According to research carried out by the Citizens Advice Bureau, credit card companies and banks have increased the credit card limits of over six million people without their consent.
The CAB also say that it is those consumers who are struggling financially who are the ones more likely to have been given extra credit.
The CAB point out that this is fuelling concerns about household debt building up. It also said that lenders were actively pushing more borrowing without taking Into account whether or not those people could afford it.It has been calling for a ban on unsolicited credit limit increases to help prevent people from accruing debts they cannot pay back – something it says puts individuals as well as the wider economy at risk.
The Industry body UK Finance says that providers are committed to responsible lending.Citizens Advice say, 28% of credit card holders – equivalent to 8.4 million people – received a credit limit increase over the past year. Only 23% of those actually asked for the rise, with the remaining increases initiated by lenders.
The research also found that 32% of credit card holders who said they were not sure they could pay back their debts were nonetheless given a credit increase. against 23% of those who were confident having limits raised.On average, credit card holders were given rises of £1,481 without being asked – with one in ten receiving increases of £3,000 or more.The research was based on a ComRes survey of more than 1,300 credit card holders.
Citizens Advice gave the example of a woman who had asked for their help after her credit card debt reached £3,500 and which she was unable to pay back.
At first, she had a credit limit of £500 to help with unexpected bills – but the limit was extended when she reached it, and then extended multiple times thereafter.
The chief executive of the CAB said: “Few consumers support unsolicited increases and our research shows that they make people’s debt problems worse.
“The Chancellor must step in to prevent credit card companies weighing people down with unwanted debt – particularly when they are already struggling to keep their heads above water.” Richard Koch, head of cards at UK Finance, said: “The industry has come together to voluntarily agree new protocols to ask customers whether they would prefer to opt out or opt in for any credit limit increase offers. “Furthermore, the customers who the Financial Conduct Authority and Citizens Advice are most concerned about will be excluded from receiving any such offers.”
The Bank of England has voiced concerns over the scale of unsecured lending. One charity has called for card firms to stop raising limits without the permission of the cardholder as the most likely recipients to be targeted were more likely to be those struggling financially.
The CAB has said the one in five borrowers were struggling with long term debt and that lenders were carrying out poor affordability checks.
This report comes at a time when regulators are already worried that consumers and indeed banks alike may be overextending themselves. Officials are particularly keen to avoid any credit bubble bursting although the head of Nationwide has said he is not concerned over a credit bubble at the moment.Low interest rates have made unsecured borrowing more attractive to many and has been growing fast than household incomes at an annual rate this year of more than 10%. Last month, figure released shown that amount was above £200bn with a third of that on credit card balances. However, there has been a noticeable slowdown in lending since the Bank of England’s intervention – which also coincided with the Brexit-linked slowdown in the UK economy.
Statistics published by the Bank on Wednesday showed unsecured borrowing rising at its lowest annual rate since April last year, at 9.8% last month though total credit card balances continued to rise to almost £69bn.
Citizens Advice said it had helped nearly 66,000 people with over 140,000 credit card debt problems over the past year.
It cited several examples of bad practice including the experience of one man who owed £15,000 on four different credit cards.
The charity said that despite only making minimum repayments on each card which covered the interest, he was notified by all four providers that they were increasing his credit limit with his bill eventually hitting £30,000.
Citizens Advice chief executive, Gillian Guy, said: “The regulator must ensure that lenders are taking into account people’s whole financial and personal situation before agreeing further credit.
“Banning firms from raising existing customers’ credit limits without seeking their express permission first would also help people take more control over their finances.
“Lenders must act responsibly and direct people struggling with debt towards free and independent advice and support – rather than more credit.”