could take insurance against the risk that their customers become insolvent. Credit insurance premiums generally cost between 0.3 - 0.7% of annual turnover – a small price to pay for a guarantee against irresponsible lending!
2. It may be that companies have calculated just how much extra interest can be earned from customers if they provide them with such high credit limits. By overcommiting customers they know that extra interest and charges will be added.
3. In light of recent comments from HSBC and Barclays who have been blaming “bad debtors” for their drop in share price – it could simply be a diversionary tactic!

WHY WON’T THE GOVERNMENT INTERVENE?

The wheels are in motion to make creditors more accountable for irresponsible lending, (Lloyds TSB have been in trouble recently for unsecured lending of up to £100,000!) but there is little rush from Gordon Brown’s Office as the UK’s economy continues to hit growth projections aided by massive consumer spending.

“Household final consumption expenditure is the largest single component of the expenditure measure of GDP, accounting for about 50% of spending.”

In other words, the more money spent by the UK population, the higher the GDP (Gross Domestic Product) and this means more money is pumped into the economy.

If you feel that you have lost control of your credit card and loan repayments or that you have borrowed more than you can pay back, then give Payplan a quick call on 0800 716 239 or visit the website for further details www.payplan.com

Payplan are a free debt advice agency, who are able to provide a personal solution to anyone experiencing debt problems.

About the author:
I have been working as a Debt Advisor in the UK for the last 5 years, assisting families who have been overwhelmed with debt.

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