Criticism for Banks offering unaffordable loans

Banks who offer large loans to debt-ridden consumers were condemned as “irresponsible” yesterday after an investigation revealed staff at Lloyds TSB encouraged customers to accept loans they were unable to repay. The investigation accuses Lloyds TSB of breaking the banking code of practice.

Consumer groups said that in order to prevent rising levels of unaffordable debt, more scrutiny was required.

A documentary screened on television last night found many bank staff were offering unaffordable loans and giving advice despite receiving inadequate training.

According to the BBC’s Real Story, an internal Lloyds TSB review revealed that one in six large personal loans were issued despite evidence that the borrowers might struggle to repay.

The review examined 185 loans of more than £15,000 and, in more than half of the cases, the paperwork which shows that the correct checks on their customers finances had been carried out, were incomplete.

In some cases, the information given indicated that affordability was doubtful. The audit also concluded that some of the procedural issues identified might cause the bank significant damage to its reputation.

Although banks do not lend to anyone, some consumer groups feel that banks have to improve on how they scrutinise customers as some do not know how to handle money responsibly and lending them more is plain irresponsible.

However, this does not absolve consumers of all blame, as consumer groups reiterated the need for consumers not to ask for credit they cannot afford to repay. With personal loans and credit cards much easier to acquire than before and with much more choice, it is becoming increasingly more difficult for some consumers to resist the lure if instant credit.

Real Story, which has followed the practices of Lloyds TSB since last year, said it had been contacted by both customers and employees of the bank. Despite being given assurances that these practices ceased in 2003, the programme said employees had contacted them to complain that lending practices were unfair.

Also in for criticism were the banks expensive payment protection insurance (PPI) and manner in which they pushed their credit cards on customers.

Despite the criticism, Lloyd TSB hit back saying it only issued loans when appropriate. It said that the stringent rules and controls in place were strictly adhered to, as it was not in the banks interest to lend to those who did not satisfy the banks criteria for credit.

21/4/05