Are banks acting irresponsibly when it comes to credit card applicants?

A recent report in the Guardian suggests that banks and credit card issuers may be acting irresponsibly when it comes to giving out credit cards to applicants.

According to the report, many of these banks and credit card companies fail to carry out any checks when it comes to finding out whether the applicant can actually afford the repayments on a credit card, which could be one of the contributory factors in the rising number of people in the UK that are unable to manage their credit card debt.

According to the report ninety percent of people that apply for credit cards are not asked by banks to prove that they can afford to take on the credit. With personal and secured loans applicants are required to provide the lender with proof of earnings and details of outgoings. However, nine out of ten people that apply to UK banks for a credit card are asked about their income and expenditure but not asked to provide proof of the details they are providing, hence the lender really has no idea whether the applicant can really afford to take on the credit.

The comparison website uSwitch stated that only ten percent of credit card applicants had been asked to provide the banks with proof of their earnings before being issued with a credit card.

Banks are also failing to find out about the outgoings of applicants according to the report, and campaigners have expressed concern over this, stating that not carrying out these checks effectively is resulting in many people who are on a low income accruing unmanageable levels of debt. In a related report, it was also shown that a record number of people have now become insolvent due to unmanageable debts, and this figure has broken the one hundred thousand barrier for the first time.

Tom Smith
7th February 2007

More Information:

• Causes and Cures Of Credit Card Debt
  For some, credit cards can prove a temptation too far, and soon they find themselves in debt. Simple precautions will keep the savvy card holder from such dangers.
• Tips On How British Women Can Climb Out Of Their Growing Credit Card Debt
  More women in the UK are spending money on credit cards than at any other time. In percentage terms, there are now more British women spending more each month than they earn.
• Do You Need To Have More Than One Credit Card?
  Deciding whether or not to have more than 1 UK credit card can be a difficult decision to make. On the one hand, you want to keep a careful control on your personal finances and having numerous creditors makes this difficult. On the other hand, it can be convenient to have more than one credit card, for example in an emergency. So, should you have more than 1 credit card?