£271 MILLION OF DANGEROUS DEBT - CONSUMER DEBT UP 40% IN FIVE YEARS

£271 MILLION OF DANGEROUS DEBT - CONSUMER DEBT UP 40% IN FIVE YEARS

MSP CALLS FOR CAP ON CONSUMER CREDIT RATES

As families feel the pinch of the recession over the holidays, SNP MSP
Dave Thompson has repeated his calls for a cap on interest rates to ensure
banks, as well as borrowers take responsibility for consumer debt.

Figures from Citizens Advice Bureau Scotland show consumer debt has risen
40% in the last five years, with CAB Scotland dealing with over £271
million of debt in 2009 and accountancy firm PKF warn thousands of Scots
will go bankrupt in the coming year.

Scotland has higher levels of consumer debt than the rest of the UK.

With more research backing calls for action on debts, Mr Thompson has
urged the UK Government to act as soon as possible and questioned the
Treasury’s excuses for not taking action to date.

Mr Thompson, who as well as being MSP for the Highlands and Islands, is a
Vice-President of the Trading Standards Institute said:

“In the aftermath of Christmas many people will be tightening their belts
and beginning to look back at what has been spent.

“Research shows 61% of Scots fund Christmas on credit. Over £271 million
of debt has been dealt with by Citizens Advice Scotland this year as
consumer debts increase by 40% over the last five years.

“The consumer credit situation in Scotland is unsustainable. Borrowers
and lenders both have a responsibility to control debt levels and an
interest rate cap is a key part of that package.

"The current lending situation in Scotland is completely out of control.
Just the other day I received an email advertisement offering an 'average'
interest rate for an easy access loan of 1734%, with high street banks
advertising rates sometimes thirty times higher than Bank of England rates
as well.

“Countries across the EU have interest rate cap but the UK Government
continues to refuse to take action.

“The UK Government discounted action on credit claiming too many people
would be cut off. However, a report by the New Economics Foundation shows
that more low paid Scots face restrictions on credit than those in
countries with responsible lending regimes like France and Germany. The
report shows that once a credit cap was in place in Germany more low paid
people had access to sensible regulated credit rather than relying on
dodgy deals.

“It is no good cracking down on illegal lenders if legal lenders can
charge rates of over 100%. The UK Government must review its decision and
take real action to ensure both banks and borrowers are responsible.”

Statistics from Scotland’s Citizen Advice Bureau (CAB) have revealed a
worrying rise in consumer debt issues over the last year as people are
forced to borrow to make ends meet as the recession bites:
-CAB has seen a 13% rise in consumer debt cases in the last year alone.
-CAB dealt with 70,000 cases of consumer debt in 2009 – a rise of 40% in
only 5 years.
-In all, CAB in Scotland dealt with £271,238,254 of debt. The average debt
owed is £15,036.
-Consumer debt represents 80% of all debt issues dealt with by CAB.

Research carried out over the last few years suggests that Scotland has a
particularly acute problem with consumer debt and that it worsens over the
festive period:

-A study by Debt Free Direct revealed that unsecured debt in Scotland is
-one third higher than the rest of the UK.
-A Picture Financial Report revealed that 61% of Scots have chosen to use
credit to pay for Christmas and 10% won’t pay it off till next Christmas.

CAPPING INTEREST RATES

To compound the problem of such a high level of consumer borrowing amongst
Scots, tens of thousands of people are paying sky high interest rates.

This is a particular problem for those on low or fixed incomes, who are
often excluded from mainstream lending and have little choice but to take
loans at extortionate interest rates.

In Glasgow alone 45,000 people are borrowing at rates of around 164%.
Vanquis Bank, who target those who earn up to £5000 a year offer credit
with interest rates between 41% and 69.1%.

In the UK, there is no law to guard against such high interest rates.
Countries across Europe, however, such as Germany and France, place a
legal limit on interest rates to protect consumers. The UK Government has
examined the possibility of imposing a limit on interest rates, but came
to the conclusion that interest rate caps would result in legal lenders
pulling out of the market and pushing borrowers into the hands of loan
sharks. However, recent research has cast doubt on the UK Government's
assertions:
-People on low incomes in the UK were three times more likely to be unable
to access credit from banks than their counterparts in France and Germany.
-Following the introduction of a cap in Germany, more people gained access
to credit – and at more reasonable rates.