‘Pushed into debt’

Nearly a fifth people struggling with debts have had their credit card limit automatically increased, a figure higher than for regular cardholders, new research shows.

Citizens Advice found 18 per cent of people struggling financially had their credit card limit increased automatically, compared to 12 per cent overall.

The research comes after the Bank of England issued a warning to banks about how they are granting credit to consumers, amid worries that irresponsible lending could lead to another financial crash.

Consumer borrowing has risen to more than ÂŁ200bn for the first time since the 2008 financial crisis, with a third of the debt on credit cards.

The Financial Conduct Regulator estimates that around 3.3m people are in persistent debt.

Citizens Advice Chief Executive Gillian Guy, said automatically increasing credit card limits for those struggling with debt was making their situations worse.

‘Irresponsible’

Guy said, “Irresponsible offers of further credit are pushing people into long term debt cycles.

“The regulator must ensure that lenders are taking into account people’s whole financial and personal situation before agreeing further credit.

“Banning firms from raising existing customers’ credit limits without seeking their express permission first would also help people take more control over their finances.”

Recent bank figures show an increase in unsecured spending, which includes credit cards, with the number of transactions growing by 10 per cent in the year to June.

Cost of living crisis

Unite assistant general secretary Steve Turner pointed to stagnating wages and a cost of living crisis exacerbated by rising inflation as reasons for the increased reliance on credit.

“Many people have no other option but to add still more to a growing burden of personal debt by borrowing ever increasing amounts of money. But it doesn’t have to be this way,” Turner said.

“Alongside a commitment to major public investment, state support for full employment in decent, secure and rewarding work and an industrial strategy which rebuilds our manufacturing base and reboots an economy that’s stagnating, the government can attack the central cause of the problem that’s causing household debts to spiral out of control — the cost of housing.

“This entails bringing down housing costs by embarking on a mass council housebuilding programme and introducing rent controls alongside measures to ensure the regulation of private landlords, the provision of safe housing stock and long term tenant security.”

Turner added, “It also means introducing a true £10 an hour Living Wage across that board — a wage that doesn’t discriminate on the basis of your age — the provision of free university education and the creation of decent, secure, sustainable jobs in a diverse and growing economy.

“We must acknowledge that out-of-control debt is only a symptom of a much more profound illness. If we don’t treat the cause, we will never find the cure.”

To find out more about Unite’s Credit Union Service, which aims to provide members and their families with access to affordable finance and competitive savings products, click here.