High Street Banks Tackle Overindebtedness

Leading high street banks are joining forces with credit reference agency Callcredit to launch a responsible lending initiative which looks at consumer indebtedness.

HBOS, HSBC, Lloyds TSB and RBS are involved in the initiative which is designed to improve lenders' understanding of their customers' indebtedness and ability to repay.

These lenders will share application income and new current account data with Callcredit. This will enable a unique method of assessing affordability by measuring a consumer's ability to meet their credit commitments. Callcredit will use this in conjunction with its existing shared credit data to produce an indebtedness report for each of the participant's customers. This initiative complies with the current industry data sharing standards and regulation.

It is being facilitated by Callcredit, who are providing participants with three key indebtedness reports, based on their customers' debt to affordability position.

  • Details of customers who are severely overindebted and need proactive debt advice
  • Details of those customers whose financial positions warrant close monitoring
  • Daily alerts of customers whose changing levels of indebtedness may be a cause for concern.

In addition, the participants can now obtain an affordability check for any customer to whom they are considering granting credit. This check will complement the information provided by the customer and existing credit checks already carried out by the lender.

Following almost two years of planning, trials and analysis, the lenders have now moved their focus to the implementation of the live pilot.

The initiative provides benefits to customers, lenders, and shareholders and the intention is for it to become an industry-wide initiative.

Callcredit managing director John McAndrew said:

"The government wants more customer protection for borrowers and the lenders want to provide a better service to their customers. We are delighted to have been able to help the industry achieve this. It is true that only a small percentage of customers are overindebted and our initiative provides additional opportunities to offer these customers appropriate advice and support."

Customer Benefits
  • Provides an early warning system and support for customers approaching the limits of their affordability
  • Reduces inappropriate high borrowing to earnings ratios
  • For those customers who are not overindebted, this additional check will improve the approval process
Lender Benefits
  • Allows early identification of customers who are reaching the limits of their affordability
  • Supports the GovernmentÙs 'Know Your Customer' and 'Treating Customers Fairly' requirements
  • Provides additional information to support responsible lending
  • Allows lenders to truly review and consider affordability in their decisions without compromising their competitive positions
Shareholder Benefits
  • This additional check allows more proactive management of debt provisions
  • Contributes towards corporate social responsibility