Banks and consumers suffering from 'irresponsible lending'


High street banks and credit providers are living to regret their readily-available lending practices in the past, an independent survey has claimed.

Market research firm Datamonitor believes that the relaxing of financial criteria needed to secure credit during the last five years has bitten back at providers, with an increasing number of consumers declaring bankruptcy after being saddled with unbearable levels of personal debt.

Analysts estimate that by the end of 2005 the average British adult owed £4,122 in unsecured personal debt thanks to the country's "borrow and spend culture", with the number of insolvencies rising by 25 per cent annually since 2001, reaching almost 50,000 last year.

Karina Purang, financial services analyst at Datamonitor and author of today's report, said: "Lenders do not have any control on past lending decisions. Indeed, loans of less good quality contracted a few years ago can affect lenders' business at any time in the future.

"While the associated stigma of bankruptcy still prevails, many customers with debt troubles are now willing to consider it as a solution to their problems."

Ms Purang explained that many banks had been forced to tighten the requirements that consumers had to meet in order to be granted credit through an increased use of credit rating agencies, although for some major providers the measures had come too late to prevent heavy losses.

"In previously pursuing aggressive marketing strategies, encouraging customers to take on additional credit and failing to ensure that borrowers can afford repayments, lenders are partly responsible for the current situation of high level of indebtedness," she added.

The analyst concluded: "They are now facing rising bad debts on past lending decisions, on which they have no control at all."

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