Monday, 22 January 2007

Lenders Forced to Write-Off Irresponsible Loans

The Observer (Sunday 21st January) reports on action being taken by debt advisors at East Saffordshire Citizens Advice Bureau to force lenders to write-off loans that have been made without due regard to the borrowers' ability to pay.

Examples of cases brought by the CAB include a couple with two children who started off with a loan for £3,500 and ended up owing a total of £30,000 on five loans despite the husband losing his job. £20,000 has now been written off.

A single man given eight secured loans and a mortgage totalling £120,000 by the same bank, and who has a further £155,000 of unsecured loans

Where checks on ability to pay have been inadequate or where consumers have been pestered by banks to take out additional loans despite being clearly unable to afford them, the Citizens Advice Bureau has successfully taken action through the Financial Ombudsman scheme.

In the last six years, Lloyds TSB has been forced to write off six loans made in Burton upon Trent as a result of their lax lending policies, and as a result of the banks investigation into the causes, "two members of the branch have left the organisation".

It should be noted that Lloyds were the subject of a BBC investigation in 2004 that revealed significant problems with their lending policies, and which resulted in the programme makers submitting their files to the Banking Code Standards Board (BCSB) for further investigation. No public response has been made by the BCSB concerning the results from that due to 'confidentiality' agreements that it has with the industry.

Accoring to the most recent quarterly report from the Bank of England, 29% of people in financial difficulties report that this is due to over-commitment rather than the traditional pre-cursors of debt such as unemployment or relationship breakdown. The OFT is shortly due to issue guidance on the 'responsible lending' requirements to be incorporated into the Consumer Credit licensing regime. Debt agencies will be hoping that, as a minimum it contains provisions to make lenders look at the total overall indebtedness of a borrower and to properly assess their ability to repay, prior to making a loan - two things that, on this evidence, the industry is clearly failing to do.

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