Credit companies in UK overlooking income checks

Almost 90 per cent of credit card companies in Britain failed to check incomes of applicants in a survey that raises concerns that banks have a "lend now, ask questions later" culture.

A few people on low incomes were allowed credit limits of £10,000 ($17,600), up to 100 per cent of their entire annual income.

Britain's national amount of unsecured lending is £1.13 trillion, of which £56.35 billion is on credit cards.

British consumers account for two-thirds of credit card debt in the EU and the growth of "plastic" is blamed for contributing to record bankruptcies.

The report was published as the brother of a young woman who committed suicide after accumulating £14,550 of debts criticised her bank, Barclays, for heavy-handed tactics.

Lisa Taylor, 26, from Blackburn, Lancashire, hanged herself last July because she believed she would never pay off the money that she owed, including £3,692 which was due on her Barclaycard.

The bulk of her debt was a student loan of £6,738 while she also owed £2,779 to Egg and £1,351 to Capital One.

She left a letter for her father in which she wrote that she had "serious debts that I will never pay off.

I can't bear it any longer."

Her brother, Mark, said Barclays sent several letters demanding payment and threatening legal action.

He said: "I don't understand how companies can almost sit back and watch someone getting into a helpless situation like this."

A spokesman for Barclays said: "We extend our sympathies to the family.

Barclays also treats cases of financial difficulty with sensitivity and care."

This month the price comparison website uSwitch.com surveyed the finances of 1,937 people, of which 749 had successfully applied for a credit card in the last year.

The majority (88 per cent) who were approved for a credit card during the last year were not asked for proof of their annual income beyond the figures they put on the application.

Some 95 per cent were not asked to show evidence of their outgoings that would provide a fuller picture of their finances.

In some cases, the credit limits granted to applicants were equal or above a borrower's annual income.

Of people earning between £10,000 and £20,000 a year, six were given credit limits of between £8,000 and £10,000 - which could amount to 100 per cent of their annual salary.

In one instance, a person earning less than £10,000 was given a credit limit of between £10,000 and £12,000 - more than their annual gross income.

The individual would need to repay over one-third of monthly take-home salary to meet minimum repayments and take over 28 years to clear the balance - while paying £8,600 in interest.

Despite many lenders failing to check whether customers could afford to repay any future debt, an estimated 100 million unsolicited credit card application forms were posted in the three months leading up to Christmas.

Keith Tondeur, chief executive of Credit Action, the money education charity, said: "These findings are alarming.

"Lenders need to ensure that figures given to them by potential borrowers are accurate - especially for those in the lower income bracket who are much more vulnerable should things go wrong and who may be desperate to borrow because of existing problems.

"It is also vital that lenders strongly encourage all potential borrowers to work out their budgets to ensure that they can realistically afford to repay before going ahead.

"Asking a few simple questions at the outset would mean that much misery could be avoided."

Nick White, head of personal finance at uswitch.com, said measures were needed to ensure providers lent in a responsible manner.

"The finding that only one in eight cardholders provided accurate salary or income details during the application process emphasises the significance of the lenders' failure to conduct proper checks," he said.

"We are particularly concerned that those applicants least likely to be truthful about their incomes are all from the most vulnerable groups, namely the self-employed, students, the unemployed, and those on low incomes."

- INDEPENDENT