Banks have a 'careless' attitude when issuing credit cards: Study

Banks have a 'careless' attitude when issuing credit cards: Study

	Published : Mon, 23 Jan 2006 20:50 By : James Rowe Print this Story

LONDON - Banks have come under criticism for issuing credit cards without bothering to check the credentials of the applicants after a report released by price comparison website uSwitch.com revealed that 80 percent of applicants who received new credit cards last year did not have their incomes checked by the lending bank.

The report, which was based on an independent research carried out for the website, also said that 95 percent of successful credit card applicants did not have to prove that they could repay the borrowed amounts. Some borrowers were extended a limit that was proportional to their annual earnings.

The survey quizzed 1,937 consumers who had applied for credit cards last year. Among them 749 were successful in obtaining one. "The finding that only one in eight cardholders provided accurate salary or income details during the application process emphasizes the significance of the lenders’ failure to conduct proper checks," said Nick White of uSwitch.com.

In an instance highlighting the careless attitude of the banks, one applicant with an annual income of £10,000 was extended a limit of £12,000. This means that the poor applicant would have had to keep repaying the bills for 28 years! Two unemployed people were given spending limits between £6,000 and £8,000.

"Lenders need to ensure that figures given to them by potential borrowers are accurate, especially for those in the lower income bracket who are much more vulnerable should things go wrong and who may be desperate to borrow because of existing problems," observed Keith Tondeur, CEO of Credit Action, the national "money education charity."

He added that these findings were alarming. "It is also vital that lenders strongly encourage all potential borrowers to work out their budgets to ensure that they can realistically afford to repay before going ahead," Mr Tondeur said.

This study comes just a week after think-tank KPMG released a report saying that almost 75 percent borrowers had entered into individual voluntary arrangements (IVAs) with their lenders. The average amount owed by them was around £60,000.The report said that several people in their early 20s owed about £40,000.