Banks are failing to carry out enough income and affordability checks for many credit card applications – an issue that is fuelling the UK’s debt problem, a new report claims.
According to independent price comparison and switching website, Uswitch.com, nine out of ten credit card applicants are not required to prove they can afford to make repayments, which means that £3.08billion of credit is being issued to new cardholders without first checking their income.
The report goes on to say that credit card lenders are employing “inadequate” checks on new applicants, while also suggesting that the UK’s financial providers will see high levels of debt “write offs” this month.
Jackie Newton of Chiltern Debt Management says: “With insolvencies on the increase and personal debt climbing lenders need to be more responsible in the checks they carry out before granting credit. In many cases the failure to do so can tie people to a lifetime of debt.”
The report also showed the banking industry, which tried to discredit previous studies by saying most customers will apply to their existing bank for credit so the income and affordability data is known, was wrong because 74 per cent of successful credit card applicants surveyed did not apply for a new credit card through their bank.
More worryingly, 90 per cent of these applicants were not asked for any proof of income or expenditure beyond the point of application.
Ms Newton of Chiltern Debt Management adds: “We would like to see new regulations that require lenders to carry out proper affordability checks to help combat rising debt and insolvency figures.
