Tuesday, August 01, 2017

Workers In Debt

Borrowing through credit cards, overdrafts and car loans has topped £200bn for the first time since the global financial crisis. The credit ratings agency Moody’s warned about the growing household debt mountain, saying that some borrowers would struggle to repay their debt as the economy weakened and inflation ate into their salaries. Greg Davies, Moody’s assistant vice president, commented: “Household debt is high and still growing, leaving consumers vulnerable to an economic downturn, while higher inflation, weaker wage growth and levels of indebtedness leaves those in lower-income brackets the most exposed.”

Unsecured consumer credit, which includes credit cards, car loans and overdrafts, peaked in the autumn of 2008 – just as the banking crisis was taking hold. It fell in subsequent years, but has been rising again since 2014 and is now in touching distance of the pre-crisis lending boom. Data from the Bank of England showed that it grew by 10% in the year to June, to almost £201bn. The last time outstanding debt was above £200bn was December 2008.

The  Financial Conduct Authority said that one in six people with debt on credit cards, personal lending and car loans – 2.2 million – were in financial distress. As households grapple with rising living costs, charities and policymakers have raised concerns that consumers are increasingly turning to loans amid worrying signs of a return to reckless lending by the banks.

Bank of England’s head of financial stability, Alex Brazier, accused lenders of “dicing with a spiral of complacency” and warned that lending standards “can go from responsible to reckless very quickly”, and that this posed a risk to the economy.

The TUC has predicted that unsecured debt per household will hit a new all-time high of £13,900 this year. The TUC’s general secretary, Frances O’Grady, said the latest data from the Bank laid bare the financial strains on households. “Wages are still lower than before the financial crisis, so it’s no wonder that families are being forced deeper and deeper into debt. If working people don’t see extra cash in their pocket, borrowing will continue to spiral,” she said.

According to the consumer group Which?, people needing as little as £100 can be charged up to 12.5 times more by high-street banks than is legally allowed by payday loan companies.

https://www.theguardian.com/business/2017/jul/31/fca-unauthorised-overdrafts-car-loan-market

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