It was recently reported that the people of the United Kingdom are well over £1 trillion in personal debt. This makes the UK one of the most indebted populations in the world. Until the recent banking collapse this unimaginable level of debt produced many billions of pounds of profits for the banks who lend money to the UK market. Run properly banking is a hugely profitable industry. As the levels of indebtedness increase so do banking profits - in the case of properly managed banks

Disregard for People

Unfortunately, these huge profits made by the banks are not matched with any high regard for borrowers, savers or their shareholders. In fact, often the opposite applies. The disregard for people shown by the banks has now manifested itself in the near collapse of the world banking system. Purveyors of credit do not care greatly for individual people and their families who suffer and struggle because of their cynical manipulation of money and mathematical models in search of profit. In a recent credit magazine article it was argued that banks lend to population groups or statistical segments of the population and not to actual individuals. The fact that this sort of debate is taking place within the credit industry is indicative of their cynical attitude towards the real people who actually make up these lending populations.

What the designers of these models do not factor in is the relationship between access to credit and the social impact it creates such as struggling families, hardship, bankruptcy and suicide. It is not because they cannot, it is because in doing so they would have to refuse credit to more people and face a reduction in their profit. In addition, this would require an acceptance at a fundamental level that people are not statistical variables to be be segmented and profited from. In the real world banks only tighten up their lending criteria when they stop making profit and never for any altruistic reasons. When questioned on this, the line lenders take is that people who fall into debt are factored into the models. The appalling truth implied is that these people are the accepted casualties of the system. The utter contempt in which the people who inhabit these monolithic institutions view borrowers was shown in person by a chief executive of Barclays Bank. He was televised publicly stating before a Parliamentary Committee that his bank was a purely profit driven business. He also said that some of his bank’s products were a rip off which he would not let his own daughter anywhere near. The attitude shown by this man publicly was astonishing. He spoke volumes for the financial institutions. His way of thinking as the head of that particular profiteering centre was unusual in that his complete disdain for the people affected by his bank’s products and behaviour was shown publicly. The reality is that most banking organisations are totally and utterly indifferent to anything other their profit margins.

No Help from the Government

Our government which should be there to protect the citizens of the United Kingdom from money lenders, does very little to help anyone affected by this money driven culture. In fact, government used to boast of the prowess of the UK banking system on the world stage as the global banks bulldozed their way through world populations in search of their profits. Government attempts to force the banks to give banking facilities to struggling citizens are only feeble whimperings that go largely unheard.

Insolvency Service

The government’s Insolvency Service who are responsible for administering and overseeing bankruptcies adds to this problem and creates many new hardships by operating on outdated 18th and 19th Century attitudes. The law on bankruptcy has recently been amended in 2004 to give the appearance of it being more liberal towards debtors. This area of the law has only been marginally ameliorated. Indeed, there is nothing in the changes that makes bankruptcy very much easier an option than it was before. The introduction of extended bankruptcy restriction orders and bankruptcy restriction undertakings has made bankruptcy a much harsher option for some ordinary people. The Insolvency Service, as always, targets the wrong people for the wrong reasons and very rarely catches any legitimate fraudsters or criminals.

Bankruptcy

Bankruptcy is really a system designed to bully people into paying taxes. It is usually only governmental institutions such as the Inland Revenue or Customs and Excise and local councils that use this regime to punish people for not having the money to pay their taxes. Many people are often needlessly bankrupted by these governmental organisations for piffling amounts and for no other reason than to inflict some kind of retribution. In many of these bankruptcies much, if not all, of the money raised from the debtor goes to pay the high fees of the lawyers and insolvency practitioners involved, who are paid first and foremost. Very little, if anything, reaches the the creditors. Bankruptcy is too often used by these institutions as a purely punitive measure.

Creditor Penalties

Credit providers use their own methods to penalise people for being unable to pay back money borrowed. The main way that this is done is through the use of information. They either keep their own files or use information shared with and collected by credit reference agencies such as Experian and Equifax. These credit reference agencies are as much a part of the financial system as are the banks themselves. They are there to make profit for themselves by serving the banks and other credit providers with information about potential borrowers. Credit and financially orientated products such as loans or bank accounts are needed in many aspects of our modern lives. This is so much the case that everyday life becomes very difficult indeed once these are withdrawn. When they are withdrawn they are usually withdrawn across the board and by all providers due to the nature and ease in which information is shared. This can be catastrophic for those people who are picked out in this way where the instant access to credit, so much a part of modern life, is suddenly denied to them.

Easy to Run Up Debt

It still is very easy in today’s society for anyone to run up substantial debts. Although ‘substantial debt’ in this context is a relative term and not an actual amount, some people get very frightened by the amounts that they run up. The problem is that an increasing number of people run up debts that they cannot deal with either practically, morally or emotionally. Whether they have run up £10,000 or £100,000 of debts the fear and worry can cause enough stress to lead to family break up, the loss of family homes, divorce and bankruptcy. Unfortunately some people tend to feel isolated when dealing with debt. Very often their own internal fears and stresses make them ill and can even be a contributing factor in a suicide. This fear comes from an exaggerated assessment of the imagined legal powers available to lenders to recover debt.

Financial Naivety

Many people operate in a financially naïve way. They often set themselves up so that they are at the mercy of the financial system. Married couples, partners or friends buy homes in joint names. They all have their names on the mortgage and often they will open up joint lines of credit and therefore put everything on the line should things go wrong. The same is true in many business set ups. To further compound this problem very little is taught in schools or anywhere else about managing money properly. Even less time is spent on managing debt and dealing with the consequences of debt. When information and advice are sought by debtors the often conflicting information available causes further problems which serve only to fuel imagined fears and create practical problems. Sometimes advice is severely biased towards a solution that provides the most monetary benefit for the adviser.

Debt Management Companies

When people run out of money they are often ill equipped to deal with the consequences of debt. Often they turn for help to debt management companies in the belief that they are obtaining unbiased help and advice. Debtors who do this are regularly viewed with contempt, told outright lies and frightened or guided into making decisions that are based on how much money the adviser can make out of them, rather than what is the best route for the debtor. Debt management companies take a substantial percentage of any money provided by a debtor to pay off their debts. Often the entire first payment made to a debt management company is simply pocketed by the company and no payment is made to the debtor’s creditors. This is done because first and foremost they seek profit. They profit from people who are already struggling for money. Other management companies push people into expensive and unsuitable individual voluntary arrangements (IVAs).

These IVA ‘factories’ are often call centre based and have been set up to profit from those in debt. The companies assess a caller’s financial circumstances through a series of computerised questions. If they think there is some money to be had they will try to sell them an IVA. If there is little money available they will simply turn them away or suggest they go bankrupt. The advice they give is based neither on educated reasoning nor an understanding of the debtor’s situation but on whether the debtor is able or willing to sign up for one of their expensive financial agreements. These agreements have the company’s fees built in to them. Fees can amount to several thousand pounds and they are usually taken from the first payments made into these arrangements. Therefore people who have signed up for an IVA with one of these companies often make their entire first year of payments simply to pay for these exorbitant fees. There are additional fees charged to these arrangements by insolvency practitioners who act as the legal supervisors of voluntary arrangements. Only after the fees have been taken will any money go to creditors. Many people suffer and struggle to pay into these arrangements when often their best option would have been to enter into bankruptcy.

Consolidation Loans

Cynically some lenders will offer consolidation loans for higher amounts and at a higher rate of interest than the existing debts. Because they are longer term loans the marginally lower monthly payments seem attractive to a debtor. They are in fact simply another financial product ripping people off. Whilst they claim to offer a debt solution for people they often create more difficulties in the long term. Many of these loans are also secured on peoples’ homes. In the event of further difficulties in repayment these people could then lose their homes.

Money and Morality

Money and the morality of most ordinary people do not mix well. Ordinary moral attitudes cannot sensibly be applied to a financial products or large financial institutions geared solely and simply to making unimaginably large profits. The two simply do not mix. These moral attitudes, such as a perceived obligation to pay back money borrowed at any cost, are inappropriate in some cases and cause many people to suffer unnecessary hardship in their efforts to bolster the profits of lenders.

Debt Collection

The fact that some individuals are unable to pay back their debt is irrelevant to lenders whose credit models have predicted their profits. Debt collection is a multi million pound industry that provides jobs for that special breed of people who make a living from harassing people over personal debts. The reason that the credit providers have debt collection departments is simply to provide some form of retribution on individuals and to instil into credit lending populations the fear that there is some kind of significant remedy available to credit providers.

Is Credit Scoring Fair?

The banks believe that credit scoring is fair and impartial. If they are referring to legislation governing gender and ethnicity then, legally speaking, this may the case. In many respects however, certain groups of people are more heavily penalised than others because that is what this kind of statistical analysis is all about. For example, a person who enters into bankruptcy is penalised for several years. Bankrupt people are often unable to get basic banking facilities. Therefore these people are either not given bank accounts or find it extremely difficult to obtain accounts because there is no profit to be made from them. There is nothing in any of the statistical models lenders use that allows for responsible lending. The entire system is designed to enable the banks to make profit. They are indifferent to the plight of anyone effected by their constant striving for this profit although they may try to profess otherwise. If any of these institutions lost money or did not make a profit then they would withdraw from the market and leave everyone hanging, regardless of the consequences - as they have proved during the 2008 banking crisis. The entire financial system is simply and ruthlessly designed to predict and protect profits and bonuses for the few. It has nothing to do with the concerns of any particular individual, business, population or country and in these respects it is cruelly unfair to many debtors.