Credit card fraud – by bankers
On 30th August 2006 I commented on what I expected to be a particular feature of the coming house price crash:
‘In the past, bankers were happy not to interfere, whatever the asset cover for the loan, as long as you could service the debt, so cash flows dominate capital values. Could this be about to alter? Over-extended credit-card borrowings, the hallmark of this cycle, may spill over into foreclosure as profits are maximized when a bank can collect usurious credit card interest, which has effectively been ‘capitalized’, from the net equity in a property. This possibly explains the superficially irrational behaviour of banks who are both mortgage and credit-card lenders, deliberately to draw customers into unsustainable debt (perhaps you caught the recent Panorama programme too).’
In the Sunday Times today I read that banks are ‘exploiting obscure legal powers to seize the homes of thousands of people who cannot pay their credit card bills’. In fact, there is nothing new under the Consumer Credit Act about ‘charging orders’. What was new was the active encouragement by banks of crippling levels of debt and interest that looked a certain route to bad debts, that is unless the banks intended to use charging orders to recover the debt, when it finally got too much, from the value of the borrower’s home.