Bank Profits Are At The Expense Of Consumer Debt - Cable

12.00.00am GMT Thu 19th Feb 2004

Liberal Democrat Shadow Chancellor Dr Vincent Cable commenting on excessive profits made by banks, said: "It is hardly surprising that banks are making huge profits, when consumer debt is approaching a record £1,000,000,000,000 (one trillion Pounds Sterling)."

"The banks may well boast about their billion-pound profit margins, but they are making money at the expense of others who are getting deeper and deeper in debt."

"This trend comes three years after the Government-commissioned Cruickshank report argued that banks were already earning what it described as "excessive profits"."

"The government has still failed to implement any regulations to curb the huge profits of the banking industry."

"Helped by elements of monopoly in the banking system such as the operation of the bank clearing system, and the lack of transparency in charging, banks have been able to make huge profits."

"While Gordon Brown has taken some action on small business loans, he has done nothing at all on the overall code of banking, affecting millions of retail consumers."

"The Government said it was going to regulate the banking system through a payments regulator, Paycom, but nothing has been done. As a result savers are suffering from lower returns on their savings than they should, and borrowers are paying higher repayment interest rates on loans than they should."

"I am very concerned about aggressive lending and the lack of interventions from the Bank of England or the Financial Services Authority. Loan to value ratios and income multipliers for mortgage borrowers are being pushed to reckless levels and the banks casual approach to offers of unsecured credit - especially on credit cards - is alarming. A debt bubble is forming which could well burst with painful consequences for those with large mortgages and unsecured loans."

"Even if we, as consumers, are unable to recognise that we are borrowing too much, it is simply not in anyone's interests to return to a boom and bust economy. Sometimes, people have to be saved from themselves. Gordon Brown, as Chancellor, has a duty of care towards the British people. He needs to act, and act quickly."

ENDS

Notes to editor

The Liberal Democrats have already put forward a ten-point plan to try and control irresponsible lending:

1. The publication and monitoring by the government along with the Bank of England and the Financial Services Authority of measures of sustainable household debt, along the lines of the government's own fiscal rules.

2. Guidance to banks on safe to loan value ratios and income multiples for mortgage borrowers based on independent assessments of asset values by a group operating in a similar manner to the Bank's Monetary Policy Committee.

3. Active use of reserve deposits to reduce destabilizing boom and bust in mortgage lending.

4. Curbs on the tidal wave of unsolicited credit promotion by demanding a prominently displayed 'Credit health warning'.

5. A crack down on exploitative loan sharking, with promised legislation on consumer credit to tighten up on the issuing and monitoring of credit licenses, coupled with harsher penalties for those guilty of bad practice.

6. Stopping early, often hidden, redemption penalties, so as to discourage the early clearance of debt.

7. Stronger enforcement of OFT rules to prevent abuses associated with misleading advertising by debt management and advice services.

8. Excessive interest rates on store and credit cards to be far more vigorously policed by the competition and trading authorities.

9. An extensive network of centres for independent, low cost, financial advice supported by credit providers and the investment industry.

10. Widening the remit of the social fund to permit emergency short term lending in a reaching fund for low income families in financial crises.