Time to close the stable door?

Calls for a ban on the sale of store cards at point of sale by unqualified staff

The leading insolvency trade association, R3, has called for a ban on the promotion of store cards at the point of sale by staff who do not have financial qualifications. In other words, no more getting to the checkout only to have a store card application thrusted at you, with the promise of some sort of introductory discount. R3 has warned that this practice "contributes to the mountain of personal debt in the UK and entices vulnerable customers into debt."

A survey carried out by R3 showed that over 70% of insolvency practitioners thought that it is too easy to obtain credit and store cards and two-thirds had seen cases where shoppers had been encouraged to sign up for store cards without understanding what they were agreeing to. The association has published case studies including several where debts of over £100,000 had been accrued on cards and cases where over 30 different credit and store cards had been amassed.

The wide availability of credit with little or no checking of whether the debt is affordable for the customer has surely contributed to the huge levels of debt - and high levels of over-indebtedness - in the UK. Lenders seem to have taken the view that they are prepared to offer credit with little or no evidence of whether the debt can be repaid, in order to reduce the "cost of acquisition" of new customers. Normally, the only time that a lender is interested in affordability of a debt is when the customer has begun to struggle with the repayments, which is counter-intuitive. Instead of checking affordabilty at the start (which can be time consuming and expensive) lenders prefer to build a provision into their margins to cover any losses. The problem for lenders in recent years has been that bad debt levels have spiralled and banks have been unable to accurately forecast future bad debts.

So tightening up the rules on the selling of store cards with discount promotions at the tills seems like a good idea - if only to protect lenders from their own practices.