The credit card cancer
I awaken to find a note in my inbox declaring that the government is to lay out plans for dealing with Britain’s credit card disaster.
It is in many ways the least mentioned and most unaddressed financial cancer at the heart of the present financial crisis. UK resident currently owe over £230bn on their credit cards, overdrafts and credit loans.
The website uSwitch reports that over this past tumultuous year 20 per cent of all UK credit card holders had their credit limit INCREASED with out ever being consulted.
This is the equivalent of someone passing the open door of a house and seeing a fire blazing in a downstairs room chucks a can of petrol in for good measure.
At the macro level there is a chronic credit squeeze, but down at the micro, banks, credit card companies, and other financial institutions are engaging in a practice that some would like to see outlawed in today’s white paper.
Fat chance. But let’s look at it. Should it not be such an offence for a finance company of whatever nature to offer, uninvited, indeed to impose uninvited, an increase in credit limits to someone already burdened with debt.
Why not declare it illegal at least for ANY credit company to extend credit limits without contacting and negotiating with the card holder?
Hats off by the way to Barclaycard who, in our collective hour of need, have slashed the minimum repayments on their card from 2.25 per cent to 1.5 per cent.
What a splendid response to current needs – but hang on a moment.. the actual cost of paying to someone who opts only to pay the minimum repayment each month back from a debt of £5,000 will rise from the previous £5,900 to £22,300.
Oh, and at 15.9 per cent APR, the repayment period will extend from 31 years to er… 96 years. I wonder what today’s White Paper will have to say about this.
Related posts:
- Is our MoD a credit crunch-free zone?
- 150 years for Madoff, but who's next?
- Where the US leads, could others follow?
There are 12 comments on this post
For all the problems with consumer debt, I do find it slightly ironic for this government of all people to be trying to cut down on debt.
Physician heal thyself?
As with everything the devil is in the details. So lets see. The government are going to make it illegal for banks to automatically increase the credit limit on a credit card and give unsolicited credit card cheques to individuals. So what will probably happen is people with credit cards will get regular letters offering them the opportunity to increase their credit limit or to obtain credit card cheques, probably with a pre paid envelope. Or some smart banks might just put a box to tick on there application forms giving consent to increase the credit limit from time to time.
Sorry but the only way you can deal with the personnel debt problem to make banks carry out more stringent checks on who they are offering credit to. Like requesting regular proof of income / out goings, such as bank statements. And giving them a statutory duty of care to the people they make money from. Sorry I mean lend money to.
It’s always been in the political interest of the current governing party to maintain or, ignore the credit mess. All the time statistics can be manipulated, in order that the economy looks ok, via a public spending what they don’t own (and probably spending just to pay their exstortionate bills like Rates, water, elec, gas TV, etc. etc.) is very convenient to hoodwink a gullible public.
Trouble is, it eventually shows, as is the case now. More injections of faulseness will no doubt to pumped in to feed the media lies & cover-ups.
The only people suffering as a result of the credit nightmare, are those in debt. Obviously, there are always those weak individuals lavishly pampering themselves & their darling offspring with credit but, they’ll eventually learn!
Spot on Anthony! how very true. The government likes to wave about an image of irresponsible people buying 50′ plasma TVs etc on their credit card. My council tax has gone up 120% since Labour came to power , and my private pension which I paid years into vanished into thin air. Am I suppose to get money off trees to replace all that ? when my flexible friend
provides a temporary fix?
Why do we need legislation? Is this an admission that the banks have learned nothing from the recent debacle? Extending excessive credit on cards to people who can’t afford it is no better than sub prime mortgages.
Since we live in a free market,, whether we like it or not, the will of the people should also be free. Just because a bank ups your plastic limit or gives you cheques doesn’t mean you have to use them. It’s called free will and choice. You are assuming most credit card debtors are incapable ot intelligent free choice.
On the other hand, we live in a world where vendors have dismissed most or all responsibility and accountabilty. They have passed these on to consumers. So, when a bank or membership club, unannounced changes the terms of your agreement with them, its up to you to know and to act otherwise you may be charged for something you had no idea you were buying.
Dead on – anyone who uses credit cards as a means of credit needs their head examined – the interest rayes are sky high – they are 2 b used like a cheque book – and cleared every month – otherwise – disaster – and if people opt to destroy themselves [ at the banks behest ] – it is the credit card holder who is ultimately reponsible .
When I was a student my credit card limit was raised from £500 all the way up to £1200 over the course of a few years without me ever asking for it to be increased.
Years later, after I had been pulling in a decent and steady income for over two years I called up the bank and asked them to raise my limit by £300 and they refused on the grounds that my account was still a student account.
I’m not sure how the system works, but I think it might involve flipping a coin.
I too have been offered unsolicited increased credit. So the 20% is probably a low estimate. Recently Barclays closed one of my accounts in error and then charged me overdraft fees for spending my money. Clever stuff. It’s all been refunded but only after an hour’s phone call and demanding that charges due to be levied in error could be refunded before they reach my account. The financial crisis needs to bring back first principles – the customer of the bank is the customer, and not the bank.
The government should shift the bulk of accountability onto the banks as much as possible but at the same time those that find themselves entrenched in debt should pay closer attention to their credit accounts and possibly, just possibly think about living with in their means.
Ultimately, it is the individual’s responsibility to look after his/her own finances. Liberty demands that. I wonder how many people whose credit limit was raised wrote or phoned to complain.
I suspect the real problem is that our dismal education system produces tens of thousands of youngsters with no mathematical ability to manage their finances and resist the lure of instant possession of goods. This will take a generation to fix.
In the meantime, the only fix is to impose low limits, related to net income, on credit on all cards. Maybe cards should not be available to anyone under 25? The world worked for centuries on cash, which cannot be so readily borrowed. Maybe they should only be issued against savings history and subject to a savings floor?
It’s really sad and I would go as far as to say evil putting so much temptation in front of people. A couple of years ago a friend of mine was 24, worked in a call centre doing computer support, and had £40,000 of debt. None of which was mortgage or university related. He said at one point he had enough credit on a card to buy a brand new BMW. Now that he has grown up a bit he regrets it and sees how silly he was.
Also student course fees are a terrible thing. They are another way in which young people are being conditioned to think of massive debt as ‘normal’.