UK: Fears grow over increasing consumer debt

The Governor of the Bank of England (BoE), Mark Carney, has requested that the major UK banks provide the criteria they use to decide whether to lend money to consumers at risk of default, such as the unemployed or consumers with poor credit rating.

The new calls are the result of increasing concern about rising debt levels in the UK and follow the recent decision to bring forward the annual stress test on banks by two months. The stress test will help the BoE determine how the banks would fare in the event of an economic downturn.

The BoE is particularly concerned about credit cards that offer interest-free periods due to concerns that consumers will be unable to repay the debt they incur before interest rates are imposed. Also driving concern is the fact that British financial institutions recently alerted the BoE that they are currently experiencing the biggest growth in the number of borrowers missing loan repayments since the financial crisis in 2008. Interestingly, RFi Group data does not yet reflect the increased struggle with repaying loans, with the proportion of credit cardholders who report not paying their credit card in full remaining stable between H2 2016 and H1 2017, moving only from 26% to 27%. This could suggest that consumers believe they are on top of their debt, despite the fact over debt levels are rising.

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