By throwing money at customers, banks have fostered a ‘buy now – pay later’ attitude among feckless borrowers with expensive tastes
News that one person is falling victim to insolvency every minute of the working day caused raised eyebrows among some observers, tut-tutting among others, and grim satisfaction among those who had seen it coming all along and had been proved right. But gleaming through the clouds of this sorry tale came a shaft of light that brought joy to all. The banks were squirming and squealing, and there are few sounds more agreeable to the ear than that of the biter being bit. One by one, the lenders lined up to announce in tones of mingled rage and indignation that bad debts were rising sharply and hitting their profits, and the louder they howled the greater were the catcalls from the mob.
What did the banks expect? For years, they have pressed loans on all and sundry, no questions asked. What a transformation is this! In the space of a generation they have changed from austere, forbidding institutions, the very embodiment of stuffy rectitude, into the tarts of the high street, lifting their skirt at every passer-by with a hoarse cry of “Want a nice time, dearie?”
Rare is the household that does not receive at least one mailshot a week dangling before them the prospect of a dream holiday, a dream kitchen, a new car, a high definition telly, you name it. Just sign on the line and the money’s yours. Is it any surprise that many succumb? Or that having succumbed once, succumb again and again until, bowed low beneath an unsustainable burden of debt, they collapse?
But where is the wretchedness? Where is the ruin? Whereas once the haggard debtor would sit, head in hands, features drawn, eyes heavy with despair as the bailiffs gutted the family home, a home that all too recently had echoed to excited cries at the arrival of dream holidays and kitchens, today that same debtor tootles off to the court with a whistle on his lip and emerges free and easy.
No wonder the banks cry foul. A change in the law designed to lift the stigma of bankruptcy from the shoulders of plucky entrepreneurs who had tried and failed, is being used by feckless borrowers to shuffle off credit card debts and walk away without a shred of guilt. Just as seeing, wanting and having was a “lifestyle choice”, so too is insolvency.
Some commentators have no doubt where the blame lies. It’s marketing that’s the culprit and free market competition among the banks that spurs them on to grab ever-larger shares of the lending business. Is this criticism justified? At bottom, it comes down yet again to the extent to which consumers should be protected, not just from predatory, aggressive sellers but also from their own folly, greed, and gullibility.
There is no doubt that the banks have been unprincipled and lax in applying credit criteria, but what of the borrowers? Had they no idea of what constitutes a loan, that for every pound borrowed another pound and some more on top has to be repaid? The truth is that in most cases they understood this perfectly well but cared not a fig for its implications. There are unscrupulous borrowers, too.
The banks have lacked the perception of football managers, those grizzled veterans who, surveying the latest wreckage wrought by their drunken supporters, sigh wearily and say/ “It’s not football that’s changed, it’s society. We just reflect that change.”
While the banks were pressing loans into the eager hands of anyone who walked by, they failed to notice that these borrowers were not like the old kind. They were without fear or shame. Well, the lenders know now. Eric Daniels, chief executive of Lloyds TSB, says: “Twenty years ago a debt was something that people would naturally repay. Today, advice is being given to young students that the minute they graduate they should default. It’s a huge societal change.”
The laws of markets, however, don’t change. The chancellor may fiddle the prices index to disguise the true rate of inflation; house prices may make people feel more financially secure than they really are; economists may look, as many did, at overall consumer indebtedness of &£1,200bn and say its all perfectly sustainable, but the cometh the hour, cometh the reckoning.
As Louise Brittain, of accountancy firm Baker Tilly, says, “It serves the big banks bloody right”. â¢