Is this irresponsible lending?

[misstifried]

Hi,

I am supporting my close friend in dealing with her finances. She is just getting back on her feet after an awful couple of years - physical/mental health issues and bereavement. She ( in her words) totally lost the plot for a while and one of te things that she got into a mess with was her finances - lots of debts, missed payments etc. thankfully she remains employed and her mortgage is up to date!

I have discovered that last year she was accepted for a 10K credit card from a high street bank. At this point she was severely in debt with other lenders, overdrawn, missing payments and had taken out several payday loans. No other credit card company would offer her anything and yet this bank gave her 10k. This was maxed out.

She is now in a much better place and is keen to tackle the debts. We are talking to stepchange to see if a debt management plan is a good option. I feel that the 10K credit card should not have been given to her - surely her credit report would have flagged her as a risk?

Would this be grounds for an irresponsible lending complaint? It would be good if they could at least support with the interest

It’s a credit score thing, so if her credit score passed then it’s okay essentially. It may well be that although she was at that point struggling with payments those things weren’t yet reflected on her credit file and so she passed.

A high street bank would be the least likely to accept if her credit score was bad, so to have passed their checks it can’t have been that bad.

If you contact them they may agree to freeze interest but that would be all really.

It just seems odd as at that point she was in a real mess and was told that she had a 0% chance of a card according to the eligibility checking sites etc. Seems odd that she would have been offered 10k

Did she give honest information when applying for the card?

It's the banks perogative to make money. Think of all the interest they could earn on a person that overspends. It's why the credit card lenders have given me over 50k worth of credit in the hopes that I mess up my 0% stoozed debt or don't pay my interest bearing card in full. It's a gamble they play to earn that interest.

I think a case could be made for almost any credit card being offered as ‘irresponsible lending’ However I agree this example seems particularly wrong.

i was in a similar sounding position to your friend just after leaving uni at 21. My dad was abusive to my mother and I, in many ways, but including financially and took all my student loan, and then the bastard died. I was really quite screwed up and made terrible terrible choices, pay day loans one after the other. It took about 10 years to get out of it. I have a good credit rating now and I have no debts, but I still have junk through the post from my own bank offering credit cards, and personal loans, and I realise how explosively dangerous they are if you are vulnerable and having a hard time.

On the face of it, it looks like offering such a high credit limit was irresponsible. But a colleague got themselves in a ridiculous debt position a few years ago by being very careful with what they told the bank, and managing the debt and missed payments to have minimal impact on their credit score.

You can be significantly in debt, have a history of missed payments, but by managing who that debt is with and which payments you make and which you miss, you can still hit the minimum credit score for further credit. Don't underestimate the ability to someone addicted to debt to game the system.

I assume so - Surely the bank would have carried out checks?

It does seem to be a credit score thing, and it's ridiculous ... My credit score was pretty high earlier in the year, and I was offered a £20,000 loan (by my bank) in the summer. I work two days a week and I'm on £13,500 a year, yet they offered me this massive loan. Absolute joke.

My credit score has recently dropped dramatically after I cancelled two particular retail/store cards. It dropped from 903 on Clearscore to 603. It's absolutely ridiculous. I chose to cancel these cards because I wasn't using them. It's not like they cancelled them because I was in massive debt on them or something. I simply hadn't used them for a year or so. So I cancelled them.

I cancelled them! And yet my credit score dropped by a third! I don't care though, because I've got absolutely no intention of taking out any debt - and I don't need a mortgage.(And I've got a sum in the low to mid five figures in savings ... so if I need/want anything 'big,' I can dip into them!)

The stupid bank has offered me £10,000 limit credit card too, and I think 'why do I want that when I have got nearly £40,000 in savings?' No wonder people get into trouble, when they throw potential debt at people ... The banks have got a lot to answer for.

And why, WHY are they throwing a pre-approved £20,000 loan at me, when I have twice that amount in savings?

It's all so fucked up!

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Bank will do credit checks but they can also ask for info of things like income, outgoings, budget which relies on her honesty

I am not with her now to ask, but I certain that she would not have lied about her income and outgoings. Don't the bank check this? what if someone made mistake?

No they don't check. It's not like a mortgage where you need payslips. You just tell them your occupation and annual salary and if you lose your job the next day you're still responsible for the debt you took out and the money you spent that actually belonged to someone else (the bank). You're clearly very well-intentioned but this isn't on the bank. Your friend needs to take responsibility or she'll never stay debt free once she gets out of it (I say this as someone who worked hard to clear a massive credit card debt).

It would be quite difficult to make a mistake and not pick up on it...you'll be asked to check your answers, the information will be presented back to you etc. There's usually questions about expected changes to income too.

I actually think a complaint might be worth a punt based on what you've said. There's no such thing as a single credit score, banks use data available to them through the credit bureaus to make their lending decisions, and on the face of it, her creditworthiness is appalling. Payday loans and multiple missed payments would be an auto decline at my old bank.

The stupid bank has offered me £10,000 limit credit card too, and I think 'why do I want that when I have got nearly £40,000 in savings?

It's all so fucked up!

It isn’t fucked up, many people with large amounts of savings use credit cards for their perks and for consumer protection, especially when buying expensive items or booking an expensive holiday.

We’ve paid for 10K+ long haul holidays on credit cards on a number of occasions. We have much more than 40k in savings, but if we pay on a debit card there isn’t the same amount of protection as there is when paying on a credit card.

Used sensibly, credit cards are fine, it’s when people see them as free money, without being able to pay the money back, that is the problem.

The stupid bank has offered me £10,000 limit credit card too, and I think 'why do I want that when I have got nearly £40,000 in savings?' No wonder people get into trouble, when they throw potential debt at people ... The banks have got a lot to answer for.

Why is that stupid? - people with savings often like to keep their cash in their savings and use credit cards to manage large purchases against income without disturbing fixed term savings accounts. You're next to zero risk for the bank, they get their commission from any purchases, you get interest-free credit.

You're their almost-perfect customer.

The stupid bank has offered me £10,000 limit credit card too, and I think 'why do I want that when I have got nearly £40,000 in savings?' No wonder people get into trouble, when they throw potential debt at people ... The banks have got a lot to answer for.

I have a £10k credit card, it’s all I use every month, I pay the balance of before I am charged any interest, at the end of every year they give me £££’s in cash back on my spending. I have plenty of money in savings and my account but it makes more financial sense to pay for everything on my Amex. Credit cards can actually work in your favour, I got nearly £800 this year, it paid for a nice weekend away.

Despite being a widowed pensioner, I have a huge credit line. I don’t use it though - I pay anything I owe once a month, to avoid interest.

Bereavement, even spousal bereavement, doesn’t make you particularly vulnerable. 🤷‍♀️