Banks Cause of UK Debt Problem
Debt Free Direct chairman Mike Blackburn, former chief executive of the Halifax, blames the increase in personal insolvencies on the banks.
“We are where we are because of excessive and imprudent lending decisions made by creditors, who end up with debtors strung up with debt they would never be able to deal with,” he said. “Why have the banks been squealing of late over their provisioning? Debtors are having credit thrown at them.”
The total number of personal insolvencies jumped in 2006, at least 45% to 67,584 cases. Debt Free Direct (DFD) estimates that 1m to 2m people are irreversibly over-indebted and will never be able to repay the capital on their loans.
The banks made £37bn in profit in 2006. The banks have been criticised by several debt management charities for their careless lending. Banks are deflecting the blame on individual voluntary arrangement (IVA) firms.
The banks claim that debt-management firms are selling unnecessary IVAs to consumers who do not need their services. The number of IVAs taken out last year increased from about 20,000 to 45,000 and their value increased from 15% to 30%.
HSBC raised the issue after its six months bad debt provisions increased in 2006 from £265m to £361m.
Recent reports suggest that banks are acting irresponsibly by releasing figures which states that teens are in serious debt because credit card companies have been lending unsecured loans to high school students.
Other reports have brought to light the fact that banks are issuing loans without asking clients for proof of income or referencing their consumer credit information.