This article was originally published on Moneytalk.ie
On Monday June 11th, The Irish Independent announced to the nation that a “Woman with €28,000 debt was offered a credit card”. A 28 year old woman (i.e. a consenting adult) applied for a credit card, and apparently was so shocked when she was approved that she called national radio station to tell them.
The Money Advice and Budgeting Service (MABS) were also shocked. They called for the setting up of “a sophisticated new register that would monitor all financial agreements”.
MABS would have us believe that by lending money to this woman, MBNA are being irresponsible. “Those institutions who carelessly lend to already overindebted consumers should be required to have the loans written off where carelessness lending is proven”.
This is where I take issue with MABS. Is this a case of careless lending, or careless borrowing? MABS seem to be suggesting that it is irresponsible for banks to allow their customers to be irresponsible. Who gets to decide what constitutes careless lending? If it’s the borrower who is being careless why would we want to hold anyone but them responsible?
There are many 28 year olds with €28,000 of debt who could easily deal with having access to a credit card. A 28K loan over 5 years should cost less than €600 a month. Assuming our consenting adult had a steady job with a half decent income €600 a month shouldn’t be too much to come up with.
We don’t know her salary, or how much if anything she pays for rent etc. It wasn’t mentioned in the article. MBNA knows however, they asked, and they were presumably happy with the answers they received. Nowhere in the story is there any suggestion that the woman lied, so we must assume that MBNA gave the go ahead for this card based on accurate information. If the concern is that MBNA didn’t ask for proof then we get to the knub of this issue, Dishonesty.
If our consenting adult lied about her financial situation then she is to blame for any trouble she gets into. It might be wise for MBNA to protect itself from bad debts by checking out the stories told by potential customers, but are they to blame if a customer lies and gets into trouble?
If there is dishonesty or trickery on the part of a bank in their dealings with a customer then they should be punished, but this isn’t a story about a dishonest bank. They didn’t mail out this credit card unsolicited, they didn’t hide any terms or conditions, they didn’t trick the applicant into something. They sold a product to a consenting adult, who apparently told the truth.
What MABS seems to want is a system which rewards irresponsible borrowers, a kind of debt amnesty for 28 years olds who go on holiday even though they’ve racked up a €1000 euro for each year they’ve spent on this earth.
The MABS attitude on this issue is dangerous on so many levels it’s almost difficult to know where to begin. Firstly it reinforces that belief that it’s the banks job to decide whether or not you should get credit. The bank is no better suited to that than a barber is to deciding whether or not you need a haircut.
Secondly it panders to the victim complex that is increasingly evident in society. It’s someone else’s fault that I owe all this money, it’s someone else’s fault that I paid more than I could afford for a house, it’s someone else’s fault that I didn’t care that interest rates could increase.
While there may be cases where a person ends up in debt due to the actions of another, in the vast majority of cases it is the fault of the debtor themselves. Certainly in the case of our consenting adult in the MBNA story, the fact that she was about to go on holiday despite owing €28,000, and the fact that she claims that a year from now she’ll be in so much debt that she won’t know what to do, suggest that she has no one to blame but herself.
The MABS approach creates a charter for irresponsible borrowers. Borrow as much as you want, the more the better in fact, if you can prove at some point in the future that the banks shouldn’t have lent you the money, you won’t have to repay it.
Finally the MABS approach forces us all to live and work within a system that has been dumbed down to the needs of the financially irresponsible. By definition the system will add additional layers of complexity, enforce additional burdens of proof on borrowers, and will in some cases result in credit being refused to people who may in fact be perfectly capable of handling it. No matter how “sophisticated” a vetting system is there will always be cases that fall between the cracks.
Customers of financial services must already put up with the hassle imposed by money laundering legislation. It’s a fact of life that law abiding citizens must at times be inconvenienced to protect us from the minority that breaks the law. When we start inconveniencing everyone to protect a minority from their own stupidity then we create a solution that is worse than the problem it seeks to solve.
Of course banks prefer customers who pay interest rather than earn it. The ideal customer for a bank is someone on a good salary who’ll be happy paying the minimum amount and staying in debt forever.
In the United States credit card companies use a range of tricks to ensure their customers get into debt and stay in debt. These tricks include holding cheques until after the due date so that late fees are incurred, and dramatically increasing the interest rates on cards for even one missed payment. In some cases the late fees and penalties can amount to 2 thirds of the debt owed by the borrower.
Perhaps we need some oversight to ensure that Ireland never ends up with that kind of abusive industry, but talking about irresponsibly lending is not the way to go about it. The thing we need to fear most are not careless lenders effective premeditated preying on the most vunerable customers.
Nothing in the National News Story of the 28 year old with a credit card suggets that she was tricked, or that her €28000 debt was caused primarily by excessive interest rates and penalties. Nothing that I’ve seen or hear leads me to believe that there is a widespread problem with predatory lending in Ireland.
We can’t ensure that things stay that way by telling consumers that it’s the banks responsibility to keep them out of trouble. We need consumers that are educated. We need people who know that it’s in the banks interest to keep them in debt.
MABS should focus on educating the 28 year old woman at the center of this story about how to stay out of debt. The money that would otherwise be wasted policing every financial agreement in the country should be put towards the creation of a comprehensive personal finance curriculum in our schools.