31 July 2006
The level of debt incurred by consumers that they are unable to repay is on the increase in the UK.
Banks have had to set growing sums of money aside to cover this so-called bad debt. Northern Rock reported that bad debt charges had nearly doubled to £44.5 million for the first half of the year.
Abbey have also announced a 30% jump in retail bad debt provisions.
Despite the increasing problem of bad debt, the banking sector maintains that this is not a result of irresponsible lending by banks.
"Banks are responsible lenders and are committed under the Banking Code to assessing a customer's ability to repay any borrowing before the money is lent," said Brian Capon, a spokesperson for the British Bankers' Association.
"Neither the lender nor the borrower benefits where money is lent that cannot be repaid.
"Financial difficulty is usually caused through a sudden, unexpected event that results in a loss of income. This could be for instance a serious illness or the loss of a job," he added.
He also stated that banks could be understanding in terms of debt incurred as long as customers kept in close communication.
"Interest and other charges can be considerably reduced by ensuring that if you do go overdrawn, you arrange it with your bank first," Mr Capon added.
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