Quick and easy access to credit is now an integral part of the UK personal finance landscape. It is unlikely that the pattern of unsecured and secured borrowing will change significantly and the growth in personal borrowing may continue to grow indefinitely. A recent Datamonitor report says there were more credit cards in the UK than people in 2003, with 67 million of them in use. By 2008 this figure is expected to rise to 93 million cards, a hike of almost 40%.
There has been huge growth in personal borrowing in the UK over the past 10 years, but there is no major evidence to suggest any significant consumer detriment or overindebtedness. The number of people seeking free debt advice from has increased over the past three years, but this points to the media’s almost daily publicity to the existence of free independent debt advice, rather than there being a rise in the percentage of borrowers in financial difficulties.
Regardless of the efforts lenders make to lend responsibly and borrowers make to avoid overcommitment, it is inevitable there will always be a percentage of borrowers who run into financial difficulty. Equally if unemployment rises and interest rates go up, this percentage is likely to increase. Those on the lowest incomes are vulnerable to financial problems and their debts are often related to essentials such as mortgage/rent, council tax and utility bills, rather than unsecured borrowing.
In my experience, most people who fall into arrears find themselves in financial difficulty for a relatively short period in the same way that most people who lose their jobs are only unemployed for a brief period. In this situation they need quick, clear and impartial advice.
It is difficult for those that lend to discuss their customers’ liabilities with other lenders in detail so a third party is the key to providing advice to the customer. I would suggest that any form of regulatory and state control over personal borrowing would be unpopular with the public and lenders and may damage the economy. The benefits of increased availability of credit to the overwhelming majority of consumers far outweigh the detriment to the small minority of consumers who get into financial difficulty.
Shirley Woolham is financial health business manager at CPP Group