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No income checks on 70% of loans

In seven out of ten cases banks are not checking whether borrowers can afford the loans they are being offered, a study reveals today.

This is equivalent to 1.9 million loans totalling £11.9 billion issued without affordability checks.

The new research by uSwitch.com also finds 83 per cent of the time banks are also not checking proof of monthly outgoings, and a third of the time successful loan applicants were not asked to list all other forms of existing credit.

In what uSwitch.com is calling "binge-lending", the study reveals 12 per cent of borrowers took out a loan for more than half of their annual income, with seven applicants granted loans in excess of 125 per cent of their salary – all of whom earned less than £25,000 per year.

Nick White, uSwitch.com director of financial services, commented: "With one person in the UK falling victim to insolvency every minute of the working day you might think that the lenders would have learnt their lesson after record write-offs on bad debts, but the profits to be made are obviously too good to resist.

"If this situation doesn’t improve in the near future, serious questions need to be raised over the effectiveness and suitability of self-regulation and the government may need to intervene to impose more effective guidelines on the existing income and affordability procedures exercised by the banks on the sale of unsecured lending products."

He added: "With such apathy shown by the banks towards checking income and affordability, some people have realised that they can get away with lying about their income on loan applications, with a few adding up to 30 per cent to their actual salary.

"We are particularly concerned that those applicants least likely to be truthful about their incomes are all from the most vulnerable groups, namely those on incomes less than £10,000 per year, and the unemployed."

In September total UK personal debt exceeded £1.25 trillion for the first time, with UK consumers accounting for a third of all unsecured debt in western Europe.

In response to the findings HSBC said it required all personal loan customers to hold a current account with the bank into which their salary or at least £500 is paid.

"This enables us to see, first hand, the customer’s regular income and outgoings and review the track record of their account before any new lending is granted," the bank said.

HSBC also said it had recently developed a 'Personal Budget Planner', which guides customers through the loan application process and confirms their incomings and outgoings.XXX