Banks told to reveal ‘reckless’ lending tactics

MARK carney is ordering high street banks to reveal how they decide to lend to risky customers as part of moves by the Bank of england to tackle the national borrowing binge.

Fears are growing about the boom in household debt as hard-up families increasingly use overdrafts, credit cards and personal loans to cover spending.

there have also been calls for a crackdown on irresponsible lending by car dealers, which are handing out loans of tens of thousands of pounds to the unemployed or those with low credit ratings.

the Bank of england’s financial stability director Alex Brazier told last week of potentially ‘reckless’ standards, warning banks were ‘entering a spiral of complacency’ that was heralding a crash similar to that in 2008.

In the coming weeks, the Bank’s regulatory arm will turn the screws on lenders to reveal how they decide whether their riskiest customers should be given loans.

Bank governor Mr carney is so concerned by the issue that his officials have also brought forward part of the ‘stress test’ carried out annually on institutions by two months to september. this will look at what would happen to banks and their balance sheets if there was an economic downturn and large numbers of households defaulted on their debts. It could lead to tougher affordability tests or new rules to make banks hold more cash in reserve. One of the areas understood to be of greatest concern is interestfree credit cards, which encourage spenders to go on shopping sprees and have been used by some customers to pay for housing deposits.

Many credit card providers charge no interest on balance transfers for two years or more, with customers who have not paid off their debts suddenly slapped with huge bills when their interest rates rise to 19 per cent or more afterwards.

Other key concerns are personal loans and car finance deals, after British banks earlier this month reported the biggest surge in customers missing loan repayments since the financial crisis.

Almost £200 billion in consumer credit was owed in total, an average of about £7,700 per household that did not include mortgages.

the Bank of england said it had fast- tracked the consumer credit stress tests on banks because of its concern about the ‘rapid growth’ in consumer credit over the last 12 months.

tory MP Jacob rees-Mogg yesterday warned the probeveryday lem with household debt posed a bigger threat than the UK’s national debt.

He added: ‘the Bank of england is right to be worried about consumer debt.

‘deficit financing is worse for families than for the nation as a whole. We all need to live within our means.’

MPs on the treasury select committee have branded it a ‘perfect storm’ and Mr Brazier has also warned that a rise in personal loans could be dangerous to the UK economy.

He told high street banks they were at risk of ‘complacency’ over mounting consumer debts, telling them: ‘lending standards can go from responsible to reckless very quickly.’

A spokesman for the Bank of england yesterday declined to comment.

‘Right to be worried’