Cards marked as MPs criticise greedy lenders

Your money: More banks and credit card providers to be questioned for ‘irresponsible’ lending, writes Teresa Hunter



Members of parliament and banks are preparing themselves for a stormy meeting of the Treasury Select Committee on Tuesday, after last week’s showdown over the suicide of a disabled young man, who took his own life after becoming trapped by £15,000 credit card and other loans.
Three banks, Capital One, HBOS and Lloyds TSB, were taken to task for irresponsible lending, and were also accused of encouraging young people to get into debt that they are unable to handle, a problem first raised by the Sunday Herald.

On Tuesday, Royal Bank of Scotland, MBNA and Barclaycard will be quizzed by the committee. Barclaycard is one of three lenders to have advanced money to 21-year-old Scott Smith, a seasonal Norfolk worker, who was deaf and described as “vulnerable”.

Edinburgh-based HBOS is another lender to have granted loans to the suicide victim. The hearings come amid growing concern about the soaring levels of consumer debt.

Committee chairman, Dumbarton MP John McFall, accused card companies of “skimming money off certain customers – largely speaking, poorer customers”.

Liberal Democrat MP Norman Lamb raised the plight of the 21-year-old suicide victim, who had taken out three credit cards and a personal loan amounting to £15,000.

He had even been sold a useless payment protection policy that he would never have been able to claim on, because he was a seasonal worker.

Lamb told the hearing that HBOS had granted the personal loan knowing that he had credit card debts. The family contacted the Norfolk MP after becoming distressed when the bank continued to pursue the debts even after their son had killed himself. HBOS employed debt collectors to recover the money, who continued to chase the bereaved family for the money.

After the hearing Lamb was anxious to stress that the family accepted that the credit card debts were only one factor in the suicide and that he did not wish to single out HBOS in any way as behaving worse than other companies.

Lamb told the Sunday Herald: “The father was very keen that some good should come out of his son’s death, and others may reap some benefit from his tragic loss.

“But he acknowledges that his son had multiple difficulties and complex problems, and there is no desire on anyone’s part to single out the HBOS.

“However, we do have to stop some of the irresponsible lending which is taking place.

“It is the committee’s view that where young people are concerned there is a very heavy burden on banks to act responsibly to prevent similar tragedies.”

An HBOS spokesman said the Smith case was being investigated as a matter of urgency. He added: “We want to make sure this doesn’t happen again. It seems there was a breakdown in our procedures. After his father came in to inform us of the death, that information got lost, and we continued sending out letters. We are very sorry.”

Smith’s case is the third high-profile suicide in recent months of men who have racked up huge credit card debts.

In March Stephen Lewis, 37, from Worksop, Nottinghamshire, hanged himself after being hounded by solicitors’ letters demanding payment on debts of £65,000, spread over 19 different cards.

And earlier this month Dereck Rawson, 51, of Yaxley, Cambridgeshire, hanged himself after building up £100,000 of debt over 15 years on 16 credit cards.

John Mann, the Labour MP for Bassetlaw, was also fiercely critical of aggressive lending targets.

He said: “My constituent had not worked for 10 years since leaving school but you all gave him a credit card. How did you not pick up that he had no income?”

To an extent, though, adults have a responsibility to borrow wisely. The greatest concerns are about excessive lending to the young.

Capital One, the US credit card issuer, came in for a hammering at last week’s hearing for its aggressive marketing of credit cards to young people.

Lamb questioned Fergus Brownlee, the executive vice-president of Capital One, over an unsolicited promotional offer for a Visa card that was sent to an 18-year-old man.

He criticised the offer for not including any “health warnings” and encouraging potential card holders to pay back just the minimum repayment, which results in borrowers paying onerous interest charges.

Lamb added: “This document positively encourages people to spend £200 per month building up a debt at the cost of £1.50 a week [by repaying only the minimum amount].”

Brownlee said that if the 18-year-old had applied for the card he would have been rejected. He gave the committee a commitment to change promotional offers so that borrowers are warned of the costs of making just the minimum repayment.

Capital One was also singled out for criticism over its failure to detail the exact cost of repaying credit debt and the lack of prominence given to key terms and charges on the card.

The MPs have been demanding that fuller information about the charges and costs of cards should be printed clearly in a “summary box” on statements.

They also want the banks to print a “health warning” spelling out how long it will take to wipe out debts, if only the minimum monthly payment is made. Finally they want banks to share more information with each other, in an attempt to prevent chronic over-indebtedness.

The central banking body, the Association of Payment Clearers, has agreed a timetable with the committee by which these things will be accomplished. The summary boxes had to be in place earlier in the year, but banks have more time to adjust to the other two requests.

That said, a number are ahead of the timetable, and the MPs praised HBOS and Lloyds TSB for their speedy co-operation in these matters. Royal Bank of Scotland, Barclays and MBNA all told the Sunday Herald that they were on course to meet the deadlines.

However, Capital One was criticised for its recalcitrant compliance. Brownlee was forced to defend against heavy criticism Capital One’s display of the summary box, which contains the card’s terms and conditions.

Angela Eagle, the Labour MP for Wallasey, criticised the small size of the sample, given that Capital One has four million customers, and pointed out that its American customers received a summary box in far larger “18-point” type.