Charles Kennedy Urges Banks To Assist Those In Financial Need

9.01.00am BST (GMT +0100) Mon 2nd Aug 2004

Today the Leader of the Liberal Democrats, Charles Kennedy MP, will call on lenders to give a proportion of their profits to support those experiencing financial hardship.

Charles Kennedy will say: "People who find themselves in debt need to be able to access independent financial advice as soon as they are in difficulty. It is essential that good independent financial advice is available easily and locally.

"Being able to access financial advice before things spiral out of control can help people avoid the many traps that may lead to further debt.

"Today I am asking banks and other lenders to contribute as little as 0.01% of their profits to increase the capacity of financial and debt counselling services.

"This is not a call for more Government regulation. It is a call for Chief Executives, shareholders and senior managers of those organisations to put a proportion of their profits back into the community to help those who might be affected by financial hardship."

With personal debt levels at £1 trillion - the equivalent of over £16,500 per man, woman and child - the Liberal Democrats are calling on banks to act responsibly towards their customers.

Liberal Democrat Shadow Chancellor, Dr Vince Cable MP said: "The debt bubble facing the British public is truly awesome. I doubt many of us can really picture £1 trillion. Even the interest we pay on that debt is beyond comprehension, running at £6 billion every month. The ratio of debt to income is at unprecedented heights, which is only sustainable if interest rates remain unusually low.

"It is clear that this borrowing boom has been fuelled by the ease at which we are now able to obtain loans, mortgages and credit cards.

"We have already been through major crises in personal finance with endowment mortgages and pensions both of which were driven by lenders receiving commission for sales. There is a real danger that another crisis is erupting. People are being advised to take out mortgages, credit cards and other debts unaware of the fact that bank employees may have aggressive sales targets to meet. This situation must be addressed.

"It is only right that financial institutions do the decent thing and give money to fund the provision of financial and debt advice to those who may be struggling to repay their debts*.

"Networks of advisory centres already exist throughout the country and it is essential that we increase their capacity so that they are able to deal with the growing numbers of debt enquiries."

Ends

*The Citizens Advice Bureaux have a number of case studies of people that have been caught in debt trap.

Case studies.

· A man earning less than £700 a month topped up with child tax credit was juggling his finances to try and keep his head above water for ten years before seeking help with his debts. He now has over 30 creditors and thought his debts totalled £40,000. When the Bureau analysed his borrowing it turned out he actually owed £195,000 in unsecured credit to a variety of mainstream lenders who have issued him with up to three credit cards each in some cases.

· In another case an elderly couple aged 70 and 64, both with disabilities, approached CAB for help with their debts. They have no savings and live in a housing association rented flat, with a household income of around £900 a month from pensions and disability benefits. Last Christmas the bank offered them an unsecured loan of £25,000 to clear the balances on their credit cards. The loan was sold over the phone, with no detailed look at their income and expenditure, and repayments of £500 a month over four years take up half their income. The CAB remarked that their indebtedness was greatly increased, and the bank appeared to have acted only in its own interests.