While many people take responsibility for their own debts, the ease of getting credit in the first place has undoubtedly contributed to much of the UK’s unmanageable debt.
Are creditors to blame for the increase in consumer debt?
There has been a lot of news coverage recently regarding creditors irresponsible lending. Creditors are now in the firing range and, in many cases, are considered the main cause for the increase in the consumer debt.
Irresponsible lending can include any of the following:
Extending credit or overdraft limits without permission
Creditors don’t need to ask their debtors permission to increase their credit limit. If a creditor feels their client can afford more debt they can automatically increase their credit limit.
Many who have credit cards or overdrafts suddenly find themselves with more available money or don’t even notice the increase and just keep spending. It isn’t until they receive a monthly statement where they can’t afford the minimum payment that they realise they have borrowed more than they can afford.
If they are unable to make the repayments they get into arrears and are charged a missed/late payment fee. This then continues if the debtor is unable to catch up on the repayments. Once this process begins, it can be very hard to control, as creditors will be demanding more and more money each month.
Loan and credit card offers sent through the post
Creditors often use direct mail to try and entice people to take out a loan or credit card. Many creditors use a sample cheque addressed to the individual with an amount that they could borrow.
Personalising the offers makes it more appealing as many believe if the banks think they can afford that level of debt then they can.
This shows the power of direct mail, but is also a genuine reason why the level of consumer debt has risen in the UK. Many find it hard to resist the thought of having thousands to spend on whatever they desire.
Misleading advertising and complex credit agreements
Similar to direct mail, advertising on television is a very powerful tool utilised by creditors. Many of the adverts for credit cards or loans emphasise the ease and the flexibility of repayments, they neglect to mention the threatening phone calls and intimidating letters if the repayments can’t be met.
Whenever an advert deceives its audience and affects their decision making process it is considered misleading, Some credit agreements are so complicated and contain so much jargon that it is often unclear what is involved to those borrowing the money.
In the most misleading cases, creditors secure the loan to the property without making it absolutely clear that the customer’s home is at risk. An advert or credit agreement can be deceptive in the following ways by:
- Containing a false statement of fact;
- Leaving out important facts or not explaining accurately;
- Making promises that they have no intention of keeping;
- Creating a false impression, even if everything stated is true literally.
If you believe you have been subject to a misleading advert you can complain to the Advertising Standards Authority and the Trading Standards.
Lending to people who just can’t afford it
Many creditors give credit to people who obviously can’t afford to repay it. Research conducted by uSwitch supports this as it discovered that 88% of card holding consumers were issued credit cards without having to provide details of their income.
This particular irresponsible lending has been in the news over the past couple of years. The lender LTSB was recently under scrutiny, as it was allowing some of its customers to take out huge loans without properly checking that they could afford to borrow so much.
They are not alone and many other lenders are also lending to people who really can’t afford the repayments. Extensive loans are being offered to people who are claiming benefits or living off pensions, many of who can’t afford to make the repayments.
The Bank Code Standards Board are worried that banks are lending to those who can’t afford it and aren’t addressing the issue and changing accordingly. All banks and moneylenders are now considering ways to ensure that their customers can repay the credit they have.
If you are experiencing any financial difficulty please contact PayPlan for free advice.