Banks have no right to tighten lending criteria

Once again the banks have tightened their lending criteria in response to the increasing levels of bad debt.  This is hypocrisy according to most in the economic community. Many analysts blame the banks for causing the problem.  Their voracious appetite for lending has recently given birth to the 140% mortgage, the interest only mortgage, and let’s not forget the devastating fiasco caused by the endowment scam.

This makes life almost unbearable for societies most vulnerable, including the elderly.  Many of the bank’s unfair practices leave some elderly people with less than 42 pounds a month to live on.

Most analysts have not stepped out and blamed the High Street banks openly, but their relaxed rules and refusal to follow the rules have even caused credit information companies marketing data company Experian Group reported ‘challenging’ conditions in the ‘personal credit checking services’ markets.

It just doesn’t fit the pattern. Lending grows by 1 million dollars every four minutes, but the companies suffer who are in business to make sure that people cannot borrow more than they can afford to repay.

In a conference call with reporters, Experian chief financial officer Paul Brooks said its UK personal credit checking business had been hit by slower lending growth as banks tighten their lending criteria.

‘Consumers are stretched in the UK, so banks are focusing more on cross-selling products to existing customers. There is less new customer acquisition, which is what impacts on our business,’ Brooks said.

‘The UK disappointed slightly with weaker than expected growth in Credit Services and Marketing Solutions,’ Merrill Lynch analyst Andrew Ripper, who has a ‘buy’ stance on the shares, wrote in a note.

This is not surprising for credit management firms which have long claimed that many banks are lending money without completing thorough and proper credit checks. Reports estimate that the number of loans issued without a proper credit check is 30 per cent.

Banks claim that they are reeling under the high levels of unpaid personal loans.  The banks pass the blame by accusing the IVA firms and higher interest rates for the debt mountain. 

The IVA firms retaliate by accusing the banks of creating their own problem by lending to consumers who are unable to repay their loans.

Once everyone finishes passing the blame, the only real victim is the borrower.  The number of people petitioning for IVAs and insolvency are growing, despite the fact that all the main banks declared record gross tax profits only two months ago.

The figures just do not add up.  When one group is signalled out, they always point the finger at the inflation rates that cut into people’s ability to pay, and the housing market.

The Bank of England has claimed that 53% of UK consumers expect to repay their personal loans before the end of 2007.  So, why are the banks tightening their lending criteria?

The only plausible explanation is that they are hoping to increase their profit margins at the expense of societies poorest.  They are the ones who will be hardest hit by the lack of affordable mortgages and personal loans.

Debt management charities are petitioning the government to step in and force the government to increase the availability of affordable loans.  Currently, many people are forced to use high interest loans to pay utilities. These loans often come from doorstep lenders, shopping mall lending firms, and even loan sharks.

Society’s most vulnerable adults who teeter at the edge are feeling the pinch as they find it more and more difficult to find an open door at with of the country’s financial institutions.  The poorest are forced to turn to expensive homeowner loans and debt consolidation services to make ends meet.

A long-term study by the Alliance Trust Research Centre highlights the struggle Britain’s financial underclass face when disregarded by the indictors of economic prosperity.

One of the most skewed figures is the inflation rate.  While the Bank of England calculates it at a current 2.8 per cent, real figures show a much bleaker picture.  The elderly are facing an 11 per cent inflation rate.  However, the inflation for the least economically stable members of society is 34 per cent higher than the consumer price index suggests.

The difference is caused by inequities in the lifestyles and standards experienced by people in different sectors of society.  For example, health care costs for the elderly are disproportionately high when compared to a young family. 

Households with an income of less than £7,000 spend 41 per cent of their budget on housing, food and beverages.

"Our two-year study has shown consistently that the UK’s lowest income groups are facing an inflation rate which is substantially higher than the average headline inflation rate," warned Shona Dobbie, head of the Alliance Trust Research Centre.

"This is a direct result of this income group’s shopping basket. Inevitably the lowest income group will spend more of their budget on necessities such as housing and utilities and unfortunately it is these goods that have seen the sharpest increase in prices over the last two years," Ms Dobbie added.

Low-income families borrow to pay for necessities like heat and electricity.

Reports claim that the bank’s financial exclusion extends to other groups. Young first-time buyers are prevented for stepping on the property ladder and achieving financial security.

This is forces many out of the middle class and into the lower class. The harder it is for a family to borrow a personal loan, the easier it is for a simple emergency like a few months on unemployment, a relationship separation, or a medical emergency to drive them into poverty.

The only viable explanation is so that banks can increase their profit margins.  Who will find it easier to borrow?  People who do not need the money, such as those included in recent studies that claim that many people use personal loans to purchase indulgences, like designer clothing.  Consumers who have £2,000 worth of clothing in their closets, according to recent reports, will have no trouble obtaining a loan.