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£17bn lent on credit cards without proof of income

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18/06/2008

Research by uSwitch shows that credit card providers could be putting themselves and consumers at risk by not making sufficient checks during the application process.

In the past 12 months 84% of successful credit card applicants – 4.8 million – were not asked to provide any proof of income to support the figures stated in their application form.

With an average credit limit of £3,545, successful applicants have been granted over £17bn worth of credit without being asked to provide simple proof of income, such as a wage slip, to verify their earnings. With the credit crunch dominating consumer finance and the mortgage market becoming increasingly challenging, affordability checks should be the number one priority for credit providers.

Although the number of rejected credit card applications is on the increase and currently stands at 540,000 a month, the fact remains that 14% (805,000) of successful applicants were not even asked about their salary or outgoings on the application form.

Simeon Linstead, head of personal finance at uSwitch, said: “We cannot ignore the fact that the credit crunch has forced lenders to tighten their belts and reject applications that may lead to further write-offs. The fact remains that just because a consumer appears to have a suitable credit score, it doesn’t mean they are always honest about their income and actually have the cash available each month to pay the bill. The credit squeeze will back some consumers into a corner and, in sheer desperation, people will resort to lying about their salaries as this is such an easy loophole to exploit.

“We cannot ignore the fact that consumers have a responsibility to borrow sensibly, but lenders need to help the process and tighten their credit checking procedures. It is too early to say if the amendments to the Banking Code are resolving these problems but there is clearly an urgent need for watertight measures to be put in place to ensure that the banks are lending responsibly.”

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