Banks Rethinking Lending Policy
The high levels of bad debt may be forcing credit card companies and banks to reconsider what they offer consumers. Debt reached its highest level in 2006, with more than 100,000 consumers petitioning for insolvency. This resulted in high losses for credit card companies and banks.
IVA companies have gouged into the profits of unsecured loan lenders, resulting in more losses.
Combine these with the Office of Fair Trading’s move to limit bank charges and fees on overdrafts, and the banks are reeling under the burden.
Early in 2007, credit card companies and banks were scrutinised and rebuked for not following regulations and making sure that consumers could afford to repay their unsecured loans.
This came following reports from consumer groups which stated that many borrowers were not checked for proof of income, or even had their consumer credit information report checked, before they were given unsecured loans.
Banks are not only buckling under the pressure and asking for proof of income, and running credit checks, but they are coming down harder on borrowers who have bad debts.
The move is causing mixed emotions among consumers. However, only time will tell if consumers will find other ways of borrowing personal loans. While the move by banks and credit card companies is motivated by their determination to slow their losses, it may have a positive effect on the population.
There has already been an increase in secured loans, partly because unsecured lenders can now force the sale of a home to repay a loan, and partly because of the lower interest rates.