Although regulations surrounding the loan application have tightened since the onset of the credit crunch, credit checks are still not being carried out properly.
According to uSwitch.com, 70 per cent of people in the UK – approximately 2.9 million – were not asked for any proof of earnings to back up their application.
A mere 663,617, just 21 per cent of applicants, actually provided proof of income. A staggering 15 per cent of those granted a loan
did not even have to disclose how much they were earning on the application form.
The company found that 4.1 million unsecured loans worth £29.9 billion were issued in 2007. And, as 45 per cent of applicants did not obtain their loan from their own bank, it is likely that issuing companies had little evidence of their credit worthiness.
Personal finance expert Mike Naylor says: "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."
Write-offs for bad debt totalled an incredible £17 billion in 2007, having increased by more than £4 million year-on-year.
And, although almost 1.3 million loans were taken out for debt consolidation purposes, only 23 per cent of these used the borrowings to clear debts. Furthermore, 26 per cent of those that did not pay off debts went on to borrow a further £2,221 on average.
Mr Naylor says: "Further credit checks could be costly and no doubt the bill would be passed back to consumers. However, it could be a small price to pay if it helps to curb the rapid growth of debt which is spiralling out of control.
"We cannot ignore the fact that consumers have a responsibility to borrow sensibly, but lenders really aren’t helping. As consumer debts increase by £1 million every five minutes, there is clearly a need for watertight measures to be put in place to ensure that the banks are lending responsibly."
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