All loan providers should follow the banking sector's code for responsible lending, an industry expert has suggested.
According to Angela Knight, chief executive of the British Bankers' Association (BBA), credit suppliers who exist outside of the industry should be made to follow the Banking Code. Consequently, Ms Knight purported that consumers could receive greater protection as lenders will only issue money to those who meet certain repayment criteria. She added that otherwise borrowers could soon become "overstretched" and develop "serious" difficulties in making payments on personal loans.
In a letter to Mark Hoban, the shadow treasury minister, the BBA chief executive claimed that: "When a gap opens between what a borrower wants and what a bank wants to lend, too often an irresponsible lender steps in. Only around 63 per cent of unsecured borrowing now comes from the banks. There are certainly responsible lenders among the rest, but how is a consumer to know who they are or what their lending rules are?"
Her comments came as she suggested that non-banking lenders are making up for an increasing proportion of loan and credit deals taken up by Britons. She also claimed that a rising number of suppliers are offering loans to those borrowers who previously did not meet their bank's criteria.
The association reported that lending, when issued and used wisely, "has empowered generations" by giving them the chance to buy goods and services which otherwise could be beyond their reach. Meanwhile, borrowing was said to be "a very sensible tool" in spreading out the cost of purchases over several months, yet Britons were warned to make sure that they "remain in control" of their spending. However, those who find themselves unable to pay off money owed to various creditors were advised to draw up a money management plan with their provider and seek independent advice, with a debt consolidation loan a further possible option.
As a result, BBA advised consumers looking to take out a loan to "trawl through" credit deals advertised by suppliers online and in the press to ensure that they find the most appropriate product for them. Borrowers were also recommended to consider various features such as the cost of minimum monthly repayments, additional fees and the annual percentage rate, in addition to being urged to ask for a quote.
In recent figures released by the association, a rise was noted in money issued through secured loans. Over the course of May some 19.7 billion pounds was lent out to consumers - an increase of some eight per cent from the same month last year. The BBA also indicated that the average loan per house purchase stood at 157,100 pounds, 13 per cent higher than last May. However, lending via credit cards was reported to have fallen by 0.4 billion pounds over course of the month. Director of statistics for the BBA David Dooks claimed that the fall in card expenditure was due to a rising willingness among Britons to pay for goods upfront rather than borrow money. Meanwhile, lending through personal loans and overdrafts decreased by 0.1 billion pounds.
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