Who Is To Blame For Debt Crisis?
Harvey Jones gives a personal view on who is to blame for the UK's debt crisis.
With Britons owing a staggering £1.4 trillion, the nation is perilously hooked on debt.
This was bad enough while credit was cheap and house prices were rising, now it is turning into a disaster.
So who do we blame for our predicament? Well, we can start with the banks, for pushing unsolicited credit card and personal loan applications down the throats of people already choking on debt, just like they did in the previous boom.
Debt is a four letter word.
We should also aim a kick at the FSA for failing to restrain the lending binge, and Gordon Brown for switching the Bank of England's inflation target from the retail price index (RPI), which includes house prices, to the consumer prices index (CPI), which doesn't. I believe that the resulting lower inflation figure encouraged the Monetary Policy Committee to trim interest rates, fuelling the cheap debt binge.
But how much of the blame should debtors shoulder? Two recent disputes settled by the Financial Ombudsman Service made me wonder.
Would you credit it?
The first was a 21-year old computer studies student (identified only as Mr D) who decided it would be great fun to use his new credit card to gamble online, until he maxed out his £1,000 credit limit.
Did he hang his head in embarrassment and knuckle down to repay the cash? No. He blamed his card issuer, saying it had tempted him into vice with its generous credit limit. Outrageously, he demanded it pay his gambling debts for him.
You will be glad to hear the Ombudsman gave Mr D short shrift, stating that his card issuer had no duty to monitor what he spent the money on. It advised him to accept his issuer's offer of a rate concession to help him repay the money (which was more than he deserved if you ask me).
Most of you will probably agree with that ruling, but what about this one? "Miss E", a trainee beauty therapist in her early 20s, borrowed £6,650 from her bank in September 2005. In the next six months she applied for two further loans of £8,500 and £10,500, and used the cash to consolidate the previous loan.
By May 2006 she couldn't manage her repayments and yes, she also blamed her bank, saying it was responsible because it hadn't considered her ability to repay these sums.
To my surprise, the Ombudsman agreed. It said the bank should have seen from her current account that she was using her overdraft to repay the loan. The bank meekly agreed to write off all the money it had lent over the original amount -- saving Miss E £4,000. She even retained her good credit history.
I can't summon up sympathy for the bank, which had incidentally taken every opportunity to flog Miss E over-priced payment protection insurance (PPI), but didn't she also have a responsibility to consider whether she could repay? Apparently not. It was all the fault of that wicked lender.
This refusal to accept responsibility is widespread. I recently spoke to a debt advice specialist who said young people have grown up with cheap credit and have few qualms about getting into debt. They cheerfully borrow thousands of pounds and see no stigma in declaring themselves bankrupt if it all gets too much.
And who suffers?
Thankfully, we've come a long way since the days of debtors' prisons, but have we gone too far in the other direction?
Since 2004, you can now be discharged from bankruptcy within 12 months rather than three years. And the forthcoming Tribunals, Courts and Enforcement Act has alarmed debt enforcement agencies (bailiffs to you and me), because they fear it offers debtors even more ways of evading their responsibilities.
I don't have much sympathy for bailiffs, and I understand the Government is trying to help debtors rebuild their lives, but could this gentler attitude inadvertently backfire by sucking more people into debt, thinking there is an easy way out?
Debt may be losing its stigma, but somebody still has to pay. And it won't be the banks, because they will pass on the cost in the form of more expensive credit, it will be you and me.
Banks, politicians, regulators and struggling debtors all share the guilt for the current mess, but responsible borrowers who diligently repay their borrowings will ultimately end up footing the bill for everybody else.
> Do you agree with Harvey? Or do you think he's too hard on borrowers who are having repayment problems? Let us know with a comment at the bottom of this article.
> If you have a debt problem, kind Fools on our Dealing with Debt discussion board may be able to help you.