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Who’s To Blame For Record Number Of Insolvencies In The UK?

Recent news relating to the consumer credit industry in the UK has not been good. Only last month Barclays had to write-off £1 billion in bad debts - where the lender accepts that there is little or no chance of being repaid the money they lent to the borrower.

Overall some £4 billion has been written off by UK lenders as bad debts this year alone. We are now hearing that year-on-year insolvencies figures in the UK have jumped an astonishing 66%, with 26,000 insolvencies in the UK for the period April to June 2006 alone. While borrowing, either through loans or credit cards, is not necessarily a bad thing, it’s obviously causing levels of hardship in our society to the extent that we should now be getting very concerned. But who should we be holding accountable for all of this mess?

According to the Citizens’ Advice Bureau (CAB), Britain’s increasing trend to run-off to the insolvency courts when things become too difficult has come about due to “irresponsible lending” on the part of the UK lenders. Not least of these concerns is the fact that British banks and credit card providers activity set out to lend to both the very young and very elderly, two vulnerable groups in society who need money but won’t necessarily be equipped or able to repay it. But is this a fair assessment?

Again, according to a CAB spokesperson, people in the UK have been known to borrow more than can afford. Hardly news. However, is this really bad lending on the part of the lender or bad borrowing on the part of the borrower?

Fortunately, figures indicate that we are becoming more financially aware in the UK. Nevertheless, we still appear to want to blame others when things do not work out exactly as we had planned. A classic recent example of this can be seen with the Bank of England recently raising its base rate interest rate to 4.75%.

How many of us considered this factor in our calculations when we were considering whether or not we could afford to repay our loans? Indeed, how many of us are even aware of what the APRs is on our UK credit cards? Not many.

What makes this worse is that is still likely to be the case even though consumer watch-dogs have been hounduing lenders about the excessive interest rate and charges they apply to their customers. But is it not the duty of UK leneders to try and maximize their shareholder value, rather plaing the CAB role of paternal lenders making sure we have a chance of repaying our outstanding debt?

Richard Smith
25th August 2006


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