The financial sector has suffered meltdown as a consequence of reckless actions and poor regulation. The bailout of Northern Rock set a dangerous precedent, if governments continue to underwrite bad debts then banks will continue to misbehave. We need to better regulate the financial services industry to make it act responsibly.
Irresponsible borrowing goes hand in hand with irresponsible lending. Although a loan can often play a key role in helping families to become homeowners or to grow a business, certain sectors of the finance industry abused their unique position by allowing virtually unfettered access to credit. Banks do not always compete properly and many of their customers are confused by complex lending options. Household debt is fast becoming a major issue and stricter lending controls are inevitable. However, we must also help people who have over-borrowed to recover their situation.
The New Party would establish a debt remedial bureau to consolidate and professionally manage the debts of borrowers in trouble with loans and credit cards. The financial sector would operate the scheme by levying its members according to their share of defaults and all credit card providers and licensed money lenders would be required to subscribe to the bureau. Those on the scheme would be placed on a register to prevent them obtaining further credit until such time as their situation is stabilised but they would pay only normal rates of interest. We would also introduce a cap on lending rates to make fringe lenders subject to criminal law.
We would place stricter controls on lending especially on the under-25s and a deposit would normally be required. We would also make lenders responsible for establishing a client’s total indebtedness in determining whether a loan should be granted. Lenders who do not practise responsible lending would become liable for at least part of the debt in the event of a default.
The business sector has also suffered from banks withdrawing credit facilities with little notice. Banks would therefore be required to carry out a statutory process of consultation, before withdrawing borrowing facilities or calling in securities.