Billions in loans issued without proof of income
Research by comparison site uSwitch.com reveals that £20.9bn has been issued in unsecured loans over the last 12 months without proof of income.
Despite the credit crunch currently gripping the nation and banks writing off £17bn of bad debt in 2007, over £4bn more than in 2006, lenders continue to fuel the fire by not making sufficient credit checks during the unsecured loan application process.
This week’s changes to the banking code, which impact unsecured loan and other credit applications, stipulate that it is now compulsory to carry out a credit reference agency check alongside at least one of the following three checks; income and financial commitments, historical financial behaviour or credit scoring. Unfortunately, the effectiveness of these checks are dependent on which are carried out.
The comparison site also found that 70% of loan applicants were not asked for proof of income and 45% of people did not get a loan from their own bank, meaning the company did not have much information about the applicant’s credit worthiness.
Mike Naylor, personal finance expert at uSwitch.com, said: “With more than 7,716 loan repayments being missed every day and record write-offs, you might think that lenders would have learnt their lesson, but the potential profits have clearly been too good to resist.
“While the credit crunch has forced lenders to tighten up their lending criteria, these latest amendments to the banking code do not go far enough to help promote responsible lending in all cases.”